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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, 2000
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
incorporation or organization) Identification No.)
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
Common Share Purchase Rights
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 12, 2001 based upon the last sale price of the Common
Stock of $8.00 per share, as reported on the Nasdaq National Market, was
approximately $112,891,064. 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 12, 2001 was
18,582,750.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document are incorporated by reference into Part
III of this Form 10-K: the Proxy Statement for the Registrant's 2001 Annual
Meeting of Stockholders scheduled to be held on June 26, 2001. A copy of the
proxy statement may be obtained, when available, upon written request to the
Corporate Secretary, Miravant Medical Technologies, 336 Bollay Drive, Santa
Barbara, CA 93117.
MIRAVANT MEDICAL TECHNOLOGIES
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
TABLE OF CONTENTS
PART I
Item 1. Business ...........................................................................................4
Item 2. Properties .........................................................................................20
Item 3. Legal Proceedings...................................................................................21
Item 4. Submission of Matters to a Vote of Security-Holders.................................................21
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...............................22
Item 6. Selected Consolidated Financial Data................................................................23
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...............24
Item 7A. Qualitative and Quantitative Disclosures About Market Risk..........................................46
Item 8. Financial Statements and Supplementary Data.........................................................46
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure................66
PART III
Item 10. Directors and Executive Officers of the Registrant .................................................67
Item 11. Executive Compensation..............................................................................67
Item 12. Security Ownership of Certain Beneficial Owners and Management......................................67
Item 13. Certain Relationships and Related Transactions......................................................67
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.....................................68
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
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," "believes" 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. See
"--Risk Factors", included in Item 7, for a discussion of certain risks,
including those relating to our operating losses, our early stage of development
and our products, strategic collaborations, risks related to our industry and
forward-looking statements.
ITEM 1. BUSINESS
General
Miravant Medical Technologies is developing light activated drugs and
associated devices for a medical procedure called photodynamic therapy. We have
branded our proprietary version of photodynamic therapy as PhotoPoint(TM).
PhotoPoint therapy integrates our drugs with our light producing components and
light delivery devices to achieve a photochemical effect on targeted diseased
cells and blood vessels. We believe that PhotoPoint therapy is a platform
technology that has the potential to be a safe and effective treatment for a
broad range of diseases including those in ophthalmology, oncology, cardiology
and dermatology. We are currently conducting a variety of preclinical studies in
each of these areas and are supporting human clinical trials in ophthalmology
with our lead drug candidate, SnET2, or tin ethyl etiopurpurin.
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.
Our photoselective drugs have the capability to transform light energy into
chemical energy. This action is similar to that of chlorophyll in green plants.
When administered to the body, our drugs tend to preferentially accumulate
in fast growing, or hyperproliferating cells. Specific diseases, such as cancer
and psoriasis, are characterized by general cellular hyperproliferation while
other diseases may also have certain hyperproliferative components. For example,
certain ophthalmic diseases are caused by a proliferation of new blood vessels
in the back of the eye and certain cardiovascular diseases are caused by a
proliferation of scar tissue within the coronary arteries.
Photoselective drugs are inactive until exposed to a dose of light of a
specific wavelength. The dose of light represents the number of photons
delivered over time and the wavelength corresponds to the color of the light.
Since different drugs will respond to various doses and wavelengths of light, we
have designed our drugs to respond to the particular wavelength of light that
will best penetrate the biological environment of targeted diseased cells. When
the drug and light interact within a cell, a type of reactive oxygen is produced
that can lead to cell death. The extent of cell death may be controlled by
varying the doses of drug and light and the relative timing of their
administration. The result is a process that can potentially destroy problem
cells and blood vessels with minimal damage to surrounding normal tissues and
vessels.
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.
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 and
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 strategy is to apply PhotoPoint therapy as a primary treatment where
appropriate or in combination with other therapies such as surgery, radiation,
chemotherapy or drug therapy to achieve superior clinical results. Although the
potential applications for PhotoPoint therapy are numerous, our primary focus at
this time is to develop PhotoPoint therapy for clinical use in the disease areas
where there are large potential market opportunities and/or unmet medical needs.
We believe that the commercial success will depend upon safety and efficacy
outcomes, regulatory approvals, competition, third-party reimbursements and
other factors such as the manufacturing, marketing and distribution of our
products. At this time, we intend to develop our business as a research and
development company with limited manufacturing and marketing capabilities. For
large scale manufacturing, marketing and distribution activities, we plan to
have or seek strategic collaborations with pharmaceutical and medical device
partners who already have significant and established capabilities in the
therapeutic areas.
Technology and Products
We are developing synthetic photoselective drugs together with
software-controlled, portable light producing devices and fiber optic light
delivery and measurement devices for the application of PhotoPoint therapy 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 therapy systems, which offer
the potential for predictable and consistent results.
Drug Technology. We hold exclusive license rights under certain United
States and foreign patents to several classes of synthetic, photoselective
compounds, subject to certain governmental rights, as described under the
heading Patents and Proprietary Technology. 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 Corporation 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:
* Predictable. The synthetic nature of our photoselective compounds
permits us to design drugs with molecular structures and
characteristics that may facilitate consistency in clinical treatment
settings, as well as predictability in manufacturing and quality
control.
* Side effects. Treatments with our drug SnET2 to date have been
generally well-tolerated, with the primary side effect being a mild,
transient skin photosensitivity in some patients.
* Versatile. We can synthesize drugs with specific characteristics, such
as activation by a particular wavelength of light. This versatility
provides us with the potential to design our drugs for particular
disease conditions and to take advantage of semiconductor light
technology.
Light Producing Devices. We have synthesized our drugs to be activated by
light produced by reliable and relatively inexpensive light sources. Our light
technologies include software-controlled microchip diodes, light emitting diode,
or LED, arrays and non-thermal lasers and lamps. We are collaborating with
Iridex Corporation, or Iridex, on the development of light producing devices for
PhotoPoint therapy in ophthalmology and have co-developed a portable,
solid-state diode light device, which is currently being used in clinical trials
in ophthalmology.
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 about the size of a desktop
computer, are smaller and more portable than traditional laser systems. We
believe that our diode systems may 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 therapy.
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. Some of 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. Some of our light delivery devices
have been used in our clinical trials. We have also developed light measurement
devices for PhotoPoint therapy including devices that detect wavelength and
fluorescence to facilitate the measurement of light or drug dose.
Targeted Diseases and Clinical Trials
We believe that our PhotoPoint therapy 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 primary
collaborative effort with our corporate partner Pharmacia Corporation. Our
decision to proceed to clinical trials in any application depends upon such
factors as the results of preclinical studies, governmental regulatory
communications, competitive factors, corporate partner commitment and resources,
economic considerations and our overall business strategy.
Ophthalmology
We believe that our PhotoPoint therapy 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 in the eye 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 supporting human
clinical trials for the treatment of choroidal neovascularization associated
with AMD. We targeted this area because it was an unmet medical need with a
large potential market size, and has the potential for expedited review by
governmental regulatory bodies. We are collaborating with Pharmacia Corporation
on the co-development of SnET2 in 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 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 data can be submitted 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 and the clinical trial enrollment was subsequently closed in
December 1999. Under our License Agreement with Pharmacia Corporation, they are
responsible for the Phase III AMD clinical trials, as well as determining when
and if to file for marketing approval with the FDA. In January 2001, we
announced that Pharmacia Corporation performed an interim analysis of the
12-month patient data, and has elected to continue the clinical trials to their
24-month conclusion in December 2001. Subsequently, a full analysis of safety
and efficacy data will be performed and a determination of the status of the
SnET2 AMD program will be made. 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 therapy for the treatment of
cardiovascular disease, including restenosis. Restenosis is the re-narrowing of
arteries following balloon angioplasty due to cellular overgrowth which can lead
to recurrence of severe symptoms and heart failure. A common procedure for
widening a blocked coronary artery is balloon angioplasty followed by the
placement of a stent. Preclinical studies with PhotoPoint therapy indicate that
certain photoselective drugs may be preferentially retained in
hyperproliferating cells in arterial walls and lipid-rich components of arterial
plaques. Data from these preclinical studies suggest that PhotoPoint therapy may
aid in the prevention and treatment of restenosis by inhibiting the aggressive
overgrowth of cells that block arteries. We are conducting preclinical studies
using new drug candidates and light delivery catheters for the prevention of
restenosis, as well as early preclinical studies for other cardiovascular
diseases such as vascular graft intimal hyperplasia and diffuse atherosclerosis.
Dermatology
A number of dermatological, or skin, disorders have shown potential for
treatment with PhotoPoint therapy. One of these is psoriasis, a non-cancerous
chronic and potentially debilitating skin disorder. We are currently developing
a topical gel formulation of a new photosensitizer for psoriasis and other
dermatological diseases. We expect to file an Investigational New Drug
application or IND, with the FDA and to begin Phase I clinical trials of the
topical drug in 2001. We are continuing to evaluate other dermatology
indications and may advance to clinical trials based on the progress of the
development of the topical photosensitizers, results of preclinical studies,
communications with governmental regulatory agencies, potential market
considerations and other factors.
Oncology
Cancer is a large group of diseases characterized by uncontrolled growth
and spread of hyperproliferating cells, and the treatment of cancer is called
oncology. We have targeted this area because of the large potential market size
as well as the potential for certain cancer treatments to receive expedited
review by governmental regulatory bodies.
We continue to conduct research in oncology. This research includes further
exploration of the mechanism of action of PhotoPoint therapy at the cellular and
tissue level, the effect of PhotoPoint therapy on tumor vasculature and
evaluation of new photosensitizers in solid tumor models.
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 have
completed a Phase I clinical trial using SnET2 in patients with localized
prostate cancer. The data from this study are presently being analyzed.
Other Cancers. We have an existing oncology IND for our drug SnET2, under
which we may choose to submit protocols for clinical trials in oncology
indications. Under this IND we conducted trials for treatment of certain basal
cell carcinomas, cutaneous metastatic breast cancer, or CMBC and for treatment
of AIDS-related Kaposi's sarcoma. During 1998, we announced that we would no
longer pursue the commercialization of SnET2 for treating CMBC. This decision
was made because of business considerations, such as the need for increased
internal resources for a small CMBC market, increased costs of meeting
regulatory approval requirements and a lack of a committed marketing partner for
this disease indication. We discontinued trials in basal cell carcinoma and
AIDS-related Kaposi's sarcoma for similar reasons and renewed focus on large
market opportunities and those with significant unmet medical needs. The data
and experience 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 solid tumors.
Other Disease Areas
We are investigating the use of PhotoPoint therapy 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. Our intent is to focus our
activities and resources on disease applications which represent large markets
and/or 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 trials and gain access to distribution channels and
additional technology.
Definitive Collaborative Agreements
Pharmacia Corporation
We have had a collaborative relationship with Pharmacia Corporation
relating to the development and commercialization of SnET2 since 1994. Our
current relationship with Pharmacia Corporation is critical to our ophthalmology
program.
Our original SnET2 license agreements with Pharmacia Corporation entered
into in 1994 and 1995 provided for:
* The co-development of, and exclusive marketing rights to, SnET2 in the
fields of oncology, urology and dermatology;
* A $13.0 million equity investment in Miravant; and
* 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:
* An additional financial commitment by Pharmacia Corporation to our
oncology and urology programs, providing us with $2.5 million per
quarter for eight (8) quarters;
* Additional flexibility in our oncology and urology programs;
* Increased reimbursement commitment by Pharmacia Corporation to our AMD
ophthalmology program, which provided for the reimbursement of most
out-of-pocket expenses;
* The development and marketing rights for SnET2 in dermatology
reverting back to Miravant; and
* Transfer of the formulation of the 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:
* Pharmacia Corporation increased its participation in ophthalmology by
assuming operational control of the clinical and regulatory aspects of
the joint ophthalmic programs, including AMD;
* We agreed to transfer to Pharmacia Corporation our ophthalmology IND
and related filings necessary for conducting SnET2 ophthalmology
clinical trials;
* Pharmacia Corporation 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;
* Eliminated future AMD milestone payments and eliminated the remaining
six (6) $2.5 million quarterly funding payments for our oncology and
urology programs, specified in the 1998 Amendments; and
* Added a right of first negotiation by Pharmacia Corporation to SnET2
marketing rights in the cardiovascular field, subject to certain
limitations.
In January 2001, we signed a non-binding letter of intent with Pharmacia
Corporation to provide us with up to an additional $20.0 million of funding. The
terms and conditions under which any funding will be available to us are subject
to further negotiations, which are currently ongoing. As discussions continue
with Pharmacia Corporation regarding the additional funding, there can be no
assurance that the negotiations will be successful or that we will be able to
enter into a definitive agreement.
License Agreements. Under the 1995 development and license agreement as
amended in 1996, 1998 and 1999, described above, collectively referred to as the
License Agreements, we have granted to Pharmacia Corporation an exclusive,
worldwide license to use, distribute and sell SnET2 for use in PhotoPoint
therapy in the fields of ophthalmology, oncology, urology, and a right of first
negotiation for SnET2 in cardiovascular diseases.
Under the License Agreements:
* Pharmacia Corporation is responsible for conducting certain aspects of
clinical trials involving SnET2 and to fund certain other current and
future preclinical studies and clinical trials conducted by us
involving SnET2;
* 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;
* Pharmacia Corporation 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
* Pharmacia Corporation 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 a
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 (10) years
from the first commercial sale of SnET2 on a country-by-country basis, whichever
is longer. After those periods have expired, Pharmacia Corporation 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 Corporation is required to pay royalties, and, under certain
provisions, either party may terminate the agreement.
Equity Investment Agreement. In connection with the 1999 Amendments, we
entered into the Equity Investment Agreement, under which Pharmacia Corporation
purchased from us 1,136,533 shares of our Common Stock for an aggregate purchase
price of $19.0 million. This agreement is in addition to the 1994 and 1995 stock
purchase agreements, under which Pharmacia Corporation purchased a total of
725,001 shares of Common Stock from us for a total of $13.0 million. Currently,
Pharmacia Corporation holds a total of 1,861,534 shares of Common Stock and a
total of 360,000 warrants to purchase Common Stock.
Credit Agreement. In connection with the 1999 Amendments, we entered into
the Credit Agreement under which Pharmacia Corporation extended to us up to
$22.5 million in the form of six (6) 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. As of December 31, 2000, we have received
the entire $22.5 million available under the Credit Agreement. In connection
with the quarterly loans received, we have issued warrants to purchase 360,000
shares of Common Stock at an exercise price of $11.87 per warrant share for
120,000 shares, $14.83 per warrant share for 120,000 shares and $20.62 per
warrant share for the last 120,000 shares. These warrants expire five (5) years
from the date of issuance.
Warrant Agreement. In connection with the 1999 Amendments, we entered into
the Warrant Agreement. The 360,000 warrants that have been issued in connection
with the quarterly loans, as stated above, have been issued under the terms and
conditions of the Warrant Agreement. Under this agreement, if the average
closing price of our Common Stock for thirty (30) trading days exceeds the
exercise price of the warrants, we are entitled to cause Pharmacia Corporation
to exercise the related warrants, under the terms specified in the agreement.
Drug Supply Agreement. Under a Drug Supply Agreement we agreed to
manufacture, or have manufactured, and supply to Pharmacia Corporation, upon
specified payment terms, their requirements of SnET2 in finished pharmaceutical
form for clinical and commercial purposes in the area of photodynamic therapy in
the fields contained in the License Agreements. The Drug Supply Agreement
remains in force for the duration of the patents related to SnET2 or for a
period of ten (10) years from the first commercial sale of SnET2 on a
country-by-country basis, whichever is longer, subject to termination under
limited circumstances. Upon termination, we have agreed to continue to provide
SnET2 to Pharmacia Corporation on terms to be negotiated by the parties.
Device Supply Agreements. We have entered into two Device Supply Agreements
with Pharmacia Corporation. Under one Device Supply Agreement, we appointed
Pharmacia Corporation 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 for use in the fields of oncology and urology.
Under the other Device Supply Agreement, we appointed Pharmacia Corporation as
an 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
for use in the field of ophthalmology. The Device Supply Agreements provide for
the sale by Miravant to Pharmacia Corporation of 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 Agreements, Pharmacia
Corporation is prohibited from developing, manufacturing or purchasing from
third parties these light devices or distributing or selling them for use with
any photodynamic drug other than SnET2. If we decide not to or are unable to
manufacture or supply a particular light device, Pharmacia Corporation is
entitled to manufacture that device. The License Agreements remain in force for
the duration of the patents related to SnET2 or for a period of ten (10) years
from the first commercial sale of SnET2 on a country-by-country basis, whichever
is longer, subject to 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:
* 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 these trials, with costs shared as set forth in the
agreement; and
* 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
the commercialization of this device 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
exclusive, worldwide rights:
* 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;
* To make, use, sell, license or sublicense certain of the compounds for
which we have provided Toledo with financial support; and
* 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 revenues
we receive from the sales or sublicenses of product covered by this agreement.
To date no royalties have been paid or accrued since no drug or related product
have 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 the terms of the agreement, 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.
For a description of governmental rights, see Patents and Proprietary
Technology.
Fresenius AG
Formulation Agreement. In August 1994, we entered into a supply contract
with Pharmacia Corporation to develop an emulsion formulation suitable for
intravenous administration of SnET2. Effective November 30, 1998, Pharmacia
Corporation's rights and obligations under the Formulation Agreement were
assigned to Fresenius Kabi LLC, a subsidiary of Fresenius AG, or Fresenius, as
part of an Asset Transfer Agreement between Pharmacia Corporation and Fresenius.
The operating terms of the Formulation Agreement were not changed as part of the
assignment and the terms are as follows:
* They agreed to be our exclusive supplier of such emulsion products;
* They agreed to manufacture and supply all of our worldwide
requirements of certain emulsion formulations containing SnET2; and
* They agreed not to 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. Additionally, we understand
that Pharmacia Corporation also has a supply agreement with Fresenius for the
final formulation and supply of SnET2 and has no obligation to acquire SnET2
through us.
Ramus Medical Technologies
In December 1996, our wholly owned subsidiary, Miravant Cardiovascular,
Inc., entered into a co-development agreement with Ramus Medical Technologies,
or 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. Currently, there are
no active collaborative projects.
In conjunction with the co-development agreement, we purchased a $2.0
million equity interest in Ramus, 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. Additionally, we entered into a revolving credit agreement with
Ramus, which provided Ramus with the ability to borrow up to $2.0 million. As of
December 31, 2000, the entire $2.0 million has been fully utilized and we have
reserved for the entire outstanding balance of principal and accrued interest.
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, we purchased an equity interest in Xillix Technologies Corp.,
or 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. In conjunction
with the investment, we also entered into an exclusive strategic alliance
agreement with Xillix to co-develop proprietary systems incorporating PhotoPoint
therapy 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. Currently, there are no active collaborative
projects.
Laserscope
In April 1992, we entered into a seven (7) year license and distribution
agreement with Laserscope, a surgical laser company. Under this agreement, among
other terms:
* We granted to Laserscope rights to manufacture and sell a dye laser
module developed by us;
* We retained the right to manufacture and sell this system for use with
our own photoselective drugs; and
* 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 dye laser
technology.
Letter Agreements
Miravant has also entered into letter agreements with Boston Scientific
Corporation, or BSC, Chiron Diagnostics, or Chiron, Cordis Corporation, or
Cordis, and Medicis Pharmaceutical Corporation, or Medicis. We have not yet
entered in any definitive agreements, nor are there currently any active
projects with BSC, Chiron, Cordis or Medicis. There is no assurance that
definitive agreements will be entered into or that further evolution of these
collaborations will continue.
Research and Development Programs
Our research and development programs are devoted to the discovery and
development of drugs and devices for PhotoPoint therapy. 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 therapy. These
programs include development of fiber optic light delivery devices, as well as
light sources. 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.
These grants have been sponsored by the National Institutes of Health and/or 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, the process up to the final formulation and
packaging step, and have the ability to manufacture light producing devices and
light delivery devices and conduct other production and testing activities, at
this location. However, we have limited capabilities, personnel and experience
in the manufacture of finished 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
supplier is Fresenius, which processes our SnET2 drug substance into a sterile
injectable formulation and packages it in vials for distribution by Miravant or
Pharmacia Corporation. We expect to continue to develop new drugs and new drug
formulations both in-house and using external suppliers, which may or may not
have similar dependencies on suppliers. Another supplier is Iridex which
currently provides the light producing devices used in our AMD clinical trials
and for commercial use.
Prior to our being able to supply drugs or devices for commercial use, our
manufacturing facilities, as well as the Iridex and Fresenius manufacturing
facilities, must comply with Good Manufacturing Practices, or GMPs, which we are
currently in compliance with. Prior to commercial sales of our drug and device
products, these facilities all will have to be approved by the FDA. We, along
with our suppliers, are able to manufacture our drug and device products for
clinical trial use and commercial use, pending final FDA approval. In addition,
if we elect to outsource manufacturing to third-party manufacturers, these
facilities also have to satisfy GMP and FDA manufacturing requirements.
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 registration 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 Corporation the exclusive, worldwide license to market and
sell our leading drug candidate SnET2 in the fields contained in the License
Agreements. We have granted to Iridex the worldwide license to market and sell
all co-developed light producing devices for use in PhotoPoint therapy in the
field of ophthalmology, subject to certain provisions with Pharmacia
Corporation. We have a limited letter agreement with Medicis that provides for a
worldwide license to market and sell certain drugs for use in PhotoPoint therapy
in the field of dermatology. Also, under the terms of our co-development letter
agreements with BSC 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 - BSC 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 any long-term agreements with Medicis, BSC or Cordis.
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. The following is a summary of our
current patents:
* Record owner of thirty-four (34) issued United States patents,
primarily device, expiring 2010 through 2019;
* Record owner of six (6) issued foreign patents, primarily device,
expiring 2012 through 2014;
* Exclusive license rights under eighteen (18) issued United States
patents, primarily pharmaceutical, expiring 2006 through 2017;
* Exclusive license rights under five (5) issued foreign patents,
expiring 2006 through 2017;
* Co-owner or licensee of four (4) additional issued patents, expiring
2015 through 2017; and
* Holder of a number of United States and related foreign patent
applications filed and pending, relating to photoselective compounds,
light devices and methods.
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 general 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 generally 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.
Some of our 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 and/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 these
inventions for any governmental purpose. In addition, the government has the
right to require us to grant an exclusive license under any of these inventions
to a third party if the government determines that:
* Adequate steps have not been taken to commercialize such inventions;
* Such action is necessary to meet public health or safety needs; or
* 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 this requirement is
subject to a discretionary waiver by the government. It is not expected that the
government will exercise any of these rights or that the exercise of this right
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:
* Preclinical studies (laboratory and animal tests);
* The submission to the FDA of an application for an IND exemption,
which must become effective before human clinical trials may commence;
* Adequate and well-conducted clinical trials to establish safety and
efficacy of the drug for its intended use; and
* 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 asks for additional information, additional
review time, or otherwise 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.
* Phase I represents the initial introduction of the drug to a small
group of humans to test for safety, identify adverse effects, dosage
tolerance, absorption, distribution, metabolism, excretion and
clinical pharmacology and, if possible, to gain early evidence of
effectiveness;
* 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
* 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 a long process and 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 this
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 data can be submitted to the FDA
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. Devices used by other companies for
photodynamic therapy, which are similar to our devices, have been classified as
Class III, and have been evaluated in conjunction with an IND as a combination
drug-device product. Therefore it is likely that our products will also be
treated 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 therapy devices, it may be necessary for us to submit a PMA or a
510(k) to the FDA for our PhotoPoint therapy devices. Submission of a PMA would
include the same clinical trials 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 therapy 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, preclinical studies and clinical trials,
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 are aware that other companies are marketing or developing certain
products to prevent, diagnose or treat diseases for which we are developing
PhotoPoint therapy. These products, as well as others of which we may not be
aware, may adversely affect the existing or future market for our products.
Competitive products may include, but are not limited to, drugs such as those
designed to inhibit angiogenesis or otherwise target new blood vessels, certain
medical devices and other photodynamic therapy treatments.
We are aware of various competitors involved in the photodynamic therapy
sector. We understand that these companies are conducting preclinical studies
and/or clinical trials in various countries and for a variety of disease
indications. One company is QLT Inc., or QLT. We understand that QLT's drug
Visudyne(TM) has received marketing approval in the United States and certain
other countries for the treatment of AMD. QLT is therefore first to market in
this disease area. We understand that at least two other photodynamic therapy
drugs have received marketing approval in the United States - Photofrin(R) (QLT
/ Axcan Pharmaceuticals) for the treatment of certain oncology indications and
Levulan(R) (DUSA Pharmaceuticals / Berlex Laboratories) for the treatment of
actinic keratoses, a dermatological condition. We are aware of other drugs and
devices under development by these and other photodynamic therapy competitors,
such as Pharmacyclics, in disease areas for which we are developing PhotoPoint
therapy. These competitors may develop superior products or reach the market
prior to PhotoPoint therapy and render our products non-competitive or obsolete.
In the photodynamic therapy sector, 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 may 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, cost effectiveness, reimbursement and patent
position, among other factors.
Corporate Offices
The principal office of Miravant is located at 336 Bollay Drive, Santa
Barbara, California, 93117. Main telephone and fax numbers are (805) 685-9880
and (805) 685-7981. Miravant was incorporated in the state of Delaware in 1989.
Employees
As of March 12, 2001, we employed 144 individuals, approximately 79 of
which were engaged in research and development, 23 were engaged in manufacturing
and clinical activities and 42 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.
Our future success also depends on our continuing ability to attract, train
and retain highly qualified scientific and technical personnel. Competition for
these personnel is intense, particularly in Santa Barbara where we are
headquartered. Due to the limited number of people available with the necessary
scientific and technical skills, we can give no assurance that we can retain or
attract key personnel in the future. We have not experienced any work stoppages
and consider our relations with our employees to be good.
EXECUTIVE OFFICERS
The names, ages and certain additional information of the current executive
officers of the Company are as follows:
Name Age Position
Gary S. Kledzik, Ph.D. 51 Chairman of the Board and Chief Executive Officer
David E. Mai 56 President of Miravant Medical Technologies, Miravant Systems, Inc.,
Miravant Cardiovascular, Inc., Miravant Pharmaceuticals, Inc. and Director
John M. Philpott 40 Chief Financial Officer and Treasurer
Gary S. Kledzik, Ph.D. is a founder of the Company and has served as a
director since its inception in June 1989. He served as President of the Company
from June 1989 to May 1996. He has been Chairman of the Board of Directors since
July 1991, Chief Executive Officer since September 1992 and served as President
until May 1996. Prior to joining the Company, Dr. Kledzik was Vice President of
the Glenn Foundation for Medical Research. His previous experience includes
serving as Research and General Manager for an Ortho Diagnostic Systems, Inc.
division of Johnson & Johnson and Vice President of Immulok, Inc., a cancer and
infectious disease biotechnology company which he co-founded and which was
acquired by Johnson & Johnson in 1983. Dr. Kledzik holds a B.S. in Biology and a
Ph.D. in Physiology from Michigan State University.
David E. Mai has served as President of the Company since May 1996,
President of Miravant Cardiovascular, Inc. since September 1992, President of
Miravant Pharmaceuticals, Inc. since July 1996 and President of Miravant
Systems, Inc. since June 1997. Mr. Mai served as Vice President of Corporate
Development for the Company from March 1994 until May 1996. Mr. Mai became
associated with the Company in July 1990 as a consultant assisting with
technology and business development. He joined the Company in 1991, serving as
New Product Program Manager from February 1991 to July 1992 and as Clinical
Research Manager from July 1992 to September 1992. Prior to joining the Company,
Mr. Mai was Director of the Intravascular Ultrasound Division of Diasonics
Corporation from 1988 to 1989. Previously, Mr. Mai served as Director of
Strategic Marketing for Boston Scientific Corporation's Advanced Technologies
Division, Vice President of Stanco Medical and Sales Engineer with
Hewlett-Packard Medical Electronics. Mr. Mai holds a B.S. degree in Biology from
the University of Hawaii.
John M. Philpott has served as Chief Financial Officer since December 1995.
Since March 1995, Mr. Philpott had served as Controller. Prior to joining the
Company, Mr. Philpott was a Senior Manager with Ernst & Young LLP, which he
joined in 1986. Mr. Philpott is a Certified Public Accountant in the State of
California. He holds a B.S. degree in Accounting and Management Information
Systems from California State University, Northridge.
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, of which approximately 31,300 square feet is subleased. 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 habe the ability to
manufacture and distribute the active pharmaceutical ingredients in our 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 $57,400
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 $35,300 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.
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 is
currently on a month-to-month basis with rent based upon the percentage of
square footage occupied. Rental income from Ramus, which is approximately $4,900
per month, is also subject to increases based upon the consumer price index.
For the three facilities that we currently occupy, we may continue to incur
additional costs for the construction of the manufacturing, laboratory and
office space associated with these facilities and we may at any time determine
to sublease additional space for areas that are not being fully utilized.
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 2002 or early 2003. Depending on our future needs and
financial capabilities we may or may not continue this project.
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 2000.
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 bid prices per share of Common
Stock as reported on The Nasdaq National Market based on published financial
sources.
High Low
2000:
Fourth quarter................................................................................. $ 21.75 $9.00
Third quarter.................................................................................. 25.94 16.75
Second quarter................................................................................. 23.25 10.00
First quarter.................................................................................. 29.63 9.31
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
As of March 12, 2001, there were approximately 287 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 5,000.
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. Our Credit Agreement with Pharmacia Corporation prohibits the
payment of dividends on our 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, 2000. The consolidated financial statements for the five fiscal years ended
December 31, 2000 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,
----------------------------------------------------------------------------------
2000 1999 1998 1997 1996
--------------- --------------- --------------- --------------- ---------------
(in thousands, except share and per share data)
Statement of Operations Data:
Revenues ......................... $ 4,593 $ 14,577 $ 10,179 $ 2,278 $ 3,598
Cost and expenses:
Research and development....... 19,944 29,749 29,233 20,244 15,720
Selling, general and
administrative................ 6,273 7,473 9,626 13,716 6,393
Loss in affiliate.............. -- 417 2,929 1,105 --
--------------- --------------- --------------- --------------- ---------------
Total costs and expenses.......... 26,217 37,639 41,788 35,065 22,113
--------------- --------------- --------------- --------------- ---------------
Loss from operations.............. (21,624) (23,062) (31,609) (32,787) (18,515)
Interest and other income (expense)
Interest and other income...... 1,370 1,240 3,546 2,584 2,407
Interest expense............... (2,254) (434) (1) (6) (34)
Non-cash loss in investment (3) (3,485) -- -- -- --
--------------- ------------- --------------- --------------- ---------------
Total net interest and other
income (expense)............. (4,369) 806 3,545 2,578 2,373
--------------- --------------- --------------- --------------- ---------------
Net loss.......................... $ (25,993) $ (22,256) $ (28,064) $ (30,209) $ (16,142)
=============== =============== =============== =============== ===============
Net loss per share (1) ........... $ (1.42) $ (1.25) $ (1.94) $ (2.36) $ (1.37)
=============== =============== =============== =============== ===============
Shares used in computing net
loss per share (1) ............ 18,294,525 17,768,670 14,464,044 12,791,044 11,786,429
=============== =============== =============== =============== ===============
December 31,
----------------------------------------------------------------------------------
2000 1999 1998 1997 1996
--------------- ---------------- ------------- -------------- ------------
(in thousands)
Balance Sheet Data:
Cash and marketable securities (2) $ 20,835 $ 22,789 $ 11,284 $ 83,462 $ 52,098
Working capital................... 19,431 24,933 11,134 80,734 51,519
Total assets...................... 28,027 35,823 23,810 93,031 59,886
Long-term obligations ............ 24,888 15,506 -- -- 21
Accumulated deficit............... (157,167) (131,174) (108,918) (80,854) (50,645)
Total stockholders' equity
(deficit)......................... (164) 15,597 19,686 87,698 56,717
- -----------
(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.
(3) See Note 11 of Notes to Consolidated Financial Statements for information regarding the non-cash loss in investment.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This section of our Annual Report on Form 10-K also 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," "believes" 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. See "--Risk Factors" for a discussion
of certain risks, including those relating to our operating losses, our early
stage of development and our products, strategic collaborations, risks related
to our industry and forward-looking statements.
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
$157.2 million as of December 31, 2000. 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 historical revenues primarily reflect income earned from licensing
agreements, grants awarded, royalties from device product sales, milestone
payments, payments for our devices and interest income. 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 commercial product sales or royalties related to such product sales
until such approvals are received.
Until we commercialize our product(s), we expect revenues to continue to be
attributed to licensing agreements. Additional revenues may also be provided in
the near future from sales of drug components to Pharmacia Corporation. These
drug components are manufactured by Miravant and are used to manufacture our
drug SnET2, which is currently being used in the wet age-related macular
degeneration or AMD preclinical studies and Phase III clinical trials. 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.
Pharmacia Corporation, with our assistance, is currently conducting the
Phase III clinical trials for the treatment of AMD. These trials were fully
enrolled in December 1999, and these patients are now in the two-year follow-up
period for safety and efficacy evaluation. Pharmacia Corporation, which has
assumed control of the clinical and regulatory aspects of SnET2 in ophthalmology
and the related Phase III AMD clinical trials, has elected to continue the
clinical trials through to the conclusion of the two year follow-up period,
which is December 2001. Subsequently, a full analysis of the safety and efficacy
data will be performed and a determination of the status of the SnET2 AMD
program will be made.
We are also conducting preclinical studies of new photoselective drugs for
cardiovascular diseases, in particular for the prevention and treatment of
restenosis. Restenosis is the renarrowing of an artery that commonly occurs
after balloon angioplasty for obstructive coronary artery disease. In our
dermatology program, we have developed a topical formulation to deliver a new
photoselective drug through the skin and continue to conduct preclinical studies
with the expectation of pursuing certain clinical applications in the future. In
oncology, we are conducting preclinical research of our photoselective therapy
to destroy abnormal blood vessels in tumors. We are pursuing this tumor research
with some of our new photoselective drugs and also investigating combination
therapies with PhotoPoint therapy and other types of compounds. 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 therapy procedures in ophthalmology,
cardiovascular disease, dermatology, oncology or in any other indications.
Under the 1998 amendments of the License Agreements with Pharmacia
Corporation, we were to conduct all preclinical studies and U.S. clinical trials
in AMD and would be reimbursed by Pharmacia Corporation for most of the
out-of-pocket expenses incurred. Pharmacia Corporation 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 an Equity Investment Agreement, whereby Pharmacia
Corporation 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 Corporation extended to us up to
$22.5 million in credit, which was 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. As of December 31, 2000, we have received the entire $22.5
million available under the Credit Agreement. Under the terms of the Credit
Agreement and in connection with each draw-down, we were obligated to issue
Pharmacia Corporation a certain number of warrants based on the amount borrowed.
The exercise price of each warrant is 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
quarterly loans received, we have issued warrants to purchase 360,000 shares of
Common Stock at an exercise price of $11.87 per warrant share for 120,000
shares, $14.83 per warrant share for 120,000 shares and $20.62 per warrant share
for the last 120,000 shares. Additionally, in connection with the Equity
Investment Agreement and the Credit Agreement, in February 1999 we amended the
1998 amendments of the License Agreements with Pharmacia Corporation to
eliminate the remaining future cost reimbursements for oncology and urology and
any future milestone payments in AMD. The amendments are referred to in this
report as the 1999 Amendments.
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 Corporation while maintaining our core development
programs. We will continue to evaluate the use of our resources in connection
with our operating cash balances, funding availability, external resource
assistance and as opportunities present themselves. In December 1999, we
transitioned the majority of the operations of the Phase III AMD clinical
trials, as well as the drug manufacturing scale-up responsibility, to Pharmacia
Corporation in accordance with the 1999 Amendments. Pharmacia Corporation is now
responsible for directly funding the majority of the Phase III AMD clinical
trials and drug manufacturing scale-up costs. We will continue to be responsible
for some of the drug and device development and manufacturing necessary and the
majority of the preclinical studies required for the new drug application or NDA
submission for AMD and will be reimbursed for most of those costs in accordance
with the 1999 Amendments.
Results of Operations
The following table provides a summary of our revenues for the years ended
December 31, 2000, 1999 and 1998:
---------------------------------------------------------------------------------------------------------------------------
Consolidated Revenues 2000 1999 1998
---------------------------------------------------------------------------------------------------------------------------
License - contract research and development................... $ 4,481,000 $13,996,000 $ 9,314,000
Royalties..................................................... -- 143,000 191,000
Grants........................................................ 112,000 438,000 674,000
---------------------------------------------------------------------------------------------------------------------------
Total revenues................................................ $ 4,593,000 $14,577,000 $10,179,000
---------------------------------------------------------------------------------------------------------------------------
Revenues
Our revenues increased from $10.2 million in 1998 to $14.6 million in 1999 and
decreased to $4.6 million in 2000. The fluctuations in revenues are due to the
following:
License Income. License income, which represents reimbursements of
out-of-pocket or direct costs incurred in preclinical studies and Phase III AMD
clinical trials in 1999 and 2000, decreased from $14.0 million in 1999 to $4.5
million in 2000. The decrease in revenues is specifically related to the
transition of the majority of the operations of the Phase III AMD clinical
trials to Pharmacia Corporation in December 1999. During 2000, we were
responsible for the oversight of the AMD related preclinical studies, as well as
a portion of the equipment and drug costs related to the Phase III AMD clinical
trials. We were completely reimbursed for all out-of-pocket preclinical study
costs and approximately half of the equipment and drug costs. In 1999, in
addition to being responsible for the same types of costs incurred in 2000, we
were also responsible, and subsequently reimbursed, for the out-of-pocket costs
associated with the screening, treatment and monitoring of individuals
participating in the Phase III AMD clinical trials. Reimbursements received in
1999 and 2000 were recorded in accordance with the 1999 Amendments.
License income in 1998 represented a combination of reimbursements received
for costs incurred in the AMD clinical trials and payments received from
Pharmacia Corporation for our oncology programs. We recorded $3.1 million in
revenue for the specific reimbursement of out-of-pocket or direct costs incurred
in the Phase I, II and III preclinical and clinical trial costs in AMD. We also
recorded $6.2 million in revenue for payments received from Pharmacia
Corporation to cover both the direct and indirect costs of our oncology
programs.
Grant Income. We have recorded grant income of $112,000, $438,000 and
$674,000 for the years ended December 31, 2000, 1999 and 1998, respectively.
Grant income is due to a two-year grant awarded in 1997 that was extended to the
end of 2000. The fluctuations in grant revenue are due to the timing of work
performed under the grant guidelines and the term of the grant. While we will
continue to pursue obtaining grants as a means of funding research and
development programs, we have not yet received any additional grants and
currently do not have any grant funds available to us. Additionally, there can
be no assurance that we will be successful in obtaining any future grants.
Royalty Income. We earned royalty income from a 1992 license agreement with
Laserscope, which provided royalties on the sale of our previously designed
device products. We recorded income of $143,000 and $191,000 in 1999 and 1998,
respectively. We did not record any royalty income under this agreement in 2000,
or plan to in the future, as the 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. Additionally, as a result of the transition of
the majority of the operations of the Phase III AMD clinical trials and funding
responsibility to Pharmacia Corporation and the completion of the majority of
the preclinical studies required for AMD, we anticipate our license income
related to the reimbursement of out-of-pocket or direct costs incurred will
decrease in 2001, as will our expenses related to the Phase III AMD clinical
trials. 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 $19.9 million in 2000 decreased
from the $29.7 million recorded in 1999 and $29.2 million recorded in 1998. The
overall decrease in research and development expenses for 2000 compared to 1999
is related primarily to the December 1999 transition of the majority of the
operations and funding responsibility of the Phase III AMD clinical trials to
Pharmacia Corporation. Our research and development expenses, net of license
reimbursement and grant revenue, were $15.4 million, $15.3 million and $19.2
million in 2000, 1999 and 1998, respectively. Aside from the expenses incurred
in the Phase III AMD clinical trials, research and development expenses in 2000
and 1999 were consistent and in both years were comprised of:
* Preclinical studies related to our programs in oncology, dermatology
and cardiology; and
* The 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, consultant costs, drug
formulation costs for SnET2 and laser purchases.
Future research and development expenses may fluctuate depending on
available funds, continued expenses incurred in our preclinical studies and
clinical trials in our ophthalmology, dermatology, cardiovascular 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 requirements and expansion of our
research and development programs, which includes the increased hiring of
personnel, the continued expansion of existing or the commencement of new
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 $6.3 million
in 2000 from $7.5 million in 1999 and $9.6 million in 1998. The overall decrease
in selling, general and administrative expenses from 2000 compared to 1999 is
primarily due to a decrease in compensation expense associated with options and
warrants issued to consultants and a decrease in rent expense as a result of
subleasing one of our buildings in December 1999. The decrease from 1999
compared to 1998 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
consistent with prior years and may fluctuate depending on available funds, and
the support required for research and development activities, continuing
corporate development and professional services, compensation expense associated
with stock options and warrants granted to consultants and expenses for 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 of
$443,000 as of December 31, 2000. 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 consists
primarily of 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 remaining equity
investment made in Ramus in 1996. The investment in Ramus has been fully
reserved for as of December 31, 2000 and 1999, respectively.
Interest and Other Income
Interest and other income increased to $1.4 million in 2000 from $1.2
million in 1999 and decreased from $3.5 million in 1998. The fluctuations in
interest income are directly related to the levels of cash and marketable
securities earning interest. The level of future interest income will primarily
be subject to the level of cash balances we maintain from period to period and
the interest rates earned.
Interest Expense
Interest expense increased to $2.3 million in 2000 from $434,000 in 1999
and $1,000 in 1998. The increase from 1998 to 2000 is directly related to the
amount of borrowings under the Credit Agreement with Pharmacia Corporation and
the value of the warrants issued in connection with the borrowings. Interest
expense related to warrants issued in connection with the borrowings amounted to
$315,000. Interest expense may fluctuate in the future based on the interest
rate related to the borrowings and the balance of such borrowings.
Non-cash Loss in Investment
During 2000, we determined the decline in the value of our investment in
Xillix was other-than-temporary. We recognized a loss totaling $3.5 million to
adjust our investment in Xillix to its estimated current fair value based on the
average closing prices over a 120 day period. This loss is included in "Non-cash
loss in investment" in the accompanying consolidated statements of operations,
stockholders' equity and cash flows. As of December 31, 2000, we still hold the
2,691,904 shares of Xillix common stock received in our original investment
transaction. The new cost basis in the investment is $991,000 and this
investment will continue to be classified as an available-for-sale investment
recorded at fair value with any resulting unrealized gains or losses included in
"Accumulated other comprehensive loss" in the consolidated balance sheet and
statement of stockholders' equity.
Income Taxes
As of December 31, 2000, we had net operating loss carryforwards for
federal tax purposes of $156.3 million which expire in the years 2002 to 2020.
Research credit carryforwards aggregating $8.0 million are available for federal
and state tax purposes and expire in the years 2002 to 2020. We also had a state
net operating loss carryforward of $42.9 million, which expires in the years
2001 to 2005. Of the $42.9 million in state net operating loss carryforwards,
$13.2 million will expire during 2001 and 2002. 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 inflation has had a material impact on our results of
operations.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 or SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
It requires an entity recognize all derivatives as either assets or liabilities
in the statement of financial position and measure those instruments at fair
value. In July 1999, the FASB issued SFAS No. 137 "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133". SFAS No. 137 deferred the effective date of SFAS No. 133
until fiscal years beginning after June 15, 2000. The adoption of SFAS No. 133
has not had a material effect on our consolidated financial statements.
Liquidity and Capital Resources
Since inception through December 31, 2000, we have accumulated a deficit of
approximately $157.2 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, a secondary public offering, Pharmacia
Corporation's purchases of Common Stock and credit arrangements. As of December
31, 2000, we have received proceeds from the sale of equity securities,
convertible notes and credit arrangements of approximately $223.0 million. We do
not anticipate achieving profitability and/or positive cash flow from operations
in the next few years, and as such, we expect to continue to rely on external
sources of financing to meet our cash needs for the foreseeable future.
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 us of approximately $68.2 million. During 1998,
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, under the price
protection and repurchase provisions of these agreements. During the first
quarter of 1999, we completed our price protection obligations through the
payment of $4.2 million, the issuance of 688,996 shares of 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 to those agreements.
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 or 2000. During 1998, we repurchased stock under the Board authorized
repurchase program which amounted to 725,000 shares at a cost of $17.9 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
Corporation 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 Corporation also extended to us up to $22.5 million in
credit to be used to support our ophthalmology, oncology and other development
programs, as well as for general corporate purposes. Before January 2001, we
were able to issue promissory notes for the amounts borrowed and for the
quarterly interest payments due. Beginning in 2001, we will be able to issue
promissory notes for the quarterly interest due for any quarter in which our
adjusted net earnings, as described by the Credit Agreement, is less than the
quarterly interest due. The ability to issue promissory notes may also be
restricted by certain sales of our equity securities. The promissory notes for
both principal and interest 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 9.50% at December 31, 2000. As of December
31, 2000, in accordance with the Credit Agreement, we have received all six
quarterly loans for a total of $22.5 million available under the Credit
Agreement. In accordance with the Credit Agreement, we have issued promissory
notes to Pharmacia Corporation for the loan amounts received and issued
additional promissory notes for a total of $2.3 million for the related interest
due on each of the quarterly due dates through December 31, 2000. In connection
with the quarterly loans received, we have issued warrants to purchase 360,000
shares of Common Stock at an exercise price of $11.87 per warrant share for
120,000 shares, $14.83 per warrant share for 120,000 shares and $20.62 per
warrant share for 120,000 shares. The warrants to purchase 360,000 shares of
Common Stock are callable by us if the average closing prices of the Common
Stock for 30 trading days, preceding such request, exceeds the related warrant
exercise price.
In June 1998, we purchased an 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. As of June 1999, the shares received are
no longer restricted and can be sold at anytime by the us, subject to certain
limitations and restrictions contained in the Credit Agreement with Pharmacia
Corporation. 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. While we still hold all 2,691,904
shares of our original investment in Xillix, in 2000 we determined the decline
in the value of our investment in Xillix was other-than-temporary. We recognized
a loss totaling $3.5 million to adjust our investment in Xillix to its estimated
current fair value based on the average closing prices over a 120 day period.
This loss is included in "Non-cash loss in investment" in the accompanying
consolidated statements of operations, stockholders' equity and cash flows. The
new cost basis in the investment is $991,000 and this investment will continue
to be classified as an available-for-sale investment recorded at fair value with
any resulting unrealized gains or losses included in "Accumulated other
comprehensive loss" in the consolidated balance sheet and statement of
stockholders' equity.
In April 1998, we entered into a $2.0 million revolving credit agreement
with our affiliate, Ramus. As of December 31, 2000, 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 addition to receiving funds through private and public stock offerings,
we have also received funding through the exercise of warrants and stock
options. For the year ended December 31, 2000, we have received $4.4 million in
proceeds from warrant and option exercises. 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 additional funding
through the exercise of these outstanding warrants and stock options in the
future.
For 2000, 1999 and 1998, we required cash for operations of $13.4 million,
$18.4 million and $21.7 million, respectively. The decrease in net cash used in
operating activities in 2000 compared to 1999 was primarily due to the timing of
funds received from Pharmacia Corporation for reimbursable research and
development costs and an increase in non-cash interest and amortization of
deferred financing costs related to the Credit Agreement. These activities were
offset by reductions in depreciation, amortization, deferred compensation
expense and accounts payable. The decrease in cash required for operations from
1999 to 1998 was due to a decrease in net research and development costs
incurred in addition to a decrease in non-cash charges for deferred
compensation, stock awards and the reserve taken on the remaining Ramus line of
credit and the timing of the funds received from Pharmacia Corporation for
reimbursable research and development costs.
For 2000 and 1999, net cash used in investing activities was $15.8 million
and $4.4 million, respectively. For 1998, net cash provided by investing
activities was $19.8 million. The net cash used in 2000 and 1999 for investing
activities was directly related to the purchases of net marketable securities
based on an analysis of the funds available for investment. The net cash
provided by investing activities in 1998 was primarily due to the net 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, the line of credit provided to Ramus and significant
capital expenditures, which were primarily related to laboratory construction
costs.
For 2000 and 1999, net cash provided by financing activities was $11.9
million and $30.6 million, respectively. In 1998, net cash used in financing
activities was $42.5 million. Cash provided by financing activities in 2000 was
attributed to the $7.5 million provided under the Credit Agreement with
Pharmacia Corporation and warrant and option exercise proceeds of $4.4 million.
Cash provided by financing activities in 1999 was primarily attributed to
Pharmacia Corporation's $19.0 million equity investment and $15.0 million
provided under the Pharmacia Corporation 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.
We invested a total of $9.3 million in property and equipment from 1996
through December 31, 2000. During 1998, we entered into a new lease agreement
for an additional facility, which we subleased in December 1999. Based on
available funds, we may continue to purchase property and equipment in the
future as we 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:
* The progress and magnitude of our research and development programs,
preclinical studies and clinical trials;
* The time involved in obtaining regulatory approvals;
* The cost involved in filing and maintaining patent claims;
* Competitor and market conditions;
* Investment opportunities;
* Our ability to establish and maintain collaborative arrangements;
* The level of Pharmacia Corporation's involvement in our Phase III AMD
clinical trials;
* The cost of manufacturing, manufacturing scale-up and the cost and
effectiveness of commercialization activities and arrangements;
* The extent and nature of costs reimbursed by current and future
collaborations; and
* Our ability to obtain grants to finance research and development
projects.
We anticipate that we have sufficient cash to fund our operations through
December 31, 2001. We have also entered into a non-binding letter of intent with
Pharmacia Corporation for additional funding of up to $20.0 million. Our ability
to generate substantial additional funding to continue our research and
development activities, preclinical studies and clinical trials and
manufacturing, and administrative activities and to pursue any additional
investment opportunities is subject to a number of risks and uncertainties and
will depend on numerous factors including:
* Our ability to successfully negotiate and complete our funding
agreement with Pharmacia Corporation;
* Our ability to raise funds in the future through public or private
financings, collaborative arrangements or from other sources;
* 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;
* 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;
* The amount of funds received from outstanding warrant and stock option
exercises;
* Our ability to maintain our existing collaborative arrangements;
* Our ability to liquidate our equity investments in Ramus, Xillix or
other assets;
* 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
* Our ability to collect the loan and accrued interest provided to Ramus
under their credit agreement with us.
We cannot guarantee that additional funding will be available to us when
needed, if at all. If additional funding is not available, we may 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.
RISK FACTORS
Factors Affecting Future Operating Results
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. Our business operations may be impaired by
additional risks and uncertainties that we do not know of or that we currently
consider immaterial. Our business, results of operations or cash flows may be
adversely affected if any of the following risks actually occur. In such case,
the trading price of our Common Stock could decline, and you may lose all or
part of your investment. This report also contains forward-looking statements
that involve risks and uncertainties. Our actual results could differ materially
from those anticipated in the forward-looking statements as a result of certain
factors, including the risks described below and elsewhere in this report.
RISKS RELATED TO OUR BUSINESS
ALL OF OUR PRODUCTS, EXCEPT SNET2, ARE IN AN EARLY STAGE OF DEVELOPMENT AND ALL
OF OUR PRODUCTS, INCLUDING SNET2, 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:
* Successfully completing our research or product development efforts or
those of our collaborative partners;
* Successfully transforming our drugs or devices currently under
development into marketable products;
* Obtaining the required regulatory approvals;
* Manufacturing our products at an acceptable cost and with appropriate
quality;
* Favorable acceptance of any products marketed; and
* 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, IN PARTICULAR SNET2, 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:
* Our ability to demonstrate to the FDA that SnET2 or any other of our
products is safe and efficacious;
* Our ability to successfully complete the testing for any of our
compounds within any specified time period, if at all;
* Clinical data reported may change as a result of the continuing
evaluation of patients;
* 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;
* Problems in research and development, preclinical studies or clinical
trials that will cause us to delay, suspend or cancel clinical trials;
and
* 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 are
relying on Pharmacia Corporation and contract research organizations for our AMD
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 current and future 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:
* The nature of our clinical trial protocols;
* Existence of competing protocols or treatments;
* Size and longevity of the target patient population;
* Proximity of patients to clinical sites; and
* Eligibility criteria for the trials.
There can be no assurance that we will obtain or maintain 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.
There is an approved treatment for AMD and our patients enrolled in our
Phase III AMD clinical trials may choose to drop out of the trial or pursue
alternative treatments. This could result in delays or incomplete clinical trial
data.
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 PRODUCTS MAY EXHIBIT ADVERSE SIDE EFFECTS THAT PREVENT THEIR WIDESPREAD
ADOPTION OR THAT NECESSITATE WITHDRAWAL FROM THE MARKET.
Our PhotoPoint therapy drug and device products may exhibit undesirable and
unintended side effects that may prevent or limit their commercial adoption and
use. One such side effect upon the adoption of our PhotoPoint therapy drug and
device products as potential therapeutic agents may be a period of
photosensitivity to bright light for a certain period of time after receiving
PhotoPoint therapy treatment. This period of photosensitivity typically declines
over time. Currently, this photosensitivity, as it relates to SnET2, is being
considered in the clinical trials. Even upon receiving approval by the FDA and
other regulatory authorities, our products may later exhibit adverse side
effects that prevent widespread use or necessitate withdrawal from the market.
The manifestation of such side effects could cause our business to suffer.
OUR COLLABORATIVE PARTNERS MAY CONTROL ASPECTS OF OUR CLINICAL TRIALS AND
REGULATORY SUBMISSION THAT MAY RESULT IN UNANTICIPATED DELAYS OR TERMINATION OF
OUR DEVELOPMENT EFFORTS CAUSING OUR BUSINESS TO SUFFER.
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 Corporation
In accordance with the 1999 Amendments, we transitioned the majority of the
operations of the Phase III AMD clinical trials to Pharmacia Corporation, along
with the ophthalmology IND and related filings for SnET2. We will continue to be
responsible for the majority of the preclinical studies and the drug and device
development and manufacturing necessary for the NDA submission in AMD. In
January 2001, we announced that Pharmacia Corporation performed an interim
analysis of the 12-month patient data, and has elected to continue the clinical
trials to their 24-month conclusion in December 2001. Subsequently, a full
analysis of the safety and efficacy data will be performed and a determination
of the status of the SnET2 AMD program will be made. If Pharmacia Corporation
fails to complete the clinical trials as agreed upon or fails to file the NDA
submission in AMD, we may not be able to continue our development program as
planned and this could materially harm our business.
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. Iridex is currently the sole supplier of the light producing device
used in our AMD clinical trials. We currently have limited capabilities,
experience and personnel to manufacture the AMD light producing device. If
Iridex fails to provide the devices as agreed upon, we may not be able to
continue our development program as planned and this may harm our business.
BECAUSE WE ARE RELYING ON OUR CORPORATE PARTNER, PHARMACIA CORPORATION, TO
ASSIST US WITH AND TO PROVIDE FUNDS TO DEVELOP OUR POTENTIAL OPHTHALMOLOGY
PRODUCTS, WE COULD EXPERIENCE DELAYS IN OUR DEVELOPMENT AND OUR BUSINESS WILL
SUFFER, IF PHARMACIA CORPORATION FAILS TO PROVIDE US WITH ADEQUATE FINANCIAL AND
OPERATIONAL SUPPORT.
We are relying on Pharmacia Corporation to provide funds and co-develop
with us our potential ophthalmology products. We cannot be certain that
Pharmacia Corporation will continue to fund the co-development program. If
Pharmacia Corporation fails to co-develop our products or fails to provide
funding as required, we may not be able to continue our development program as
we have planned and our business may be materially harmed.
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:
* 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;
* Pricing and reimbursement policies of government and third-party
payors such as insurance companies, health maintenance organizations
and other plan administrators; and
* The possibility that physicians, patients, payors or the medical
community in general may be unwilling to accept, utilize or recommend
any of our products.
If our products are not accepted due to these or other factors our business
will not develop as planned and may be harmed.
OUR BUSINESS IS NOT EXPECTED TO BE PROFITABLE FOR THE FORESEEABLE FUTURE AND WE
WILL NEED ADDITIONAL FUNDS TO CONTINUE OUR OPERATIONS IN THE FUTURE. IF WE FAIL
TO OBTAIN ADDITIONAL FUNDING, WE COULD BE FORCED TO REDUCE OR CEASE OPERATIONS.
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:
* The pace of scientific progress in our research and development
programs;
* The magnitude of our research and development programs;
* The scope and results of preclinical studies and clinical trials;
* The time and costs involved in obtaining regulatory approvals;
* The costs involved in preparing, filing, prosecuting, maintaining and
enforcing patent claims;
* The costs involved in any potential litigation;
* Competing technological and market developments;
* Our ability to establish additional collaborations;
* Changes in existing collaborations;
* Our dependence on others for development and commercialization of our
potential products;
* The cost of manufacturing, marketing and distribution; and
* 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 December 31, 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 or may be limited based on our Credit
Agreement with Pharmacia Corporation. Any inability to obtain additional
financing would adversely affect our business and could cause us to reduce or
cease operations.
WE HAVE A HISTORY OF SIGNIFICANT OPERATING LOSSES AND EXPECT TO CONTINUE TO HAVE
LOSSES IN THE FUTURE, WHICH MAY FLUCTUATE SIGNIFICANTLY. WE MAY NOT ACHIEVE OR
MAINTAIN PROFITABILITY.
We have incurred significant operating losses since our inception in 1989
and, as of December 31, 2000, had an accumulated deficit of approximately $157.2
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 commercial 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 of license reimbursements, grants awarded, royalties,
milestone payments, payments for our devices, and interest income. Our revenues
for the foreseeable future are expected to consist primarily of revenue related
to license agreements.
IF WE ARE NOT ABLE TO SUCCESSFULLY MAINTAIN OUR RELATIONSHIP WITH PHARMACIA
CORPORATION AND ESTABLISH COLLABORATIVE AND LICENSING ARRANGEMENTS WITH OTHERS,
OUR BUSINESS MAY BE HARMED.
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:
* The License Agreements under which we granted to Pharmacia Corporation
an exclusive worldwide license to use, distribute and sell SnET2 for
therapeutic or diagnostic applications in photodynamic therapy for
ophthalmology, oncology and urology;
* 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;
* Definitive agreement with Fresenius for final drug formulation and
drug product supply;
* Letter agreements with BSC and Cordis for the co-development of
catheters for use in photodynamic therapy;
* Letter agreement with Medicis for the clinical development of
PhotoPoint therapy in dermatology; and
* Letter agreement with Chiron for the early detection and treatment of
lung cancer.
The amount of royalty revenues and other payments, if any, ultimately paid
by Pharmacia Corporation globally to Miravant for sales of SnET2 is dependent,
in part, on the amount and timing of resources Pharmacia Corporation commits to
research and development, clinical testing and regulatory approval and marketing
and sales activities, which are entirely within the control of Pharmacia
Corporation. Pharmacia Corporation may not pursue the development and
commercialization of SnET2 and/or may not perform its obligations as expected.
We have not yet entered into any definitive collaborative agreements with BSC,
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 some of these and
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:
* Our ability to negotiate acceptable collaborative arrangements,
including those based upon existing letter agreements;
* Future or existing collaborative arrangements may not be successful or
may not result in products that are marketed or sold;
* Collaborative relationships, such as our license and credit agreements
with Pharmacia Corporation, may limit or restrict us;
* 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;
* 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
* Our ability to manage, interact and coordinate our timelines and
objectives with our strategic partners may not be successful.
WE HAVE LIMITED MANUFACTURING AND MARKETING CAPABILITY AND EXPERIENCE AND THUS
RELY HEAVILY UPON THIRD PARTIES.
Prior to our being able to supply drugs for commercial use, our
manufacturing facilities must comply with Good Manufacturing Practices, or GMPs,
as approved by the FDA. In addition, if we elect to outsource manufacturing to
third-party manufacturers, these facilities also have to satisfy GMP and FDA
manufacturing requirements. To be successful, our products must be manufactured
in commercial quantities under current GMPs and must be at acceptable costs.
Although we intend to manufacture drugs and devices, we have not yet
manufactured any products in commercial quantities under GMPs and have no
experience in such commercial manufacturing. We are licensed by the State of
California to manufacture bulk drug substance at our Santa Barbara, California
facility for clinical trial and other use. We currently manufacture the SnET2
drug substance, the process up to the final formulation and packaging step and
have the ability to manufacture light producing devices and light delivery
devices, and conduct other production and testing activities, at this location.
However, we have limited capabilities, personnel and experience in the
manufacture of finished drug product, light producing and light delivery devices
and utilize outside suppliers, contracted or otherwise, for certain materials
and services related to our manufacturing activities. We currently have the
capacity, in conjunction with our manufacturing suppliers Fresenius and Iridex,
to manufacture products at certain commercial levels and will be able to do so
under GMPs with subsequent 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. Fresenius is the sole
manufacturer of the final formulation of our drug product SnET2 and Iridex is
currently the sole supplier of the light producing devices used in our AMD
clinical trials. Both have commercial quantity capabilities.
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 Corporation 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.
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 entails 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:
* 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;
* We have not obtained liability insurance that would cover a claim
relating to the clinical or commercial use or recall of our products;
* In the absence of liability insurance, claims made against us or a
product recall could have a material adverse effect on us;
* 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
* 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 therapy light devices. A successful product liability claim could
materially adversely affect our business, financial condition and results of
operations.
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, our financial condition and results of our operations. 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:
* The patent applications owned by or licensed to us may not result in
issued patents;
* Our issued patents may not provide us with proprietary protection or
competitive advantages;
* Our issued patents may be infringed upon or designed around by others;
* Our issued patents may be challenged by others and held to be invalid
or unenforceable;
* The patents of others may have a material adverse effect on us; and
* 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:
* We do not have contractual indemnification rights against the
licensors of the various drug patents;
* We may be required to obtain licenses under dominating or conflicting
patents or other proprietary rights of others;
* Such licenses may not be made available on terms acceptable to us, if
at all; and
* 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.
IF OUTSTANDING STOCK OPTIONS AND WARRANTS ARE EXERCISED, THE VALUE OF OUR COMMON
STOCK OUTSTANDING JUST PRIOR TO THE EXERCISE MAY BE DILUTED.
As of March 12, 2001, there were outstanding stock options to purchase
4,045,802 shares of Common Stock, with exercise prices ranging from $0.67 to
$55.50 per share, with a weighted average exercise price of $15.34 per share. In
addition, as of March 12, 2001, there were outstanding warrants to purchase
2,891,500 shares of Common Stock, with exercise prices ranging from $7.00 to
$60.00 per share, with a weighted average exercise price of $25.01 per share. If
the holders exercise a significant number of these securities at any one time,
the market price of the Common Stock could fall and the value of the Common
Stock held by other stockholders may be diluted. The holders of the options and
warrants have the opportunity to profit if the market price for the Common Stock
exceeds the exercise price of their respective securities, without assuming the
risk of ownership. If the market price of the Common Stock does not rise above
the exercise price of these securities, then they will probably not be exercised
and may expire based on their respective expiration dates.
THE PRICE OF OUR COMMON STOCK HAS BEEN AND MAY CONTINUE TO BE VOLATILE.
From time to time and in particular during the last fiscal year, the price
of our Common Stock has been highly volatile. These fluctuations create a
greater risk of capital losses for our stockholders as compared to less volatile
stocks. From January 1, 2000 to December 31, 2000, our Common Stock price, per
the Nasdaq closing price, has ranged from a high of $29.86 to a low of $9.28.
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:
* Future announcements concerning Miravant or our collaborators,
competitors or industry;
* The results of our testing, technological innovations or new
commercial products;
* The results of preclinical studies and clinical trials by us or our
competitors;
* Technological innovations or new therapeutic products;
* Litigation;
* Public concern as to the safety, efficacy or marketability of products
developed by us or others;
* Comments by securities analysts;
* The achievement of or failure to achieve certain milestones; and
* 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:
* Our stockholders can act at a duly called annual or special meeting
but they may not act by written consent;
* 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
* 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 Common Stock.
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.
EFFECTING A CHANGE OF CONTROL OF MIRAVANT WOULD BE DIFFICULT, WHICH MAY
DISCOURAGE OFFERS FOR SHARES OF OUR COMMON STOCK.
Our Board of Directors has adopted a Preferred Stockholder Rights Plan. The
plan may have the effect of delaying, deterring, or preventing changes in our
management or control of Miravant, which may discourage potential acquirers who
otherwise might wish to acquire us without the consent of the Board of
Directors. Under the plan, if a person or group acquires 20% or more of our
common stock, all holders of rights (other than the acquiring stockholder) may,
upon payment of the purchase price then in effect, purchase common stock having
a value of twice the purchase price. In the event that we are involved in a
merger or other similar transaction where Miravant is not the surviving
corporation, all holders of rights (other than the acquiring stockholder) shall
be entitled, upon payment of the then in effect purchase price, to purchase
Common Stock of the surviving corporation having a value of twice the purchase
price. The rights will expire on July 31, 2010, unless previously redeemed.
OUR BUSINESS COULD SUFFER IF WE ARE UNSUCCESSFUL IN INTEGRATING BUSINESS
COMBINATIONS AND STRATEGIC ALLIANCES.
We may expand our operations and market presence by entering into business
combinations, joint ventures or other strategic alliances with other companies.
These transactions create risks, such as the difficulty assimilating the
operations, technology and personnel of the combined companies; the disruption
or our ongoing business, including loss of management focus on existing
businesses and other market developments; problems retaining key technical and
managerial personnel; expenses associated with the amortization of goodwill and
other purchased intangible assets; additional operating losses and expenses of
acquired businesses; the impairment of relationships with existing employees,
customers and business partners; and, additional losses from any equity
investments we might make.
We may not succeed in addressing these risks, and we may not be able to
make business combinations and strategic investments on terms that are
acceptable to us. In addition, any businesses we may acquire may incur operating
losses.
BUSINESS INTERRUPTIONS COULD ADVERSELY AFFECT OUR BUSINESS.
Our operations are vulnerable to interruption by fire, earthquake, power
loss, telecommunications failure and other events beyond our control. We do not
have a detailed disaster recovery plan. Our facilities are all located in the
state of California and are currently subject to electrical blackouts as a
consequence of a shortage of available electrical power. In the event these
blackouts continue or increase in severity, they could disrupt the operations of
our affected facilities. In addition, we may not carry sufficient business
interruption insurance to compensate us for losses that may occur and any losses
or damages incurred by us could have a material adverse effect on our business.
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:
* Decreasing the price we, or any of our partners or licensees, receive
for any of our products;
* Preventing the recovery of development costs, which could be
substantial; and
* 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:
* 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;
* If regulatory approval of a product is granted, such approval may
entail limitations on the uses for which the product may be marketed;
* If regulatory approval is obtained, the product, our manufacturer and
the manufacturing facilities are subject to continual review and
periodic inspections;
* If regulatory approval is obtained, such approval may be conditional
on the satisfaction of the completion of clinical trials or require
additional clinical trials;
* 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
* Photodynamic therapy products have been categorized by the FDA as
combination photodynamic therapy 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:
* Foreign regulatory requirements governing testing, development,
marketing, licensing, pricing and/or distribution of drugs and devices
in other countries;
* 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;
* 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
* 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 MAY NOT BE ABLE TO KEEP UP WITH RAPID CHANGES IN THE BIOTECHNOLOGY AND
PHARMACEUTICAL INDUSTRIES THAT COULD MAKE SOME OR ALL OF OUR PRODUCTS
NON-COMPETITIVE OR OBSOLETE. COMPETING PRODUCTS AND TECHNOLOGIES MAY MAKE SOME
OR ALL OF OUR PROGRAMS OR POTENTIAL PRODUCTS NONCOMPETITIVE OR OBSOLETE.
Our industry is subject to rapid, unpredictable and significant
technological change. Competition is intense. Well-known pharmaceutical,
biotechnology and chemical companies are marketing well-established therapies
for the treatment of AMD. Doctors may prefer familiar methods that they are
comfortable using rather than try our products. Many companies are also seeking
to develop new products and technologies for medical conditions for which we are
developing treatments. Our competitors may succeed in developing products that
are safer or more effective than ours and in obtaining regulatory marketing
approval of future products before we do. We anticipate that we will face
increased competition as new companies enter our markets and as the scientific
development of PhotoPoint therapy evolves.
We expect that our principal methods of competition with other photodynamic
therapy companies will be based upon such factors as:
* The ease of administration of our photodynamic therapy;
* The degree of generalized skin sensitivity to light;
* The number of required doses;
* The safety and efficacy profile;
* The selectivity of our drug for the target lesion or tissue of
interest;
* The type and cost of our light systems; and
* The cost of our drug.
We cannot give you any assurance that new drugs or future developments in
photodynamic therapy or in other drug technologies will not have a material
adverse effect on our business. Increased competition could result in:
* Price reductions;
* Lower levels of third-party reimbursements;
* Failure to achieve market acceptance; and
* Loss of market share.
Any of which could have an adverse effect on our business. Further, we
cannot give you any assurance that developments by our competitors or future
competitors will not render our technology obsolete.
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 that other companies are marketing or developing certain
products to prevent, diagnose or treat diseases for which we are developing
PhotoPoint therapy. These products, as well as others of which we may not be
aware, may adversely affect the existing or future market for our products.
Competitive products may include, but are not limited to, drugs such as those
designed to inhibit angiogenesis or otherwise target new blood vessels, certain
medical devices, and other photodynamic therapy treatments.
We are aware of various competitors involved in the photodynamic therapy
sector. We understand that these companies are conducting preclinical studies
and/or clinical trials in various countries and for a variety of disease
indications. One company is QLT Inc., or QLT. We understand that QLT's drug
Visudyne has received marketing approval in the United States and certain other
countries for the treatment of AMD. QLT is therefore first to market in this
disease area. We understand that at least two other photodynamic therapy drugs
have received marketing approval in the United States - Photofrin(R) (QLT /
Axcan Pharmaceuticals) for the treatment of certain oncology indications and
Levulan(R) (DUSA Pharmaceuticals / Berlex Laboratories) for the treatment of
actinic keratoses, a dermatological condition. We are aware of other drugs and
devices under development by these and other photodynamic therapy competitors,
such as Pharmacyclics, in disease areas for which we are developing PhotoPoint
therapy. These competitors may develop superior products or reach the market
prior to PhotoPoint therapy and render our products non-competitive or obsolete.
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 understanding of the market opportunities for our PhotoPoint therapy is
derived from a variety of sources, and represents our best estimate of the
overall market sizes presented in certain disease areas. The actual market size
and market share which we may be able to obtain may vary substantially from our
estimates, and is dependent upon a number of factors, including:
* Competitive treatments, either existing or those that may arise in the
future;
* Performance of our products and subsequent labeling claims; and
* Actual patient population at and beyond product launch.
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:
* Our future capital and operational expenditures related to these
matters may increase and become material;
* We may also be subject to other present and possible future local,
state, federal and foreign regulation;
* 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;
* 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;
* The announcement of such proposals may materially adversely affect our
ability to raise capital or to form collaborations; and
* 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 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 STATEMENTS AND SUPPLEMENTARY DATA
All information required by this item is included on pages 47 - 65 in Item
14 of Part IV of this Report and is incorporated into this item by reference.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Miravant Medical Technologies
We have audited the accompanying consolidated balance sheets of Miravant Medical
Technologies as of December 31, 2000 and 1999, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 2000. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Miravant Medical
Technologies at December 31, 2000 and 1999 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
/S/ ERNST & YOUNG LLP
March 7, 2001
Woodland Hills, California
CONSOLIDATED BALANCE SHEETS
December 31,
2000 1999
------------------ -------------------
Assets
Current assets:
Cash and cash equivalents............................................... $ 1,935,000 $ 19,168,000
Investments in short-term marketable securities......................... 18,900,000 3,621,000
Accounts receivable..................................................... 932,000 5,717,000
Prepaid expenses and other current assets............................... 967,000 1,147,000
------------------ -------------------
Total current assets....................................................... 22,734,000 29,653,000
Property, plant and equipment:
Vehicles................................................................ 28,000 28,000
Furniture and fixtures.................................................. 1,649,000 1,639,000
Equipment............................................................... 5,882,000 5,679,000
Leasehold improvements.................................................. 4,538,000 4,488,000
------------------ -------------------
12,097,000 11,834,000
Accumulated depreciation................................................ (9,781,000) (8,112,000)
------------------ -------------------
2,316,000 3,722,000
Investments in affiliates.................................................. 859,000 752,000
Deferred financing costs................................................... 1,287,000 871,000
Patents and other assets................................................... 831,000 825,000
------------------ -------------------
Total assets............................................................... $ 28,027,000 $ 35,823,000
================== ===================
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable........................................................ $ 2,665,000 $ 4,070,000
Accrued payroll and expenses............................................ 638,000 650,000
------------------ -------------------
Total current liabilities.................................................. 3,303,000 4,720,000
Long-term liabilities:
Long-term debt.......................................................... 24,794,000 15,379,000
Sublease security deposits.............................................. 94,000 127,000
------------------ -------------------
Total long-term liabilities................................................ 24,888,000 15,506,000
Stockholders' equity (deficit):
Common stock, 50,000,000 shares authorized; 18,576,503 and 18,038,270
shares issued and outstanding at December 31, 2000 and
1999, respectively.................................................... 158,842,000 152,731,000
Notes receivable from officers.......................................... (487,000) (460,000)
Deferred compensation and interest...................................... (1,220,000) (1,776,000)
Accumulated other comprehensive loss.................................... (132,000) (3,724,000)
Accumulated deficit..................................................... (157,167,000) (131,174,000)
------------------ -------------------
Total stockholders' equity (deficit)....................................... (164,000) 15,597,000
------------------ -------------------
Total liabilities and stockholders' equity (deficit)....................... $ 28,027,000 $ 35,823,000
================== ===================
See accompanying notes.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
2000 1999 1998
------------------- ------------------- ------------------
Revenues:
License - contract research and development....... $ 4,481,000 $ 13,996,000 $ 9,314,000
Royalties......................................... -- 143,000 191,000
Grants............................................ 112,000 438,000 674,000
------------------- ------------------- ------------------
Total revenues....................................... 4,593,000 14,577,000 10,179,000
Costs and expenses:
Research and development.......................... 19,944,000 29,749,000 29,233,000
Selling, general and administrative............... 6,273,000 7,473,000 9,626,000
Loss in affiliate................................. -- 417,000 2,929,000
------------------- ------------------- ------------------
Total costs and expenses............................. 26,217,000 37,639,000 41,788,000
Loss from operations................................. (21,624,000) (23,062,000) (31,609,000)
Interest and other income (expense):
Interest and other income......................... 1,370,000 1,240,000 3,546,000
Interest expense.................................. (2,254,000) (434,000) (1,000)
Non-cash loss in investment....................... (3,485,000) -- --
------------------- ------------------- ------------------
Total net interest and other income (expense)........ (4,369,000) 806,000 3,545,000
------------------- ------------------- ------------------
Net loss............................................. $ (25,993,000) $ (22,256,000) $ (28,064,000)
=================== =================== ==================
Net loss per share - basic and diluted............... $ (1.42) $ (1.25) $ (1.94)
=================== =================== ==================
Shares used in computing net loss per share.......... 18,294,525 17,768,670 14,464,044
=================== =================== ==================
See accompanying notes.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Notes Accumulated
Receivable Deferred Other
Common Stock from Compensation Comprehensive Accumulated
Shares Amount Officers and Interest Loss Deficit Total
------------ --------------- -------------- --------------- -------------- --------------- ------------
Balance at January 1, 1998. 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)
Fulfillment of obligations
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 -- (332,000) -- -- 871,000
Amortization of deferred
compensation and interest
from warrants............ -- -- -- 1,452,000 -- -- 1,452,000
------------ --------------- ------------- --------------- -------------- --------------- -----------
Balance at December 31, 1999 18,038,270 $ 152,731,000 $ (460,000) $ (1,776,000) $(3,724,000) $(131,174,000) $15,597,000
Comprehensive loss:
Net loss.................. -- -- -- -- -- (25,993,000) (25,993,000)
Net change in accumulated
other comprehensive loss.. -- -- -- -- 3,592,000 -- 3,592,000
------------
Total comprehensive loss... (22,401,000)
Exercise of stock options
and warrants............. 486,979 4,414,000 -- -- -- -- 4,414,000
Issuance of stock awards... 51,254 760,000 -- -- -- -- 760,000
Deferred compensation,
deferred interest related
to warrants granted and
officer notes............. -- 937,000 (27,000) (205,000) -- -- 705,000
Amortization of deferred
compensation and interest
from warrants............. -- -- -- 761,000 -- -- 761,000
------------ --------------- ------------- --------------- -------------- --------------- ----------
Balance at December 31, 2000 18,576,503 $ 158,842,000 $ (487,000) $ (1,220,000) $ (132,000) $(157,167,000) $ (164,000)
============ =============== ============= =============== ============== =============== ==========
See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
Operating activities: 2000 1999 1998
---------------- ---------------- ---------------
Net loss............................................... $ (25,993,000) $ (22,256,000) $ (28,064,000)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization....................... 1,743,000 2,690,000 2,736,000
Amortization of deferred compensation............... 761,000 1,452,000 2,409,000
Non-cash loss in investment......................... 3,485,000 -- --
Loss on sale of property, plant and equipment....... -- 25,000 --
Reserve for loan receivable from affiliate.......... -- 250,000 1,808,000
Stock awards........................................ 760,000 1,006,000 1,579,000
Non-cash interest and amortization of deferred
financing costs on long-term debt................ 2,231,000 379,000 --
Write-off of investment in affiliate................ -- -- 895,000
Reserve for patents................................. 74,000 412,000 --
Changes in operating assets and liabilities:
Accounts receivable ............................. 4,785,000 (2,679,000) (1,349,000)
Prepaid expenses and other assets................ 225,000 (235,000) (528,000)
Accounts payable and accrued payroll............. (1,444,000) 596,000 (1,188,000)
------------------ ------------------ ------------------
Net cash used in operating activities.................. (13,373,000) (18,360,000) (21,702,000)
Investing activities:
Purchases of marketable securities..................... (31,396,000) (17,014,000) (230,660,000)
Sales of marketable securities......................... 16,117,000 13,393,000 258,456,000
Investments in affiliates.............................. -- -- (3,000,000)
Loan to affiliate...................................... -- (250,000) (1,808,000)
Purchases of property, plant and equipment............. (263,000) (551,000) (2,731,000)
Sublease security deposits............................. (33,000) 127,000 --
Purchases of patents................................... (199,000) (59,000) (468,000)
------------------ ------------------ ------------------
Net cash (used in) provided by investing activities.... (15,774,000) (4,354,000) 19,789,000
Financing activities:
Proceeds from issuance of Common Stock, less
issuance costs...................................... 4,414,000 18,737,000 2,509,000
Proceeds from long-term debt........................... 7,500,000 15,000,000 --
Purchases of Common Stock............................. -- -- (17,911,000)
Repayments (advances) of notes to officers............. -- 1,065,000 (1,525,000)
Payments of capital lease obligations.................. -- -- (21,000)
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.... 11,914,000 30,598,000 (42,469,000)
Net (decrease) increase in cash and cash equivalents... (17,233,000) 7,884,000 (44,382,000)
Cash and cash equivalents at beginning of period....... 19,168,000 11,284,000 55,666,000
------------------ ------------------ ------------------
Cash and cash equivalents at end of period............. $ 1,935,000 $ 19,168,000 $ 11,284,000
================== ================== ==================
Supplemental disclosures:
State taxes paid....................................... $ 8,000 $ 100,000 $ 113,000
================== ================== ==================
Interest paid.......................................... $ 24,000 $ -- $ 1,000
================== ================== ==================
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.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. This basis of accounting contemplates
the recovery of the Company's assets and the satisfaction of its liabilities in
the normal course of business. Through December 31, 2000, the Company had an
accumulated deficit of $157.2 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. Once requisite regulatory approval has been
obtained, substantial additional financing will be required for the manufacture,
marketing and distribution of its product in order to achieve a level of
revenues adequate to support the Company's cost structure. Management of the
Company believes it has sufficient resources to fund the required expenditures
for the next twelve months and additional funding will be available when
required. If additional funding is not available when required, management
believes it has the ability to conserve cash required for operations over the
next twelve months through the delay or reduction in scope of one or more of its
research and development projects and by adjusting or deferring salaries to
certain employees, if required, to conserve cash to be used in operations.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated 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
consistent 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. Marketable
securities of $18.9 million and $3.6 million consisted of short-term,
interest-bearing municipal bonds as of December 31, 2000 and 1999, respectively.
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, 2000 and 1999, 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 stockholders'
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. Declines in value determined
to be other-than-temporary on available-for-sale securities are listed
separately as a non-cash loss in investment in the consolidated financial
statements.
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 significant 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 significant
influence, are recorded under the cost method. Under the equity method,
investments are carried at acquisition cost and generally 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 an equity interest in Ramus Medical
Technologies or Ramus for $2.0 million. The investment was accounted for under
the equity method. As the Company was the main source of financing for Ramus,
the Company 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, 1998 and 1999,
respectively. The investment in Ramus has been fully reserved for as of December
31, 2000 and 1999, respectively.
In June 1998, the Company purchased an 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 58,909 shares of Miravant
Common Stock. The investment has been accounted for under the cost method and
classified as available-for-sale. See Note 11 for further discussion on the
current value of the Company's investment in Xillix.
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 $305,000 and $231,000 at December 31, 2000
and 1999, 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 expense 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.
In March 2000, the Financial Accounting Standards Board issued Financial
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an Interpretation of APB Opinion No. 25" or FIN 44. FIN 44
clarifies the definition of an employee for the purpose of applying APB Opinion
No. 25, "Accounting for Stock Issued to Employees," the criteria for determining
whether a stock plan qualifies as a noncompensatory stock plan, the accounting
consequences of various modifications to the terms of a previously fixed stock
option or award and the accounting for an exchange of stock compensation awards
in a business combination. FIN 44 was generally effective July 1, 2000 and the
adoption of FIN 44 has not had a material effect on the Company's consolidated
financial statements.
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.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" or
SAB 101. SAB 101 requires that license and other upfront fees received from
research collaborators be recognized over the term of the agreement unless the
fee is in exchange for products delivered or services performed that represent
the culmination of a separate earning process. The adoption of SAB 101, as
amended, during fiscal 2000 has not had a material effect on the Company's
consolidated financial statements.
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, with no alternative
future use, are also included in research and development expenses.
Segment Reporting
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 Loss
The Company has elected to report other comprehensive loss in the
consolidated statements of stockholders' equity as follows:
2000 1999 1998
-------------- --------------- ------------------
Unrealized holding gains (losses) arising during period
from available-for-sale securities, net of taxes of
zero in each period................................... $ 107,000 $ (760,000) $ (2,964,000)
Reclassification adjustment for non-cash loss in
investment recognized in net income ................... 3,485,000 -- --
-------------- --------------- ------------------
Net change in accumulated other comprehensive loss ...... $ 3,592,000 $ (760,000) $ (2,964,000)
============== =============== ==================
Net Loss Per Share
The Company calculates earnings per share 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.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" or SFAS No. 133.
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. In July 1999, the FASB
issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133". SFAS No.
137 deferred the effective date of SFAS No. 133 until fiscal years beginning
after June 15, 2000. The adoption of SFAS No. 133 has not had a material effect
on the Company's consolidated financial statements.
2. Credit Arrangements
Pharmacia Corporation
In February 1999, the Company and Pharmacia Corporation, formerly Pharmacia
& Upjohn, Inc., entered into a Credit Agreement which extended to the Company
$22.5 million in credit, 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 Credit Agreement allows
for the Company to issue 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. Beginning in 2001, the Company can
continue to issue promissory notes for the quarterly interest due for any
quarter in which our adjusted net earnings, as described by the Credit
Agreement, is less than the quarterly interest due. The promissory notes, which
accrue interest at the prime rate, mature in June 2004 and, at the Company's
option, can be repaid at the maturity date in the form of Miravant Common Stock,
subject to certain limitations and restrictions as defined by the Credit
Agreement. Under the Credit Agreement, the Company will be required to meet
certain affirmative, negative and financial covenants until the loan is fully
repaid.
As of December 31, 2000, the $22.5 million in credit has been fully
utilized. The Company received four quarterly loans for a total of $15.0 million
in 1999 and received the final two quarterly loans for a total of $7.5 million
in 2000. In connection with the receipt of these loans and in accordance with
the Credit Agreement, the Company has issued 360,000 warrants to purchase
Miravant Common Stock at an exercise price of $11.87 per warrant share for
120,000 shares, $14.83 per warrant share for 120,000 shares and $20.62 per
warrant share for the last 120,000 shares. The Company has issued promissory
notes for the $22.5 million principal balance as well as promissory notes
totaling $379,000 in 1999 and $1.9 million in 2000 for the quarterly interest
due. The interest rate for these notes was 9.50% at December 31, 2000.
Additionally, the warrants granted, which have been valued at $1.7 million using
the Black Scholes valuation, have been recorded as deferred financing costs on
the balance sheet and will be amortized on a straight-line basis to interest
expense over the life of the loans.
Ramus
In April 1998, the Company entered into a $2.0 million revolving credit
agreement with its affiliate, Ramus. Between 1998 and 1999, Ramus borrowed the
entire $2.0 million available under the credit agreement. As of December 31,
2000, the balance of the loan, including principal and accrued interest, was
$2.4 million. The loan, which was used to fund Ramus' clinical trials and
operating costs, accrues interest at a variable rate (9.50% as of December 31,
2000) based on the Company's bank rate. The loan term was extended in March 2000
and 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, 2000 and 1999.
3. Stockholders' Equity
Collaboration with Pharmacia Corporation
In January 1999, the Company and Pharmacia Corporation entered into an
Equity Investment Agreement pursuant to which Pharmacia Corporation 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 included 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 Corporation 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 agreements 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, 2000, no warrants have been exercised.
Preferred Stockholder Rights Plan
On July 13, 2000, the Board of Directors of the Company adopted a Preferred
Stockholder Rights Plan or the Rights Plan. Under the Rights Plan, Miravant has
issued a dividend of one right for each share of its Common Stock held after the
close of business on July 31, 2000. The Rights Plan is designed to assure
stockholders' fair value in the event of a future unsolicited business
combination or similar transaction involving the Company. This Rights Plan was
not adopted in response to any attempt to acquire the Company, and Miravant is
not aware of any such efforts.
The rights will become exercisable only if a person or group (i) acquires
20 percent or more of Miravant's Common Stock, or (ii) announces a tender offer
that would result in ownership of 20 percent or more of the Common Stock. Each
right would entitle a stockholder to buy a fractional share of the Company's
preferred stock. Each right has an initial exercise price of $180.00. Once the
acquiring person or group has acquired 20 percent or more of the outstanding
Common Stock of Miravant, each right shall entitle its holder (other than the
acquiring person or group) to acquire shares of the Company or of the third
party acquirer having a value of twice the right's then-current exercise price.
The rights are redeemable at the option of the Board of Directors up until
ten days after public announcement that any person or group has acquired 20
percent or more of Miravant's Common Stock. The redemption price is $0.001 per
right. The rights will expire on July 31, 2010, unless redeemed prior to that
date. Distribution of the rights is not taxable to stockholders.
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 and 2000. 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. 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, 2000 the total
balance of these loans was $139,000. Additionally, in 1998, the Company made a
loan to its Chief Executive Officer; the loan accrues interest at a fixed rate
of 5.5% and as of December 31, 2000 had a total balance of $348,000.
Stock Option Plans
The Company has six stock-based compensation plans which are described
below - the 1989 Plan, the 1992 Plan, the 1994 Plan, the 1996 Plan or, as a
group, the Prior Plans, the Miravant Medical Technologies 2000 Stock
Compensation Plan or the 2000 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, corporate officers, non-employee directors and consultants.
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 June 14, 2000, the Prior Plans were superseded
with the adoption of the 2000 Plan except to the extent of options outstanding
under the Prior Plans. The Company has allocated 300,000 shares, 750,000 shares,
600,000 shares and 4,000,000 shares for the 1989 Plan, the 1992 Plan, the 1994
Plan and the 1996 Plan, respectively. The outstanding shares granted under the
Prior Plans generally 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 2000 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 2000 Plan is an employee stock purchase program which has not yet been
implemented. Officers, key employees, directors and independent contractors or
agents of the Company may be eligible to participate in the 2000 Plan, except
that incentive stock options may only be granted to employees of the Company.
The 2000 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 2000 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 2000 Plan over its term is 6,000,000 shares. Awards granted under the
2000 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
Exercise Price Average Stock
Per Share Exercise price Options
- ---------------------------------------------------------------------------------------------
Outstanding at January 1, 1998.......... $ 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 10.98 858,244
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 3,156,426
Granted.............................. 9.28 - 21.31 9.80 1,015,500
Exercised............................ 4.00 - 15.00 8.69 (96,298)
Canceled............................. 8.00 - 28.00 14.60 (29,826)
- ---------------------------------------------------------------------------------------------
Outstanding at December 31, 2000........ $ 0.67 - 55.50 $ 15.34 4,045,802
- ---------------------------------------------------------------------------------------------
Options Outstanding by Price Range at
December 31, 2000....................... $ 0.67 - 9.28 $ 5.76 1,138,064
$ 9.31 - 12.00 $ 9.74 1,072,125
$12.50 - 28.00 $ 17.12 1,033,613
$29.63 - 55.50 $ 34.12 802,000
Exercisable at:
December 31, 1998....................... $ 0.67 - 55.50 $ 15.45 1,227,651
December 31, 1999....................... $ 0.67 - 55.50 $ 17.01 1,499,069
December 31, 2000....................... $ 0.67 - 55.50 $ 17.99 1,955,916
In accordance with APB Opinion No. 25 and FIN 44 and in connection with
accounting for the Company's stock-based compensation plans, the Company
recorded $80,000, $15,000 and $31,000 for the years ended December 31, 2000,
1999 and 1998, 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. The Company
recorded $540,000 of compensation expense related to these loans for each of the
years ended December 31, 2000, 1999 and 1998.
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 increased to the pro forma amounts
indicated below:
2000 1999 1998
----------------------------------------- --- ----------------- -- --------------------- --------------------
Net loss
As reported...................... $ (25,993,000) $ (22,256,000) $ (28,064,000)
Pro forma........................ $ (32,063,000) $ (28,511,000) $ (34,371,000)
Loss per share - basic and diluted
As reported...................... $ (1.42) $ (1.25) $ (1.94)
Pro forma........................ $ (1.75) $ (1.61) $ (2.38)
----------------------------------------- --- ----------------- -- --------------------- --------------------
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:
2000 1999 1998
----------------------------------------- --- ----------------- --- -------------------- -------------------
Expected dividend yield............. 0% 0% 0%
Expected stock price volatility..... 50% 50% 50%
Risk-free interest rate............. 5.75% - 6.00% 6.17% - 6.77% 4.62% - 4.83%
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, 2000, 1999 and 1998 was 7.1 years, 7.1 years and 7.2 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 125,761 shares, 1,563 shares and 136,688 shares of Common Stock were
exercised during 2000, 1999 and 1998, respectively. As of December 31, 2000,
warrants to purchase 45,311 shares of Common Stock expired and were cancelled
accordingly.
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 30,354 shares of Common Stock were exercised
during 2000, no warrants were exercised in 1999 and 312 shares were exercised in
1998.
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. These warrants were
all exercised during 2000.
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. The warrants 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, 2000, warrants to purchase 154,000 shares
of Common Stock were exercised. The Company recorded deferred compensation
associated with the value of these warrants of $205,000, $276,000 and $717,000
in 2000, 1999 and 1998, respectively. The Company recorded compensation expense
of $224,000, $843,000 and $1.8 million for the years ended December 31, 2000,
1999 and 1998, respectively. As of December 31, 2000, warrants to purchase
651,000 shares of Common Stock expired and were cancelled accordingly.
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 share
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, 2000, no warrants have been exercised.
As of December 31, 2000, the Company has reserved a total of 2,891,500
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
consolidated 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 expired
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, 2000, 1999 and 1998 warrants
to purchase 65,566 shares, 4,687 shares and 17,186 shares, respectively, of
Common Stock were exercised. As of December 31 2000, warrants to purchase
17,186, shares of Common Stock expired and were cancelled accordingly.
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 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 100% for the 2000
and 1999 plan years, are made on a quarterly basis and vest over a five year
period. Total Company matching contributions for 2000, 1999 and 1998 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:
2000 1999
----------------------------------------------------------------
Current Non-current Current Non-current
--------------------------------------------------------------
Deferred tax assets:
Other accruals and reserves........... $ 131,000 $ -- $ 126,000 $ --
Capitalized research and development.. -- 778,000 -- 778,000
Non-cash loss in investment........... -- 1,493,000 -- --
Net operating losses and tax credits.. -- 60,298,000 -- 52,504,000
--------------------------------------------------------------
Total deferred tax assets............... 131,000 62,569,000 126,000 53,282,000
Deferred tax liabilities:
Amortization and depreciation
expense.............................. -- 230,000 -- 397,000
Federal benefit for state income taxes 9,000 2,556,000 26,000 5,232,000
--------------------------------------------------------------
Total deferred tax liabilities.......... 9,000 2,786,000 26,000 5,629,000
--------------------------------------------------------------
Net deferred tax assets................. 122,000 59,783,000 100,000 47,653,000
Less valuation reserve.................. (122,000) (59,783,000) (100,000) (47,653,000)
--------------------------------------------------------------
$ -- $ -- $ -- $ --
==============================================================
The Company has net operating loss carryforwards for federal tax purposes
of $156.3 million which expire in the years 2002 to 2021. Research credit
carryforwards aggregating $8.0 million are available for federal and state tax
purposes and expire in the years 2002 to 2020. The Company also has a state net
operating loss carryforward of $42.9 million which expires in the years 2001 to
2005. Of the $42.9 million in state net operating loss carryforwards, $13.2
million will expire during 2001 and 2002. 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 no royalty income received
from device sales for the year ended December 31, 2000 and $143,000 and $191,000
for the years ended December 31, 1999 and 1998, respectively. Additionally, for
the years ended December 31, 2000, 1999 and 1998, the Company has not paid any
royalties under these agreements.
In 1994, the Company entered into a development and commercial supply
agreement with Pharmacia Corporation to receive formulation and packaging
services for one of the Company's drugs at specified prices. For the years ended
December 31, 2000, 1999 and 1998, the Company paid $372,000, $1.3 million and
$2.6 million, respectively, and recorded as expense $308,000, $881,000 and $2.9
million, respectively, primarily for the cost of drug formulation and
development. In 1998, the rights and obligations under this agreement were
transferred to Fresenius AG with operating terms remaining the same.
Under the prior and current License Agreements, Pharmacia Corporation 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 under the License Agreements. For
the years ended December 31, 2000, 1999 and 1998, the Company recorded license
revenues of $4.5 million, $14.0 million and $9.3 million, respectively, related
to the billing for the reimbursement of certain preclinical and clinical costs.
The Company has not yet received any royalty income under these agreements and
will only do so based on future drug product sales.
Certain of the Company's research has been funded in part by Small Business
Innovation Research and/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 inventions to a third party
based on certain criteria. For the years ended December 31, 2000, 1999 and 1998,
the Company has recorded income from grants of $112,000, $438,000 and $674,000,
respectively.
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
$117,000. 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 is currently on a month-to-month basis. Sublease rental income from Ramus is
approximately $4,900 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 on the
consumer price index. Sublease rental income from these parties is $32,900 per
month. Sublease rental income is netted against the Company's rent expense.
Future minimum operating lease payments, net of sublease rental income, as
of December 31, 2000 are as follows:
Lease Amount Minimum
Payable Sublease Revenues Net
------------------ -------------------- ------------------
2001....................................... $ 1,403,000 $ 367,000 $ 1,036,000
2002....................................... 1,175,000 367,000 808,000
2003....................................... 663,000 321,000 342,000
2004....................................... -- -- --
------------------ -------------------- ------------------
Total minimum lease payments............... $ 3,241,000 $ 1,055,000 $ 2,186,000
------------------ -------------------- ------------------
Rent expense was $1.1 million, $1.3 million and $1.1 million for the years
ended December 31, 2000, 1999 and 1998, respectively, net of sublease income of
$365,000, $47,000 and $45,000, 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. In connection with
ongoing services provided by the consulting firm, the Company recorded no
expense for the year ended December 31, 2000 and $2,000 and $373,000 for the
years ended December 31, 1999 and 1998, 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 $86,000 in connection with legal services related to
the Pharmacia Corporation equity investment in 1999. In connection with general
legal services provided by the law firm, the Company recorded as expense
$40,000, $46,000 and $246,000 for the years ended December 31, 2000, 1999 and
1998, respectively. From 1996 through December 31, 2000, this individual's law
firm has received warrants to purchase 80,000 shares of Common Stock for his
services as Secretary of the Company.
10. Fair Value of Financial Instruments
The following is information concerning the fair value of each class of
financial instrument as of December 31, 2000 and 1999:
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.
11. Investments in Affiliate
During 2000, the Company determined the decline in the value of its
investment in Xillix was other-than-temporary. The Company recognized a loss
totaling $3.5 million to adjust its investment in Xillix to its estimated
current fair value based on the average closing prices over a 120 day period.
This loss is included in "Non-cash loss in investment" in the accompanying
consolidated statements of operations, stockholders' equity and cash flows. As
of December 31, 2000, the Company still holds the 2,691,904 shares of Xillix
common stock received in the original investment transaction. The new cost basis
in the investment is $991,000 and this investment will continue to be classified
as an available-for-sale investment recorded at fair value with any resulting
unrealized gains or losses included in "Accumulated other comprehensive loss" in
the consolidated balance sheet and statement of stockholders' equity.
12. Quarterly Results of Operations (Unaudited)
Three Months Ended
----------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
---------------- --------------- ------------------ ---------------
1999:
Revenues......................................... $ 2,412,000 $ 6,006,000 $ 2,353,000 $ 3,806,000
Costs and expenses............................... 8,579,000 11,229,000 7,856,000 9,975,000
Net interest and other income.................... 128,000 322,000 116,000 240,000
---------------- --------------- ------------------ ---------------
Net loss......................................... $ (6,039,000) $ (4,901,000) $ (5,387,000) $ (5,929,000)
================ =============== ================== ===============
Net loss per share:
Basic and diluted............................ $ (0.35) $ (0.27) $ (0.30) $ (0.33)
================ =============== ================== ===============
2000:
Revenues......................................... 1,378,000 1,551,000 834,000 830,000
Costs and expenses............................... 6,267,000 7,152,000 6,631,000 6,167,000
Net interest expense............................. (112,000) (177,000) (256,000) (339,000)
Non-cash loss in investment...................... -- -- -- (3,485,000)
---------------- --------------- ------------------ ---------------
Net loss......................................... $ (5,001,000) $ (5,778,000) $ (6,053,000) $ (9,161,000)
================ =============== ================== ===============
Net loss per share:
Basic and diluted............................ $ (0.28) $ (0.32) $ (0.33) $ (0.50)
================ =============== ================== ===============
13. Subsequent Event
In January 2001, the Company entered into a non-binding letter of intent
with Pharmacia Corporation to provide the Company up to an additional $20.0
million of funding. The terms and conditions under which any such funding would
be available to the Company are subject to further negotiation between the
parties.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL 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) Financial Statements
(i) The following financial statement documents are included as part of Item 8 to this Form 10-K:
Index to Consolidated Financial Statements: Page
Report of Independent Auditors 47
Consolidated Balance Sheets as of
December 31, 2000 and 1999 48
Consolidated Statements of Operations for the
years ended December 31, 2000, 1999 and 1998 49
Consolidated Statements of Stockholders'
Equity for the years ended December 31,
2000, 1999 and 1998 50
Consolidated Statements of Cash Flows for the
years ended December 31, 2000, 1999 and 1998 51
Notes to Consolidated Financial Statements 52
(ii) Schedules required by Article 12 of Regulation S-X:
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.
(b) Index to Exhibits:
-----------------
See Index to Exhibits on pages 69 to 72
(c) Reports on Form 8-K:
-------------------
On July 14, 2000, Miravant Medical Technologies reported under
Item 5 - Other Events, that the Board of Directors of Miravant
Medical Technologies approved the adoption of a Preferred
Stock Rights Agreement.
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 [I] [4.13]
4.14 Form of Common Stock Purchase Warrant between the Registrant and Nida & Maloney
4.15 Form of Common Stock Purchase Warrant between the Registrant and Pharmacia Corporation.
4.16 Preferred Stock Rights Agreement dated July 13, 2000 [H] [4.1]
10.1 Master Lease Agreement dated March 16, 1993 between the Registrant and Citicorp Leasing,
Inc. [A][10.2]
10.2 Standard Industrial / Commercial Lease dated June 10, 1992 between the Registrant and
Santa Barbara Research Center. [A][10.3]
10.3 Addendum to Standard Industrial / Commercial Lease dated June 10, 1992 between the
Registrant and Santa Barbara Research Center. [A][10.4]
10.4 Roof Agreement dated October 26, 1993 between the Registrant and Santa Barbara Research
Center. [A][10.5]
10.5 Employment Agreement dated as of October 1, 1992 between PDT Pharmaceuticals, Inc. and
Dr. Gary S. Kledzik.** [A][10.6]
10.6 PDT, Inc. Stock Option Plan dated September 19, 1989.** [A][10.9]
10.7 PDT, Inc. Stock Option Plan dated September 3, 1992.** [A][10.10]
10.8 PDT, Inc. 1994 Stock Option Plan dated December 2, 1994.** [A][10.11]
10.9 PDT, Inc. Non-Employee Directors' Stock Option Plan.** [A][10.12]
10.10 Letter Agreement dated December 6, 1993 between the Registrant and Cordis Corporation.* [J][10.13]
10.11 Letter Agreement dated December 10, 1993 between the Registrant and Boston Scientific
Corporation.* [J][10.14]
10.12 License Agreement dated July 1, 1989 between the Registrant and The University of Toledo,
The Medical College of Ohio and St. Vincent Medical Center as amended.* [J][10.17]
10.13 License and Distribution Agreement dated April 1, 1992 between the Registrant and
Laserscope, a California Corporation.* [J][10.18]
10.14 Form of Directors' and Officers' Indemnification Agreement. [A][10.22]
10.15 OEM Agreement dated June 1, 1992 between the Registrant and Laserscope, a California
Corporation.* [J][10.23]
10.16 Employment Agreement with David E. Mai dated February 1, 1991, as amended.** [J][10.24]
10.17 Form of Consulting Agreement [K][10.1]
10.18 Amendment to PDT, Inc. Stock Option Plan dated September 19, 1989.** [L] [10.1]
10.19 Amendment to PDT, Inc. 1994 Stock Option Plan dated December 2, 1994.** [L][10.2]
10.20 Employment Agreement with John M. Philpott dated as of March 20, 1995, as amended.** [M] [10.43]
10.21 Form of Amended and Restated Financial Services Agreement between Registrant and HAI
Financial, Inc. [M] [10.46]
10.22 Development and Distribution Agreement between Registrant and Iridex Corporation.* [N][10.1]
10.23 Commercial Lease Agreement between Registrant and Santa Barbara Business Park, a [N][10.2]
California Limited Partnership.(1)
10.24 PDT, Inc. 1996 Stock Compensation Plan.** [O]
10.25 Form of Amendment No. 3 to 1989 Stock Option Agreement.** [P][10.4]
10.26 Investment Agreement dated December 27, 1996 between PDT Cardiovascular, Inc. and Ramus
Medical Technologies.* [Q] [10.16]
10.27 Co-Development Agreement dated December 27, 1996 between PDT Cardiovascular, Inc. and
Ramus Medical Technologies. [Q] [10.17]
10.28 Series A Preferred Stock Registration Rights Agreement dated December 27, 1996 between
PDT Cardiovascular, Inc. and Ramus Medical Technologies.* [Q] [10.18]
10.29 Amended and Restated 1996 Stock Compensation Plan.** [R]
10.30 PDT, Inc. 401(k)-Employee Stock Ownership Plan.** [S][10.2]
10.31 Credit Agreement dated April 1, 1998 between the Registrant and Ramus Medical [T][10.5]
Technologies.*
10.32 Convertible Promissory Note dated April 1, 1998 between the Registrant and Ramus Medical [T][10.6]
Technologies.*
10.33 Strategic Alliance Agreement dated June 2, 1998 between the Registrant and Xillix [T][10.7]
Technologies Corp.*
10.34 Subscription Agreement relating to the Registrant's Common Stock dated June 2, 1998 [T][10.8]
between the Registrant and Xillix Technologies Corp.
10.35 Subscription Agreement relating to Xillix's Common Stock dated June 2, 1998 between the [T][10.9]
Registrant and Xillix Technologies Corp.
10.36 Commercial Lease Agreement dated May 27, 1998 between the Registrant and
Raytheon Company [A][10.4]
10.37 Equity Investment Agreement dated January 15, 1999 between the Registrant and Pharmacia [U][10.1]
& Upjohn, Inc., and Pharmacia & Upjohn, S.p.A.*
10.38 Credit Agreement between the Registrant and the Lender.* [U][10.2]
10.39 Warrant Agreement between the Registrant and Pharmacia & Upjohn, Inc.* [U][10.3]
10.40 Security Agreement between the Registrant and the Secured Party.* [U][10.4]
10.41 Registration Rights Agreement between the Registrant and Pharmacia & Upjohn, Inc.* [U][10.5]
10.42 Amended and Restated Ophthalmology Development & License Agreement between the Registrant
and Pharmacia & Upjohn AB.* [U][10.6]
10.43 Cardiovascular Right of First Negotiation between the Registrant and Pharmacia & Upjohn,
Inc.* [U][10.7]
10.44 Amendment No. 8 dated as of January 1, 2000 to Employment Agreement between the
Registrant and Gary S. Kledzik.** [V][10.1]
10.45 Amendment No. 13 dated as of January 1, 2000 to Employment Agreement between the
Registrant and David E. Mai.** [V][10.2]
10.46 Amendment No. 5 dated as of January 1, 2000 to Employment Agreement between the
Registrant and John M. Philpott.** [V][10.3]
10.47 Miravant Medical Technologies 2000 Stock Compensation Plan [W] [4.1]
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
dated July 30, 1998 (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 8A dated July 18, 2000 (File No.
0-25544).
[I] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 10-K for the year ended December
31, 1999 (File No. 0-25544).
[J] Incorporated by reference from the exhibit referred to in brackets
contained in Amendment No. 1 to the Registrant's
Registration Statement on Form S-1 (File No. 33-87138).
[K] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 8-K dated June 22, 1995 (File No.
0-25544).
[L] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 10-Q for the quarter ended
September 30, 1995 (File No. 0-25544).
[M] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 10-K for the year ended December
31, 1995 (File No. 0-25544).
[N] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 10-Q for the quarter ended June
30, 1996 (File No. 0-25544).
[O] Incorporated by reference from the Registrant's 1996 Definitive Proxy
Statement filed June 18, 1996
[P] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 10-Q for the quarter ended
September 30, 1996 (File No. 0-25544).
[Q] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 10-K for the year ended December
31, 1996 (File No. 0-25544).
[R] Incorporated by reference from the Registrant's 1996 Definitive
Proxy Statement filed April 24, 1997.
[S] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 10-Q for the quarter ended June
30, 1997 (File No. 0-25544).
[T] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 10-Q for the quarter ended June
30, 1998 (File No. 0-25544).
[U] 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).
[V] 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).
[W] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form S-8 dated August 29, 2000 (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.
(1) The material has been filed separately on paper pursuant to a request
granted by the Commission for a continuing hardship
exemption from filing electronically.
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, 2001
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, 2001
- ------------------------------------ and Chief Executive Officer,
Gary S. Kledzik, Ph.D. (Principal Executive Officer)
/S/ David E. Mai Director and President March 29, 2001
- ------------------------------------
David E. Mai
/S/ John M. Philpott Chief Financial Officer and Treasurer March 29, 2001
- ------------------------------------ (Principal Financial Officer and
John M. Philpott Principal Accounting Officer)
/S/ Larry S. Barels Director March 29, 2001
- ------------------------------------
Larry S. Barels
/S/ William P. Foley II Director March 29, 2001
- ------------------------------------
William P. Foley II
/S/ Charles T. Foscue Director March 29, 2001
- ------------------------------------
Charles T. Foscue
/S/ Jonah Shacknai Director March 29, 2001
- ------------------------------------
Jonah Shacknai
Exhibit 21.1
Subsidiaries of the Registrant
Miravant Pharmaceuticals, Inc.
Miravant Systems, Inc.
Miravant Cardiovascular, Inc.
Exhibit 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-29413) pertaining to the Miravant Medical Technologies 401(k)
- - Employee Stock Ownership Plan, (Form S-8 No. 333-34953 and Form S-8 No.
333-93385) pertaining to the Miravant Medical Technologies 1989 Stock Option
Plan, the Miravant Medical Technologies 1992 Stock Option Plan, the Miravant
Medical Technologies 1994 Stock Option Plan, the Miravant Medical Technologies
Non-Employee Directors' Stock Option Plan and the Miravant Medical Technologies
1996 Stock Compensation Plan and (Form S-8 No. 333-44728) pertaining to the
Miravant Medical Technologies 2000 Stock Compensation Plan and to the
incorporation by reference in the Registration Statements (Form S-3/A2 No.
333-60251 and Form S-3 No. 333-84003) and in the related Prospectuses of our
report dated March 7, 2001, with respect to the consolidated financial
statements of Miravant Medical Technologies included in its Annual Report (Form
10-K) for the year ended December 31, 2000.
/S/ ERNST & YOUNG LLP
March 26, 2001
Woodland Hills, California