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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, 2001
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 (IRS Employer Identification No.)
of incorporation or organization)
336 Bollay Drive, Santa Barbara, California 93117
(Address of principal executive offices, including zip code)
(805) 685-9880
(Registrant's telephone number, including area code)
Securities Registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section
12(g) of the Act:
Common Stock, $.01 Par Value
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 15, 2002 based upon the last sale price of the Common
Stock of $1.15 per share, as reported on the Nasdaq National Market, was
approximately $16,566,361. 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 15, 2002 was
18,876,508
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 2002 Annual
Meeting of Stockholders scheduled to be held on June 26, 2002. 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, 2001
TABLE OF CONTENTS
PART I
Item 1. Business ...........................................................................................4
Item 2. Properties .........................................................................................22
Item 3. Legal Proceedings...................................................................................23
Item 4. Submission of Matters to a Vote of Security-Holders.................................................23
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholders Matters..............................24
Item 6. Selected Consolidated Financial Data................................................................25
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...............26
Item 7A. Qualitative and Quantitative Disclosures About Market Risk..........................................55
Item 8. Financial Statements and Supplementary Data.........................................................55
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure................78
PART III
Item 10. Directors and Executive Officers of the Registrant .................................................79
Item 11. Executive Compensation..............................................................................79
Item 12. Security Ownership of Certain Beneficial Owners and Management......................................79
Item 13. Certain Relationships and Related Transactions......................................................79
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.....................................80
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 and include
statements regarding our general beliefs concerning the efficacy and potential
benefits of photodynamic therapy; the timing of the completion of our analysis
of the clinical data from the SnET2 Phase III wet age related macular
degeneration, or AMD, clinical trials, which Pharmacia Corporation, or
Pharmacia, concluded had not met the primary efficacy endpoint; the assumption
that we will continue as a going concern and stay listed on Nasdaq; our plans to
collaborate with other parties; our ability to continue to retain employees
under our current financial circumstances; our ability to use our light
production and delivery devices in future clinical trials; our expected research
and development expenditures; our patent prosecution strategy; and our
expectations concerning the government exercising its rights to use certain of
our licensed technology. Our actual results could differ materially from those
discussed in these statements due to a number of risks and uncertainties
including: a failure of our drugs and devices to receive regulatory approval;
unanticipated complexity or difficulty in analyzing clinical trial data; other
parties may decline to collaborate with us due to our financial condition or
other reasons beyond our control; our existing light production and delivery
technology may prove to be inapplicable or inappropriate for future studies; we
may be unable to obtain the necessary funding to further our research and
development activities and the government may change its past practices and
exercise its rights contrary to our expectations. For a more complete
description of the risks that may impact our business, see "Risk Factors",
included in Item 7, for a discussion of certain risks, including those relating
to our ability to obtain additional funding, our ability to establish new
strategic collaborations, our operating losses, risks related to our industry
and other forward-looking statements.
ITEM 1. BUSINESS
General
We are a pharmaceutical research and development company developing light
activated drugs and associated devices for a medical procedure called
photodynamic therapy, or PDT. PDT is a minimally invasive medical procedure that
uses drugs that are activated by light, or photoreactive drugs, to selectively
destroy abnormal cells and blood vessels. We have branded our proprietary
version of PDT as PhotoPoint(TM) PDT. PhotoPoint PDT integrates our drugs with
our light producing and light delivery devices to achieve a photochemical effect
on targeted diseased cells and blood vessels. While we currently have no drugs
or devices that have received regulatory approval, we believe that PhotoPoint
PDT is a platform technology that has the potential to be a safe and effective
treatment for a number of diseases including those in ophthalmology,
dermatology, cardiovascular disease and oncology.
The status of our most significant development activities and company
developments are as follows:
* In collaboration with Pharmacia, in December 2001, we completed two
Phase III ophthalmology clinical trials for the treatment of
age-related macular degeneration, or AMD, with our lead drug
candidate, SnET2. In January 2002, Pharmacia, after an analysis of the
Phase III AMD clinical data, determined that the clinical data results
indicated that SnET2 did not meet the primary efficacy endpoint in the
study population, as defined by the clinical trial protocol, and that
they would not be filing a New Drug Application, or NDA, with the U.S.
Food and Drug Administration, or FDA. Based on Pharmacia's analysis of
the AMD clinical data, we may not be able to proceed with our plans to
seek regulatory approval of SnET2 as formerly planned. In March 2002,
we regained the license rights to SnET2 as well as the related data
and assets from the Phase III AMD clinical trials from Pharmacia. We
are currently conducting our own detailed analysis of the clinical
data, including an analysis of the subset groups. We expect to
complete our analysis by the end of the second quarter 2002 and, based
on the results of our analysis, we will determine the future potential
development of SnET2. In addition, we have terminated our license
collaboration with Pharmacia, and we intend to seek a new
collaborative partner for PhotoPoint PDT in ophthalmology;
* We will require additional funding in the near term to support our
ongoing development activities and operations past September 2002.
Pharmacia has provided us with various forms of funding in recent
years including equity investments and loans. With the termination of
our license collaboration, Pharmacia will no longer loan us additional
funds nor will they be required to make milestone payments or
additional equity investments. We have taken steps to reduce our use
of cash through a cost restructuring program implemented in January
2002, and are working to arrange funding through other sources but
have not yet secured firm commitments. If we are unable to secure the
necessary funding, we will be required to further curtail or entirely
cease our operations;
* The trading price of our Common Stock, the size of our market
capitalization and the amount of our stockholders' equity and net
tangible asset have caused us to fail to comply with certain continued
listing standards of the Nasdaq National Market System, and we have
been notified of the intent of Nasdaq to delist our shares. We have
scheduled a hearing with Nasdaq on April 18, 2002 to consider our
status as a listed company on Nasdaq. There is no assurance that
Nasdaq will grant our request for continued listing after the hearing.
If we are delisted, it will be more difficult for us to raise capital
and our business may suffer as a result;
* In July 2001, we completed a Phase I dermatology clinical trial and,
in January 2002, commenced a Phase II dermatology clinical trial with
a topical formulation of our photoreactive drug, MV9411, for potential
use in the treatment of psoriasis;
* We are conducting preclinical studies of new photoselective drugs and
SnET2 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. We are in the process of formulating a lead
photoselective cardiovascular drug, MV0633, and performing the
requisite studies to prepare for an Investigational New Drug
application, or IND, in cardiovascular disease; and
* In oncology, we are also 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 are also investigating combination therapies with PhotoPoint
PDT and other types of compounds.
Based on our ability to successfully obtain additional funding, our ability
to successfully obtain new collaborative partners, our ability to pursue further
development of SnET2 for AMD or other disease indications, the effectiveness of
our cost restructuring program, our ability to stay listed on Nasdaq and various
other economic and development factors, such as the cost of the programs,
competing therapies and other marketing considerations, we may or may not be
able to further develop PhotoPoint PDT procedures in ophthalmology,
cardiovascular disease, dermatology, oncology or in any other indications.
Background
Photodynamic therapy is generally a minimally invasive medical procedure
that uses photoselective, or light activated, drugs to treat 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, photoselective 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 (light
energy) 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 high-power 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 early on the development of the
industry had 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. In the last few
years the industry has shown some significant advancement through the approval
of several photodynamic drugs by the regulatory agencies in the United States
and abroad.
Business Strategy
Our strategy is to apply PhotoPoint PDT as a primary treatment where
appropriate or in combination with other therapies such as surgery, radiation,
chemotherapy, drug therapy or other treatments under development to achieve
superior clinical results. Although the potential applications for PhotoPoint
PDT are numerous, our primary focus at this time is to develop PhotoPoint PDT
for clinical use in the disease areas where there are large potential market
opportunities and/or unmet medical needs. We believe that 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 PDT 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 PDT systems that 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 the
majority of our clinical trials to date. We have also used MV9411 in certain
preclinical studies and clinical trials. We have regained control of the license
rights to SnET2 from Pharmacia and are currently pursuing other potential
collaborative partners that have expressed interest in these license rights. We
are also 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 a good safety profile for the target
population and the primary side effect being a mild, transient skin
photosensitivity in some patients; and
* 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 (diode)
light technology.
Light Producing Devices. We have synthesized our drugs to be activated by
light produced by reliable and affordable light sources. Our light technologies
include software-controlled microchip diodes, light emitting diode, or LED,
arrays and non-thermal lasers and lamps. We have collaborated with Iridex
Corporation, or Iridex, on the development of light producing devices for
PhotoPoint PDT in ophthalmology and have co-developed a portable, solid-state
diode light device, which was used in our clinical trials in ophthalmology.
We believe that our diode 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 high-power thermal laser systems. We
believe that our diode systems may offer light producing devices that will be
more affordable and convenient than the 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 for use in PhotoPoint PDT. Many of 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 and endovascular catheters for use in cardiovascular
applications. Some of our light delivery devices have been used in our clinical
trials. We have also developed light measurement devices for PhotoPoint PDT
including devices that detect wavelength and fluorescence to facilitate the
measurement of light or drug uptake.
Additionally, we have and we continue to develop with and without
collaborators, a variety of light devices producing various wavelengths that we
use in our current research projects and preclinical studies and that we expect
to use in future clinical trials.
Targeted Diseases and Clinical Trials
We believe that our PhotoPoint PDT technology has potential applications in
a wide range of disease indications. We have selected, based upon regulatory,
clinical and market considerations, a number of disease applications, discussed
below, on which to focus. Our decision to proceed with preclinical studies or
advance the drug or device development or to proceed to clinical trials in any
application depends upon such factors as adequate funding, corporate partner
commitment, the results of preclinical studies, governmental regulatory
communications, competitive factors, various other economic considerations as
well as our overall business strategy.
Ophthalmology
We believe that PhotoPoint PDT 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. In AMD, these fragile vessels can hemorrhage,
causing scarring and damage to the tissue which may lead to loss of vision. AMD
is the leading cause of blindness in Americans over age 50. In collaboration
with Pharmacia, in December 2001 we completed two Phase III ophthalmology
clinical trials for the treatment of AMD with our lead drug candidate, SnET2. In
January 2002, Pharmacia, after an analysis of the Phase III AMD clinical data,
determined that the clinical data results indicated that SnET2 did not meet the
primary efficacy endpoint in the study population, as defined by the clinical
trial protocol, and that they would not be filing an NDA with the FDA. The
primary efficacy endpoint is defined as the proportion of AMD patients treated
with SnET2 losing a specified amount of vision at the end of two years compared
to placebo patients. Patients with AMD experience a loss of vision as the
disease progresses. The vision loss is measured with an eye chart from the Early
Treatment Diabetic Retinopathy Study. Based on Pharmacia's analysis of the AMD
clinical data, we may not be able to proceed with our plans to seek regulatory
approval of SnET2 as formerly planned. In March 2002, we regained the license
rights to SnET2 as well as the related data and assets from the Phase III AMD
clinical trials from Pharmacia. We are currently conducting our own detailed
analysis of the clinical data, including an analysis of the subset groups. We
expect to complete our analysis by the end of the second quarter 2002 and, based
on the results of our analysis, we will determine the future potential
development of SnET2. In addition, we have terminated our license collaboration
with Pharmacia, and we intend to seek a new collaborative partner for PhotoPoint
PDT in ophthalmology.
We have also conducted preclinical studies for the treatment of other
ophthalmic diseases such as corneal neovascularization, glaucoma and diabetic
retinopathy. At this time we are not pursuing treatments for these diseases, as
our current efforts are on AMD.
Cardiovascular Disease
We are investigating the use of PhotoPoint PDT 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 PDT 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 PDT 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 SnET2, our new lead drug candidate MV0633, other drug candidates and light
delivery devices and 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 PDT. One of these is psoriasis, a non-cancerous,
chronic and potentially debilitating skin disorder. We have developed a topical
gel formulation of a new photosensitizer, MV9411, for psoriasis and other
dermatological diseases. In July 2001, we completed a Phase I dermatology
clinical trial and, in January 2002, commenced a Phase II dermatology clinical
trial with MV9411 for potential use in the treatment of psoriasis. We are
continuing to evaluate other dermatology indications and may advance to
additional clinical trials based on the progress of the development of the
topical photosensitizers, results of preclinical studies, results of the Phase
II clinical trial for the treatment of psoriasis, 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. The treatment of cancer is called
oncology. In oncology, we continue to conduct preclinical research of our
PhotoPoint PDT to destroy abnormal blood vessels in tumors. This research
includes further exploration of the mechanism of action of PhotoPoint PDT at the
cellular and tissue level, the effect of PhotoPoint PDT on tumor vasculature and
evaluation of new photosensitizers in solid tumor models. The focus of our
preclinical research is to evaluate the utility of PhotoPoint PDT as a
stand-alone treatment, as an adjunct treatment to conventional therapies, or as
a combination therapy with experimental or approved therapies. Currently, our
research efforts focus on the use of PhotoPoint PDT in treating cancers such as
those of the brain, breast, lung and prostate. During 2000, we completed a Phase
I drug-only clinical trial using SnET2 in patients with localized prostate
cancer. At this time, we have opted not to pursue further clinical trials using
SnET2 in prostate cancer as a result of other market opportunities consistent
with our business strategy. We have an existing oncology IND for SnET2, under
which we may choose to submit protocols for clinical trials in oncology
indications in the future.
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
In March 2002, we entered into a Contract Modification and Termination
Agreement with Pharmacia under which we regained all of the rights and related
data and assets for our lead drug candidate, SnET2, and restructured our
outstanding debt due to Pharmacia. In addition, the majority of our previous
agreements with Pharmacia were either terminated or modified as follows:
Terminated Agreements:
Under the terms of the Contract Modification and Termination Agreement, the
following agreements and side letters between Miravant and Pharmacia have been
terminated:
* Amended and Restated Ophthalmology Development and License Agreement
dated as of February 18, 1999;
* Restated and Amended Development and License Agreement dated June 8,
1998, for the fields of oncology and urology;
* SnET2 Device Supply Agreement dated July 1, 1995, which related to the
supply of light producing and light delivery devices;
* Product Supply Agreement dated July 1, 1995, which related to the drug
supply of SnET2 drug supply agreement;
* SnET2 Device Supply Agreement for Ophthalmology dated December 20,
1996, which related to the supply of Iridex laser devices;
* Cardiovascular SnET2 Right of First Negotiation Side Letter dated
January 15, 1999;
* Ophthalmology Side Letter dated as of May 24, 2000;
* Iridex Side Letter dated May 31, 2000;
* Manufacturing Facility Asset Purchase Agreement dated as of May 24,
2001, which provided for the following:
* Pharmacia agreed to buy our existing SnET2 bulk active
pharmaceutical ingredient, or bulk API, inventory at cost for
$2.2 million. As of June 30, 2001, the entire $2.2 million of the
existing bulk API inventory had been delivered to Pharmacia,
recorded as revenue and the payment had been received into the
inventory escrow account;
* Pharmacia committed, through two other purchase orders, to buy up
to an additional $2.8 million of the bulk API which would be
manufactured by us. As of December 31, 2001, we had sold $2.1
million of newly manufactured bulk API inventory, which had been
delivered to Pharmacia, recorded as revenue and the payment had
been received into the inventory escrow account. Additionally, in
March 2002, Pharmacia made their final purchase of newly
manufactured bulk API of approximately $450,000 which will be
paid directly to us. No further bulk API will be sold to
Pharmacia;
* Pharmacia agreed to purchase the manufacturing equipment
necessary to produce bulk API. The manufacturing equipment was
purchased for $863,000, its fair market value as appraised by an
independent appraisal firm. The payment for the purchase of the
equipment was made into an equipment escrow account to be
released in June 2001;
* The interest earned by the inventory and equipment escrow
accounts accrued to us and will be released from each escrow
account. All amounts received into escrow are recorded as
accounts receivable until the amounts are released;
* In January 2002, the inventory escrow account as well as accrued
interest was released us in full; and
* In connection with the Contract Modification and Termination
Agreement, Pharmacia has transferred ownership of all of the
bulk API inventory and bulk API manufacturing equipment back to
us and has released the equipment escrow funds in March 2002.
* Site Access License Agreement dated as of May 31, 2001, which provided
us access to the bulk API manufacturing facility; and
* Sublease Assignment Agreement dated as of May 24, 2001, which
transferred the bulk API manufacturing facility lease responsibility
to Pharmacia.
With the termination of each of the above noted agreements, all ownership
of the rights, data and assets related to SnET2 and the Phase III AMD clinical
trials will revert back to us. The rights transferred back to us include the
ophthalmology IND and the related filings, data and reports and the ability to
license rights to SnET2. The assets, which we received ownership rights to,
include the lasers utilized in the Phase III AMD clinical trials, the bulk API
manufacturing equipment, all of the bulk API inventory sold to Pharmacia in 2001
and 2002 and the finished dose formulation, or FDF, inventory. Pharmacia will no
longer be required to make additional milestone payments or equity investments.
As described below, Pharmacia will also not extend us additional credit.
With the termination of the Sublease Assignment Agreement, we will reassume
the lease obligations and related property taxes for our bulk API manufacturing
facility. The lease agreement expires in October 2006 and currently has a base
rent of approximately $26,000 per month. In addition to receiving ownership of
all of the bulk API inventory sold to Pharmacia in 2001, we will also receive a
payment of approximately $450,000 for the cost of the in-process and finished
bulk API inventory manufactured through January 23, 2002 and will maintain the
ownership to the bulk API inventory.
Modified Agreements:
The Contract Modification and Termination Agreement also modified the 2001
Credit Agreement. The outstanding debt that we owed to Pharmacia of
approximately $26.8 million, was reduced to $10.0 million plus accrued interest.
We will be required to make a payment of $5.0 million plus accrued interest on
each of March 4, 2003 and June 4, 2004. Interest on the debt will be recorded at
the prime rate, which was 4.75% at March 5, 2002. In exchange for these
modifications and the rights to SnET2, we terminated our right to receive a $3.2
million loan that was available under the 2001 Credit Agreement. Also, as
Pharmacia has determined that they will not file an NDA for SnET2 PhotoPoint PDT
for AMD and the clinical data from the Phase III AMD clinical trials did not
meet certain clinical statistical standards, as defined by the clinical trial
protocol, as such, we will not have available to us an additional $10.0 million
of borrowings as provided for under the 2001 Credit Agreement. In addition, the
early repayment provisions and many of the covenants were eliminated or
modified.
Agreements Not Affected:
Aside from the changes made under the Contract Modification and Termination
Agreement, there were no changes made to the Warrant Agreement, the Equity
Investment Agreement and the Registration Rights Agreement with Pharmacia.
In connection with the 2001 Credit Agreement, we granted Pharmacia warrants
to purchase a total of 360,000 shares of our Common Stock. The exercise prices
and expiration dates are as follows: 120,000 shares at an exercise price of
$11.87 per share expiring May 5, 2004, 120,000 shares at an exercise price of
$14.83 per share expiring November 12, 2004 and 120,000 shares at an exercise
price of $20.62 per share expiring May 23, 2005. Pharmacia will retain all of
its rights under the terms and conditions of the Warrant Agreement.
In February 1999, through an Equity Investment Agreement, Pharmacia
purchased 1,136,533 shares of our Common Stock at $16.71 per share for an
aggregate purchase price of $19.0 million. Additionally, in connection with the
original SnET2 license agreement in 1995, Pharmacia purchased 725,001 shares of
our Common Stock for $13.0 million. Under the terms of the Contract Modification
and Termination Agreement, Pharmacia will retain all of the shares of Common
Stock purchased from us.
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 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 any
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
has been sold. Under the agreement, we are required to satisfy certain
development and commercialization objectives once an NDA has received approval.
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
In August 1994, we entered into a supply contract with Pharmacia to develop
an emulsion formulation suitable for intravenous administration of SnET2 to be
used as the FDF. Effective November 30, 1998, Pharmacia'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 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 FDF; and
* They agreed not to develop or supply formulations or services for
use in any photodynamic therapy applications for any other
company.
This agreement was not impacted as a result of the Pharmacia Contract
Modification and Termination Agreement and this agreement will continue
indefinitely except that it may be terminated ten years after the first
commercial sale of SnET2.
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 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
co-development activities and Ramus activities are at a minimum until they raise
funding to continue operations. We do provide various services to them on an as
needed basis, which have been insignificant to date, and we have deferred Ramus'
sublease rent payments until sometime in the future.
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, 2001, 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 indefinitely.
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
PDT 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.
Additionally, 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, 2001, 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.
Laserscope
In April 1992, we entered into a seven-year license and distribution
agreement with Laserscope, a surgical laser company. This agreement terminated
in April 1999 and Laserscope made a final royalty settlement with us in 2001.
Laserscope now holds a fully paid-up, non-exclusive license to use in its
products dye laser technology that we developed.
Research and Development Programs
Our research and development programs are devoted to the discovery and
development of drugs and devices for PhotoPoint PDT. 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. We expended $13.3 million, $19.9
million and $29.7 million on research and development activities during 2001,
2000 and 1999, respectively.
Our pharmaceutical research programs are 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 and abroad. We
are also active in the research and development of devices for PhotoPoint PDT.
These programs include development of fiber optic light delivery devices, as
well as light sources. Device research and development are 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 API at our Santa
Barbara, California facility for clinical trial and other use. We currently
manufacture bulk API, 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, especially large scale levels.
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. 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
provided the light producing devices used in our AMD clinical trials and can be
used for future commercial use in ophthalmology. As previously discussed, we
recently regained ownership of bulk API and FDF and lasers from Pharmacia. Based
on the quantities received, we are not expected to need additional bulk API,
FDF, or lasers in the near term. Currently the expiration date of FDF is thirty
months from the date it was manufactured.
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, with which
we are currently in compliance. Prior to commercial sales of our drug and device
products, which may not be attained, these facilities 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. In March
2002, we terminated our license agreement with Pharmacia and received back the
worldwide license rights to SnET2 and at this time we are currently pursuing a
new collaborative partner to market and sell our leading drug candidate SnET2 as
well as other potential compounds. We have granted to Iridex the worldwide
license to market and sell all co-developed light producing devices for use in
PhotoPoint PDT in the field of ophthalmology.
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.
Customers and Backlog
We currently have no drug or device that has been approved for
commercialization by applicable regulatory bodies. As a result, we currently
have no customers or backlog. We have derived revenue in the past from sales of
compounds to our collaborative partner and have received governmental research
grants. We have also received limited royalty income from Laserscope for the
license of our dye laser technology.
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 issued United States patents,
primarily device, expiring 2010 through 2019;
* Record owner of six issued foreign patents, primarily device,
expiring 2012 through 2014;
* Exclusive license rights under eighteen issued United States
patents, primarily pharmaceutical, expiring 2006 through 2017;
* Exclusive license rights under five issued foreign patents,
expiring 2006 through 2017;
* Co-owner or licensee of four 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 many of our photoselective compound patent rights, including
rights to SnET2, through an exclusive license agreement with Toledo. Certain of
the foregoing patents and applications are subject to certain governmental
rights described below.
The patent positions of pharmaceutical and biotechnology companies,
including ours, can be uncertain and involve complex legal, scientific, and
factual questions. There can be no assurance that our patents or licensed
patents will afford legal protection against competitors or provide significant
proprietary protection or competitive advantage. In addition, our patents or
licensed patents could be held invalid or unenforceable by a court, or infringed
or circumvented by others, or others could obtain patents that the we would need
to license or circumvent. Competitors or potential competitors may have filed
patent applications or received patents, and may obtain additional patents and
proprietary rights relating molecules, compounds, or processes competitive with
ours.
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 an 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 pre-approval 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. Our manufacturing facility for
bulk API is licensed by the State of California to produce bulk API for clinical
trial and other use.
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
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 PDT devices, it may be necessary for us to submit a PMA or a 510(k)
to the FDA for our PhotoPoint PDT 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 PDT 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 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 us. 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 PDT. 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, such as drug-eluting stents 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. Our direct competitors in our sector include QLT Inc., or QLT, DUSA
Pharmaceuticals, or DUSA, Axcan Pharmaceuticals and Pharmacyclics. QLT's drug
Visudyne has received marketing approval in the United States and certain other
countries for the treatment of AMD and has been commercialized by Novartis.
Axcan and DUSA have photodynamic therapy drugs, both of which have received
marketing approval in the United States - Photofrin(R) (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. Pharmacyclics has a photodynamic therapy drug that has
not received marketing approval, which is being used in certain preclinical
studies and/or clinical trials for ophthalmology, oncology and cardiovascular
indications. We are aware of other drugs and devices under development by these
and other photodynamic therapy competitors in additional disease areas for which
we are developing PhotoPoint PDT. These competitors as well as others that we
are not aware of, may develop superior products or reach the market prior to
PhotoPoint PDT 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 15, 2002, we employed 113 individuals, approximately 68 of
which were engaged in research and development, 9 were engaged in manufacturing
and clinical activities and 36 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.
In connection with our January 2002 cost restructuring program, we
temporarily reduced each employees salary by 20%. In connection with the cost
restructuring program, a separation package was offered to all employees who did
not want to continue at Miravant at the reduced pay structure and approximately
10% of our employees accepted the separation package. As of April 8, 2002, we
will reinstate salaries back to 100% for all remaining employees.
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 and our current challenging financial situation,
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, given these financial circumstances.
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. 52 Chairman of the Board and
Chief Executive Officer
David E. Mai 57 President of Miravant
Medical Technologies,
Miravant Systems, Inc.,
Miravant Pharmaceuticals,
Inc. and Director
John M. Philpott 41 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 has been subleased and
approximately 15,100 square feet will be terminated effective April 2002.
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 $26,000 per month. This lease was
extended in May 2001 and expires in October 2006. The leased property is located
in a business park and is subject to a master lease agreement. The facility is
equipped and licensed by the State of California to allow certain laboratory
testing and manufacturing. We manufacture and distribute the bulk API from this
facility. In May 2001, we entered into an Asset Purchase Agreement whereby
Pharmacia agreed to assume the lease obligations and related property taxes for
this building through December 31, 2003. Subsequently, in March 2002, we entered
into a Contract Modification and Termination Agreement with Pharmacia under
which we have agreed to reassume the lease obligations for this building for the
remainder of the lease term.
In the second half of 1996, we entered into two additional leases for
approximately 54,800 square feet of office, laboratory and manufacturing space.
One of the leases, covering approximately 15,100 square feet of office space and
having a base rent of approximately $20,000 per month, will be terminated in
April 2002. The second lease, which covers approximately 39,700 square feet of
office, laboratory and manufacturing space, provides for rent to be adjusted
annually based on increases in the consumer price index and the base rent is
approximately $51,000 per month. The lease was extended in March 1999 and
expires in August 2002. An extension is currently being negotiated. The leased
property is located in a business park. We have the ability to manufacture our
light producing and light delivery devices and perform research and development
of drugs, light delivery and light producing devices from this facility.
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 $37,000 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 $35,000 per month, is also subject to increases based upon the
consumer price index. The leased property is located in a business park and is
subject to a master lease agreement.
For the two facilities that we will likely continue to occupy, we may 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.
In January 2002, we canceled the letter of intent with the developer. We did not
incur any material costs under this letter of intent or its subsequent
cancellation.
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 2001.
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. 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. The closing bid price of our Common Stock as reported on the Nasdaq
National Market on March 25, 2002 was $1.08.
High Low
2001:
Fourth quarter............................................$ 10.20 $ 6.32
Third quarter............................................ 12.08 5.00
Second quarter............................................ 12.70 6.00
First quarter............................................. 9.69 6.25
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
As of March 15, 2002, there were approximately 261 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.
We were provided with a Nasdaq Staff Determination notice dated March 4,
2002 that informed us that we did not meet the market value of publicly held
shares requirement (minimum common stock market capitalization of $50,000,000)
for continued listing on the Nasdaq National Market as set forth in Marketplace
Rule 4450(b)(1)(A). We were also told that we do not comply with the minimum bid
price continued inclusion requirement set forth in Marketplace Rule 4450(b)(4).
These listing requirements include maintaining stockholders' equity of $10.0
million or net tangible assets of $4.0 million, and a $1.00 minimum bid price;
or alternatively, a common stock market capitalization of at least $50.0 million
and a minimum bid price of $3.00. Alternatively, The Nasdaq Small Cap Market
requires at least a $35.0 million common stock market capitalization, with a
$1.00 minimum bid price. Our securities are therefore subject to delisting from
the Nasdaq National Market. We have requested a hearing before a Nasdaq Listing
Qualifications Panel to review the Staff Determination notice. We have requested
a hearing with Nasdaq to discuss our listing status, and the stock will remain
listed on the Nasdaq until at least the date of the hearing, which is scheduled
for April 18, 2002. There can be no assurance the Panel will grant our request
for continued listing after the hearing.
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, 2001. The consolidated financial statements for the five fiscal years ended
December 31, 2001 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,
----------------------------------------------------------------------------------
2001 2000 1999 1998 1997
--------------- --------------- --------------- --------------- ---------------
(in thousands, except share and per share data)
Statement of Operations Data:
Revenues ......................... $ 4,683 $ 4,593 $ 14,577 $ 10,179 $ 2,278
Costs and expenses:
Cost of goods sold............. 934 -- -- -- --
Research and development....... 13,318 19,944 29,749 29,233 20,244
Selling, general and
administrative............... 6,078 6,273 7,473 9,626 13,716
Loss in affiliate.............. -- -- 417 2,929 1,105
--------------- --------------- --------------- --------------- ---------------
Total costs and expenses.......... 20,330 26,217 37,639 41,788 35,065
--------------- --------------- --------------- --------------- ---------------
Loss from operations.............. (15,647) (21,624) (23,062) (31,609) (32,787)
Interest and other income (expense)
Interest and other income...... 798 1,370 1,240 3,546 2,584
Interest expense............... (2,139) (2,254) (434) (1) (6)
Gain on sale of assets......... 586 -- -- -- --
Non-cash loss in investment (3) -- (3,485) -- -- --
--------------- --------------- --------------- --------------- ---------------
Total net interest and other
income (expense)............... (755) (4,369) 806 3,545 2,578
--------------- --------------- --------------- --------------- ---------------
Net loss.......................... $ (16,402) $ (25,993) $ (22,256) $ (28,064) $ (30,209)
=============== =============== =============== =============== ===============
Net loss per share (1) ........... $ (.88) $ (1.42) $ (1.25) $ (1.94) $ (2.36)
=============== =============== =============== =============== ===============
Shares used in computing net
loss per share (1) ............ 18,647,071 18,294,525 17,768,670 14,464,044 12,791,044
=============== =============== =============== =============== ===============
December 31,
----------------------------------------------------------------------------------
2001 2000 1999 1998 1997
--------------- ---------------- ------------- -------------- ------------
(in thousands)
Balance Sheet Data:
Cash and marketable securities (2) $ 6,112 $ 20,835 $ 22,789 $ 11,284 $ 83,462
Working capital................... 9,240 19,431 24,933 11,134 80,734
Total assets...................... 16,165 28,027 35,823 23,810 93,031
Long-term liabilities ............ 26,642 24,888 15,506 -- --
Accumulated deficit............... (173,569) (157,167) (131,174) (108,918) (80,854)
Total stockholders' equity
(deficit)......................... (13,798) (164) 15,597 19,686 87,698
(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 10 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 the 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 and include statements regarding our general beliefs concerning
the efficacy and potential benefits of photodynamic therapy; the timing of the
completion of our analysis of the clinical data from the SnET2 Phase III wet age
related macular degeneration, or AMD, clinical trials, which Pharmacia
Corporation, or Pharmacia, concluded had not met the primary efficacy endpoint;
the assumption that we will continue as a going concern and stay listed on
Nasdaq; our plans to collaborate with other parties; our ability to continue to
retain employees under our current financial circumstances; our ability to use
our light production and delivery devices in future clinical trials; our
expected research and development expenditures; our patent prosecution strategy;
and our expectations concerning the government exercising its rights to use
certain of our licensed technology. Our actual results could differ materially
from those discussed in these statements due to a number of risks and
uncertainties including: a failure of our drugs and devices to receive
regulatory approval; unanticipated complexity or difficulty in analyzing
clinical trial data; other parties may decline to collaborate with us due to our
financial condition or other reasons beyond our control; our existing light
production and delivery technology may prove to be inapplicable or inappropriate
for future studies; we may be unable to obtain the necessary funding to further
our research and development activities and the government may change its past
practices and exercise its rights contrary to our expectations. For a more
complete description of the risks that may impact our business, see "Risk
Factors", for a discussion of certain risks, including those relating to our
ability to obtain additional funding, our ability to establish new strategic
collaborations, our operating losses, risks related to our industry and other
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) PDT,
our proprietary technologies for photodynamic therapy. We have been unprofitable
since our founding and have incurred a cumulative net loss of approximately
$173.6 million as of December 31, 2001. As we currently do not have any
significant sources of revenues, we expect to continue to incur substantial, and
possibly increasing, operating losses for the next few years due to continued
spending on research and development programs, the funding of preclinical
studies, clinical trials and regulatory activities and the costs of
manufacturing and administrative activities. We also expect these operating
losses to fluctuate due to our ability to fund the research and development
programs as well as the operating expenses of the Company. We believe with the
implementation of our cost restructuring program in January 2002, we have
sufficient resources to fund the current required expenditures through September
30, 2002. In addition, we also believe we can raise additional funding to
support operations through corporate collaborations or partnerships, licensing
of SnET2 or new products and equity or debt financings prior to September 30,
2002. However, there can be no assurance that we will be successful in obtaining
such financing or financing will be available on favorable terms. If additional
funding is not available when required, we believe we have the ability to
conserve cash required for operations through December 31, 2002 by the delay or
reduction in scope of one or more of our research and development projects and
adjusting, deferring or reducing salaries of employees and by reducing operating
and overhead expenditures to conserve cash to be used in operations.
Our historical revenues primarily reflect income earned from licensing
agreements, grants awarded, royalties from device product sales, milestone
payments, non-commercial drug sales to Pharmacia and interest income. During
2001, we sold approximately $4.3 million of the SnET2 bulk active pharmaceutical
ingredient, or bulk API, to Pharmacia to be used in preclinical studies and
clinical trials and in anticipation of a potential New Drug Application, or NDA,
filing for SnET2 for the treatment of wet age-related macular degeneration, or
AMD.
Our future bulk API sales are expected to consist of the approximately
$450,000 in reimbursements that we are to receive from Pharmacia for bulk API
costs incurred by us through January 2002. Any other future potential new
revenues such as license income from new collaborative agreements, revenues from
contracted services, grants awarded and/or royalties from potential drug and
device sales, if any, will depend on, among other factors, the timing and
outcome of applications for regulatory approvals, the results from our ongoing
preclinical studies and clinical trials, our ability to establish new
collaborative partnerships and their subsequent level of participation in our
preclinical studies and clinical trials, our ability to have any of our
potential drug and related device products successfully manufactured, marketed
and distributed, the restructuring or establishment of collaborative
arrangements for the development, manufacturing, marketing and distribution of
some of our future products. We anticipate our operating activities will result
in substantial, and possibly increasing, operating losses for the next several
years.
In collaboration with Pharmacia, in December 2001, we completed two Phase
III ophthalmology clinical trials for the treatment of AMD with our lead drug
candidate, SnET2. In January 2002, Pharmacia, after an analysis of the Phase III
AMD clinical data, determined that the clinical data results indicated that
SnET2 did not meet the primary efficacy endpoint in the study population, as
defined by the clinical trial protocol, and that they would not be filing an NDA
with the U.S. Food and Drug Administration, or FDA. Based on Pharmacia's
analysis of the AMD clinical data, we may not be able to proceed with our plans
to seek regulatory approval of SnET2 as formerly planned. In March 2002, we
entered into a Contract Modification and Termination Agreement with Pharmacia,
whereby we regained the license rights to SnET2 as well as the related data and
assets from the Phase III AMD clinical trials and restructured our outstanding
debt with them. We are currently conducting our own detailed analysis of the
clinical data, including an analysis of the subset groups. We expect to complete
our analysis by the end of the second quarter 2002 and, based on the results of
our analysis, we will determine the future potential development of SnET2,
including the potential use of SnET2 in other disease indications, such as in
cardiovascular disease and oncology. In addition, we have terminated our license
collaboration with Pharmacia, and we intend to seek a new collaborative partner
for PhotoPoint PDT in ophthalmology.
In ophthalmology, besides the possible use of SnET2 in other eye diseases
and another AMD clinical trial, or in combination with other therapies, we are
continuing the development of next generation drug compounds for use in the same
eye disease areas.
In our dermatology program, we have developed a topical gel formulation to
deliver a proprietary new photoreactive drug directly to the skin. In July 2001,
we completed a Phase I dermatology clinical trial and, in January 2002, we
commenced a Phase II clinical trial with a topical formulation of our
photoreactive drug, MV9411, for potential use in the treatment of plaque
psoriasis, a chronic dermatological condition for which there is no known cure.
Plaque psoriasis is a disease marked by hyperproliferation of the epidermis,
resulting in inflamed and scaly skin plaques. The Phase II clinical trial is
currently ongoing and we expect to complete the trial by the end of 2002.
We are also conducting preclinical studies of SnET2 and 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. We are in the process of formulating a new lead drug, MV0633, and
performing the requisite studies to prepare for an Investigational New Drug
application, or IND, in cardiovascular disease.
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 PDT and other types of compounds.
Based on our ability to successfully obtain additional funding, our ability
to obtain new collaborative partners, our ability to pursue further development
of SnET2 for AMD or other disease indications, our ability to reduce operating
costs as needed, our ability to remain listed on Nasdaq and various other
economic and development factors, such as the cost of the programs,
reimbursement and the available alternative therapies, we may or may not be able
to or elect to further develop PhotoPoint PDT procedures in ophthalmology,
cardiovascular disease, dermatology, oncology or in any other indications.
Pharmacia Corporation
Over time we have entered into a number of agreements with Pharmacia to
fund our operations and develop and market SnET2. In March 2002, we entered into
a Contract Modification and Termination Agreement with Pharmacia under which we
regained all of the rights and related data and assets to our lead drug
candidate, SnET2, and we restructured our outstanding debt to Pharmacia. Under
the terms of the Contract Modification and Termination Agreement, various
agreements and side letters between Miravant and Pharmacia have been terminated,
most of which related to SnET2 license agreements and related drug and device
supply agreements, side letters, the Manufacturing Facility Asset Purchase
Agreement and various supporting agreements. We also modified our 2001 Credit
Agreement with Pharmacia.
The termination of the various agreements provided that all ownership of
the rights, related data and assets to SnET2 and the Phase III AMD clinical
trials for the treatment of AMD will revert back to us. The rights transferred
back to us include the ophthalmology IND and the related filings, data and
reports and the ability to license the rights to SnET2. The assets include the
lasers utilized in the Phase III AMD clinical trials, the bulk API manufacturing
equipment, all of the bulk API inventory sold to Pharmacia in 2001 and 2002 and
the finished dose formulation, or FDF, inventory. In addition, we will also
reassume the lease obligations and related property taxes for our bulk API
manufacturing facility. The lease agreement expires in October 2006 and
currently has a base rent of approximately $26,000 per month.
Under the Manufacturing Facility Asset Purchase Agreement, which was
entered into in May 2001 and subsequently terminated in March 2002, Pharmacia
satisfied the following obligations during 2001:
* Pharmacia agreed to buy our existing bulk API inventory at cost
for $2.2 million. As of June 30, 2001, the entire $2.2 million of
the existing bulk API inventory had been delivered to Pharmacia,
recorded as revenue and the payment had been received into the
inventory escrow account;
* Pharmacia committed, through two other purchase orders, to buy up
to an additional $2.8 million of the bulk API which would be
manufactured by us. As of December 31, 2001, we had sold $2.1
million of newly manufactured bulk API inventory, which had been
delivered to Pharmacia, recorded as revenue and the payment had
been received into the inventory escrow account. Additionally, in
March 2002, Pharmacia made their final purchase of newly
manufactured bulk API of approximately $450,000 which will be
paid directly to us. No further bulk API will be sold to
Pharmacia;
* Pharmacia agreed to purchase the manufacturing equipment
necessary to produce bulk API. The manufacturing equipment was
purchased for $863,000, its fair market value as appraised by an
independent appraisal firm. The payment for the purchase of the
equipment was made into an equipment escrow account to be
released in June 2001;
* The interest earned by the inventory and equipment escrow
accounts accrued to us and will be released from each escrow
account. All amounts received into escrow are recorded as
accounts receivable until the amounts are released;
* In January 2002, the inventory escrow account as well as accrued
interest was released to us in full; and
* In connection with the Contract Modification and Termination
Agreement, Pharmacia has transferred ownership of all of the
bulk API inventory and bulk API manufacturing equipment back to
us and has released the equipment escrow funds in March 2002.
The Contract Modification and Termination Agreement also modified the 2001
Credit Agreement as follows:
* The outstanding debt that we owed to Pharmacia of approximately
$26.8 million, was reduced to $10.0 million plus accrued
interest;
* We will be required to make a payment of $5.0 million plus
accrued interest on each of March 4, 2003 and June 4, 2004.
Interest on the debt will be recorded at the prime rate, which
was 4.75% at March 5, 2002;
* In exchange for these changes and the rights to SnET2, we
terminated our right to receive a $3.2 million loan that was
available under the 2001 Credit Agreement. Also, as Pharmacia has
determined that they will not file an NDA for the SnET2
PhotoPoint PDT for AMD and the data from the Phase III AMD
clinical trials data did not meet certain clinical statistical
standards as defined by the clinical trial protocol, we will not
have available to us an additional $10.0 million of borrowings as
provided for under the 2001 Credit Agreement. Pharmacia has no
obligation to make any further milestone payments, equity
investments or to extend us additional credit;
* The early repayment provisions and many of the covenants were
eliminated or modified. Our requirement to allocate one-half of
the net proceeds from any public or private equity financings
and/or asset dispositions towards the early repayment of our debt
to Pharmacia was modified as follows:
* If our aggregate net equity financing and/or assets
disposition proceeds are less than or equal to $7.0 million,
we are not required to make an early repayment towards our
Pharmacia debt;
* If our aggregate net equity financing and/or assets
disposition proceeds are greater than $7.0 million but less
than or equal to $15.0 million, then we are required to
apply one-third of net the proceeds from the amount in
excess of $7.0 million up to $15.0 million, or a maximum
repayment of $2.7 million towards our Pharmacia debt;
* If our aggregate net equity financing and/or assets
disposition proceeds are greater than $15.0 million but less
than or equal to $25.0 million, then we are required to
apply one-half of the net proceeds from the amount in excess
of $15.0 million up to $25.0 million, or a maximum repayment
of $7.7 million towards our Pharmacia debt;
* If our aggregate net equity financing and/or assets
disposition proceeds are greater than $25.0 million, then we
are required to apply all of the net proceeds from the
amount in excess of $25.0 million, or repay the entire $10.0
million plus accrued interest towards our Pharmacia debt;
and
* Any early repayment of our Pharmacia debt applies first to
the loan amount due on March 4, 2003, then to the remaining
loan amount due on June 4, 2004.
Aside from the changes made under the Contract Modification and Termination
Agreement discussed above, there were no changes made to the Warrant Agreement,
the Equity Investment Agreement and the Registration Rights Agreement with
Pharmacia.
In connection with the 2001 Credit Agreement, we granted Pharmacia warrants
to purchase a total of 360,000 shares of our Common Stock. The exercise prices
and expiration dates are as follows: 120,000 shares at an exercise price of
$11.87 per share expiring May 5, 2004, 120,000 shares at an exercise price of
$14.83 per share expiring November 12, 2004 and 120,000 shares at an exercise
price of $20.62 per share expiring May 23, 2005. Pharmacia will retain all of
its rights under the terms and conditions of the Warrant Agreement.
In 1999, through an Equity Investment Agreement, Pharmacia purchased
1,136,533 shares of our Common Stock at $16.71 per share for an aggregate
purchase price of $19.0 million. Additionally, in connection with the original
SnET2 license agreement in 1995, Pharmacia purchased 725,001 shares of our
Common Stock for $13.0 million. Under the terms of the Contract Modification and
Termination Agreement, Pharmacia will retain all the shares of Common Stock
purchased from us.
Critical Accounting Policies
Revenue Recognition. The Company recognizes revenues from product sales
based on when ownership of the product transfers to the customer and when
collectibility is reasonably assured. Sales of bulk active pharmaceutical
ingredient to Pharmacia is recorded as revenue in the period when the product is
received by Pharmacia at their facility. Our current licensing revenues
represent reimbursements from Pharmacia for out-of-pocket expenses incurred in
our preclinical studies and clinical trials for the SnET2 PhotoPoint PDT
treatment for AMD. These licensing revenues are recognized in the period when
the reimbursable expenses are incurred. Grant income is recognized in the period
in which the grant related expenses are incurred and royalty income is
recognized in the period in which the royalties are earned.
Research and Development Expenses. Research and development costs are
expensed as incurred. Research and development expenses are comprised of the
following types of costs incurred in performing research and development
activities: salaries and benefits, allocated overhead and occupancy costs,
preclinical study costs, clinical trial and related clinical drug and device
manufacturing costs, contract services and other outside costs. The acquisition
of technology rights for research and development projects and the value of
equipment or drug products for specific research and development projects, with
no alternative future use, are also included in research and development
expenses.
Stock-Based Compensation. The Statement of Financial Accounting Standards,
or SFAS, issued SFAS No. 123, "Accounting for Stock-Based Compensation," which
encourages, but does not require, companies to record compensation expense for
stock-based employee compensation plans at fair value. We have 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, including Financial Interpretation No. 44,
"Accounting for Certain Transactions Involving Stock Compensation," in
accounting for our stock option plans.
We also have granted and continue to grant warrants and options to various
consultants of ours. 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.
Recent Accounting Pronouncements
In October 2001, the Financial Accounting Standards Board, or FASB, issued
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
or SFAS No. 144. SFAS No. 144 addresses financial accounting and reporting for
the impairment or disposal of long-lived assets and discontinued operations.
SFAS No. 144 is effective for all fiscal years beginning after December 15,
2001. The adoption of SFAS No. 144 is not expected to have a material effect on
our consolidated financial statements.
In June 1998, the FASB 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 our consolidated financial statements.
Results of Operations
The following table provides a summary of our revenues for the years ended
December 31, 2001, 2000 and 1999:
---------------------------------------------------------------------------------------------------------------------------
Consolidated Revenues 2001 2000 1999
---------------------------------------------------------------------------------------------------------------------------
License - contract research and development................... $ 302,000 $ 4,481,000 $13,996,000
Bulk active pharmaceutical ingredient sales................... 4,306,000 -- --
Royalties..................................................... 75,000 -- 143,000
Grants........................................................ -- 112,000 438,000
---------------------------------------------------------------------------------------------------------------------------
Total revenues................................................ $ 4,683,000 $ 4,593,000 $14,577,000
---------------------------------------------------------------------------------------------------------------------------
Revenues
Revenues. Our revenues decreased from $14.6 million in 1999 to $4.6 million
in 2000 and increased slightly to $4.7 million in 2001. The fluctuations in
revenues are due to the following:
Bulk Active Pharmaceutical Ingredient Sales. In May 2001, we entered into
an Asset Purchase Agreement with Pharmacia whereby Pharmacia agreed to buy our
existing bulk API inventory at cost for $2.2 million and committed to buy an
additional $2.8 million of newly manufactured bulk API through March 2002. In
2001, we recorded revenue of $2.2 million related to the existing bulk API
inventory and $2.1 million related to the newly manufactured bulk API inventory.
There were no bulk API sales in 2000 or 1999.
License Income. License income, which represents reimbursements of
out-of-pocket or direct costs incurred in preclinical studies and Phase III AMD
clinical trials, decreased from $14.0 million in 1999 to $4.5 million in 2000
and $302,000 in 2001. The decrease in license income is specifically related to
the transition of the majority of the operations and funding responsibilities of
the Phase III AMD clinical trials to Pharmacia Corporation in 1999 and the
completion of the preclinical studies and our AMD clinical trial
responsibilities. Reimbursements received during 2001 were primarily for costs
incurred to complete preclinical studies for AMD. 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. We do not expect to have any
significant license income from Pharmacia in 2002.
In January 2002, Pharmacia, after an analysis of the Phase III AMD clinical
data, determined that the clinical data results indicated that SnET2 did not
meet the primary efficacy endpoint in the study population, as defined by the
clinical trial protocol, and that they would not be filing an NDA with the FDA.
Subsequently, in March 2002, we entered into a Contract Modification and
Termination Agreement with Pharmacia whereby Pharmacia has agreed to reimburse
us for all of our finished and in-process lots of bulk API for approximately
$450,000. We will receive no further reimbursements from Pharmacia related to
any of our ongoing preclinical studies and clinical trials and Pharmacia will
not make any more purchases of bulk API.
Grant Income. We have recorded grant income of $112,000 and $438,000 for
the years ended December 31, 2000 and 1999. There was no grant income recorded
for 2001. Grant income relates to a two-year grant received in 1997 that was
extended to the end of 2000. 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. We currently do not have any grant
funds available nor have any grants been awarded.
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 $75,000 in 2001 and $143,000 in 1999. We
did not record any royalty income under this agreement in 2000. The royalties
recorded in 2001 represent the final amounts due under the Laserscope license
agreement, which expired in April 1999 and no further royalty income will be
recorded under this agreement in the future.
Cost of Goods Sold. In connection with the newly manufactured bulk API sold
under the terms of the Asset Purchase Agreement with Pharmacia, we recorded
$934,000 in manufacturing costs for the year ended December 31, 2001. The
amounts recorded as cost of goods sold represent the costs incurred for only the
newly manufactured bulk API in 2001. No costs were recorded for those expenses
incurred in prior periods for raw materials and the bulk API manufactured prior
to 2001, as these costs were expensed as research and development costs in the
periods incurred. Based on the terms of the Contract Modification and
Termination Agreement with Pharmacia in March 2002, future costs of goods sold
are only expected to be for those costs related to the finished and in-process
bulk API lots that Pharmacia has agreed to reimburse us for.
Research and Development. Research and development costs are expensed as
incurred. Our research and development expenses decreased from $29.7 million in
1999 to $19.9 million in 2000 and $13.3 million in 2001. The overall decrease in
research and development expenses is specifically related to the transition of
the majority of the operations and funding responsibilities of the Phase III AMD
clinical trials to Pharmacia in December 1999 and the completion of the
preclinical studies and our AMD clinical trial responsibilities. Our research
and development expenses, net of license reimbursement and grant revenue, were
$13.0 million in 2001, $15.4 million in 2000 and $15.3 million in 1999. Aside
from the expenses incurred in the Phase III AMD preclinical studies and clinical
trials, research and development expenses in 2001 were comprised of:
* Development work associated with the development of new drug
compounds and formulations for the dermatology and cardiovascular
programs;
* Preclinical studies and clinical trial costs for our Phase I
dermatology program;
* Payroll and related taxes; and
* Other operating costs.
Research and development expenses for 2000 and 1999 consisted primarily of:
* Preclinical studies related to our programs in oncology,
dermatology and cardiology;
* Development work associated with the development of existing and
new drug compounds, formulations and clinical programs; and
* Payroll and other operating costs.
We expect 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, oncology and
other programs, costs associated with the purchase of raw materials and supplies
for the production of devices and drug for use in preclinical studies and
clinical trials, results obtained from our ongoing preclinical studies and
clinical trials and the 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 from $7.5 million in 1999 to $6.3 million in
2000 and $6.1 million in 2001. Selling, general and administrative expenses
consist primarily of payroll, taxes and other operating costs. The slight
decrease from 1999 to 2001 was a result of a decrease in deferred compensation
expense and the reclassification of a portion of certain overhead costs into the
cost of inventory as cost of goods sold.
We expect future selling, general and administrative expenses to remain
consistent with prior periods although they may fluctuate depending on available
funds, and the support staff levels needed 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 $615,000 as of December 31, 2001. The
$417,000 expense recorded in 1999 represents a reserve for the final amount of
borrowings under the credit line plus accrued interest. The investment in Ramus
has been fully reserved for since December 31, 1999.
Interest and Other Income. Interest and other income increased from $1.2
million in 1999 to $1.4 million in 2000 and $1.4 million in 2001. Interest and
other income earned in 2001 represents $798,000 of interest earned on the
available cash and marketable security balances and $586,000 recorded on the
gain on sale of bulk API manufacturing equipment to Pharmacia. Interest and
other income earned in 2000 and 1999 represent interest earned on cash and
marketable security balances. The level of future interest and other income will
primarily be subject to the level of cash balances we maintain from period to
period and the interest rates earned. However, we expect our interest and other
income to decrease in future periods unless additional funding is obtained.
Interest Expense. Interest expense increased from $434,000 in 1999 to $2.3
million in 2000 and decreased to $2.1 million in 2001. Interest expense
represents interest related to borrowings under the 2001 Credit Agreement with
Pharmacia and interest expense related to the value of the warrants issued in
connection with these borrowings. The decrease in interest expense in 2001 as
compared to 2000 is directly related to the decrease in the rate of interest
being charged which was offset by an increase in the total amount of borrowings.
The borrowings accrue interest at the prime rate which was 4.75% , 9.5% and 8.0%
at December 31, 2001, 2000 and 1999, respectively. The increase in interest
expense between 1999 and 2000 is related to the increase in the amount of
borrowings outstanding under the 2001 Credit Agreement. Interest expense related
to the value of the warrants issued with the borrowings was $374,000, $315,000
and $57,000 for 2001, 2000 and 1999, respectively.
In March 2002, we entered into a Contract Modification and Termination
Agreement with Pharmacia whereby the principal balance of the debt owed to
Pharmacia was reduced from $26.8 million to $10.0 million, plus approximately
$800,000 in accrued interest. As a result of the decrease in the principal
balance of the loan, as well as the write off of the value of the warrants
issued in connection with the borrowings, we expect future interest expense to
decrease. Interest on the new principal balance will continue to accrue at the
prime rate over the term of the loan and we will only record interest expense to
the extent the prime rate rises above the amount used to record the debt
reduction to total expected cash flows in accordance with the accounting for the
debt restructuring.
Non-cash Loss in Investment. 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. During 2000, we
determined that 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, 2001, 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, 2001, we had net operating loss
carryforwards for federal tax purposes of $171.5 million, which expire in the
years 2002 to 2022. Research credit carryforwards aggregating $8.7 million are
available for federal and state tax purposes and expire in the years 2002 to
2021. We also had a state net operating loss carryforward of $46.4 million,
which expires in the years 2002 to 2006. Of the $46.4 million in state net
operating loss carryforwards, $17.5 million will expire during 2002 and 2003.
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.
Liquidity and Capital Resources
Since inception through December 31, 2001, we have accumulated a deficit of
approximately $173.6 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's purchases
of Common Stock and credit arrangements. As of December 31, 2001, 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 in the next few years, as such we expect to continue to
rely on external sources of financing to meet our cash needs for the foreseeable
future. As of December 31, 2001, our consolidated financial statements have been
prepared assuming we will continue as a going concern.
We have received the entire $22.5 million available to us under the 2001
Credit Agreement with Pharmacia. We have issued promissory notes to Pharmacia
for the principal loan amounts received of $22.5 million, as well as promissory
notes of $4.0 million for the related interest due on each of the quarterly due
dates through December 31, 2001. The promissory notes accrue interest at the
prime rate, which was 4.75% at December 31, 2001. In connection with the
borrowings 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.
Under the Manufacturing Asset Facility Purchase Agreement with Pharmacia in
May 2001, Pharmacia agreed to buy our existing bulk API inventory at cost for
$2.2 million and committed to buy up to an additional $2.8 million of the bulk
API which would be manufactured by us. In addition, Pharmacia agreed to purchase
the manufacturing equipment necessary to produce bulk API. The manufacturing
equipment was purchased for $863,000, its fair market value. The amounts
received for the sale of bulk API and the manufacturing equipment were recorded
as accounts receivable as of December 31, 2001. In addition, these amounts were
held in inventory escrow and equipment escrow accounts, which were approximately
$4.1 million and $880,000, respectively, at December 31, 2001. The inventory
escrow account was released to us in full in January 2002.
Under the 2001 Credit Agreement, which amends and restates the $22.5
million 1999 Credit Agreement, Pharmacia was to provide us with up to an
additional $13.2 million in credit beginning in April 2002, under certain
conditions related to the results of the SnET2 Phase III AMD clinical trials. In
January 2002, Pharmacia, after an analysis of the Phase III AMD clinical data,
determined that the clinical data results indicated that SnET2 did not meet the
primary efficacy endpoint in the study population, as defined by the clinical
trial protocol, and that they would not be filing an NDA with the FDA; as such
Pharmacia was released from their obligation to loan us an additional $10.0
million. Subsequently, under our negotiated Contract Modification and
Termination Agreement in March 2002, we released Pharmacia from their remaining
$3.2 million loan obligation to us, in exchange for reducing our debt of $26.8
million to $10.0 million, with $5.0 million due in March 2003 and the remaining
$5.0 million due in June 2004, as well as changing and eliminating many of our
covenants. Additionally, the funds in the equipment escrow account, containing a
principal and interest balance of $880,000, were released to us in March 2002.
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, 2001, we have received $315,000 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. As of December 31, 2001, the average exercise price of stock options and
warrants outstanding were $14.60 and $13.55, respectively.
Statement of Cash Flows
For 2001, 2000 and 1999, we required cash for operations of $15.2 million,
$13.4 million and $18.4 million, respectively. The increase in net cash required
for operations in 2001 as compared to 2000 is directly related to the production
and sale of our bulk API inventory, our subsequent bulk API sale to Pharmacia
and the timing on the collection of the payments from an escrow account for
these sales which was deferred into 2002. Subsequently, a payment of $4.1
million for the sales of bulk API was released in full to us in January 2002.
The increase in net cash required for operations in 2001 was offset by an
increase in stock awards used as employee compensation. 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 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.
For 2001, net cash provided by investing activities was $14.8 million. For
2000 and 1999, net cash used in investing activities was $15.8 million and $4.4
million, respectively. The net cash provided by financing activities in 2001 was
related to the proceeds from the net sales of marketable securities as well as
proceeds from the sale of bulk API manufacturing equipment to Pharmacia. The net
cash used in 2000 and 1999 for investing activities was directly related to the
net purchases of marketable securities based on an analysis of the funds
available for investment and purchases of property, plant and equipment.
For 2001, 2000 and 1999, net cash provided by financing activities was
$15,000, $11.9 million and $30.6 million, respectively. Cash provided by
financing activities in 2001 was related to $315,000 provided by warrant and
option exercises which was offset by $300,000 in loans provided to an executive
officer of the Company. Cash provided by financing activities in 2000 was
attributed to the $7.5 million provided under the 2001 Credit Agreement with
Pharmacia and warrant and option exercise proceeds of $4.4 million. Cash
provided by financing activities in 1999 was primarily attributed to Pharmacia's
$19.0 million equity investment, net of offering costs, and $15.0 million
provided under the 2001 Credit Agreement.
Lease Obligations and Long-Term Debt
Contractual
Obligations Payments Due by Period
------------------------------------------------------------------------------------------------------------
Less than 1
year 1 - 3 years 4 - 5 years After 5 years Total
--------------- ----------------- -------------- --------------- --------------
Long Term Debt(1)....... $ -- $ 10,000,000 $ -- $ -- $ 10,000,000
Building Leases(1)(2)... 773,000 964,000 262,000 -- 1,999,000
--------------- ----------------- -------------- --------------- --------------
Total Contractual
Cash Obligations....... $ 773,000 $ 10,964,000 $ 262,000 $ -- $ 11,999,000
=============== ================= ============== =============== ==============
(1) The long-term debt represents the principal amounts due to
Pharmacia under the terms of the Contract Modification and
Termination Agreement entered into in March 2002. Additionally,
the amounts recorded for contractual building leases includes the
lease payments for our bulk API manufacturing facility for which
we reassumed in March 2002 under the Contract Modification and
Termination Agreement.
(2) The amounts recorded for building leases consist of leases on
four buildings and is net of sublease revenue of $423,000 in 2002
and $352,000 in 2003.
We invested a total of $9.6 million in property, plant and equipment from
1996 through December 31, 2001. 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.
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:
* Our ability to implement an effective cost restructuring program
to reduce our use of cash;
* The viability of SnET2 for future use;
* Our ability to establish additional collaborations;
* Our ability to stay listed on Nasdaq;
* Our ability to raise equity financing or use stock awards for
employee and consultant compensation;
* The pace of scientific progress and 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; and
* Our dependence on others for development and commercialization of
our potential products.
We have implemented a cost restructuring program in January 2002 that will
allow us to reduce our overall use of cash from operations in future periods.
Based on our current cash and investment balances, the $450,000 payable to us by
Pharmacia for bulk API drug sales during the first quarter 2002 and
approximately $880,000 released to us in March 2002 for manufacturing equipment
sold to Pharmacia, we anticipate that we only have sufficient cash to fund our
operations through September 30, 2002. For this reason our auditors have
indicated that there is substantial doubt about our ability to continue as a
going concern. We plan to actively seek additional capital needed to fund our
operations through corporate collaborations or partnerships, through licensing
of SnET2 or new products and through public or private equity or debt
financings. Additional financing may not be available on acceptable terms or at
all. Our ability to raise funds may become more difficult if our stock is
delisted from trading on the Nasdaq National Market. Any inability to obtain
additional financing would adversely affect our business and could cause us to
significantly reduce or cease operations. 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:
* The future development decisions related to the ongoing analysis
of the data from our Phase III AMD clinical trials;
* The future development and results of our Phase II dermatology
clinical trial and our ongoing cardiovascular and oncology
preclinical studies;
* The potential future use of SnET2 for ophthalmology or other
disease indications;
* Our ability to successfully raise funds in the future through
public or private equity or debt financings, or establish
collaborative arrangements or raise funds from other sources;
* The extent to which our obligation to pay Pharmacia a portion of
the funds received in our financing activities will hinder our
fundraising efforts;
* Our requirement to allocate certain percentages of net proceeds
from any public or private equity financings and/or asset
dispositions, as defined earlier, towards the early repayment of
our debt of $10.0 million plus accrued interest due to Pharmacia
under the Contract Modification and Termination Agreement;
* The potential for equity investments, collaborative arrangements,
license agreements or development or other funding programs that
are at terms acceptable to 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, if any;
* Our ability to maintain, renegotiate, or terminate our existing
collaborative arrangements;
* Our ability to receive any funds from the sale of our 33% equity
investment in Ramus, consisting of 2,000,000 shares of Ramus
Preferred Stock and 59,112 shares of Ramus Common Stock, neither
of which are publicly traded and the fair market value of which
is currently negligible;
* Our ability to liquidate our equity investment in Xillix, of
2,691,904 shares of Xillix Common Stock, which is publicly traded
on the Toronto Stock Exchange under the symbol (XLX.TO), but has
historically had very small trading volume; 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 now,
when needed, or if at all. If additional funding is not available in the near
term, we will be required to scale back our research and development programs,
preclinical studies and clinical trials and administrative activities or cease
operations. As a result, we would not be able to successfully develop our drug
candidates or commercialize our products and we would never achieve
profitability.
Related Party Transactions
In April 1998, we entered into a $2.0 million revolving credit agreement
with our affiliate, Ramus. As of December 31, 2001, 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 indefinitely. 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. Additionally, we do provide various services to them on an as needed
basis, which have been insignificant to date and due to Ramus' poor financial
condition, we have deferred Ramus' sublease rent payments until sometime in the
future.
In July 1996, the Board of Directors appointed Joseph Nida, a partner in a
law firm that we use for outside legal services, to serve as our corporate
Secretary. We paid Mr. Nida's law firm fees for legal services totaling $55,000
in 2001, $40,000 in 2000 and $46,000 in 1999. In addition, we have issued
warrants to Mr. Nida's firm to purchase a total of 87,500 shares of Common Stock
as partial consideration for his services as acting in-house legal counsel and
corporate Secretary.
RISK FACTORS
FACTORS AFFECTING FUTURE OPERATING RESULTS
The following section of this report describes material risks and
uncertainties relating to our company and its business. Our business operations
may be impaired by additional risks and uncertainties that we are not aware 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.
RISKS RELATED TO OUR BUSINESS
OUR BUSINESS IS NOT EXPECTED TO BE PROFITABLE FOR THE FORESEEABLE FUTURE AND WE
WILL NEED ADDITIONAL FUNDS TO CONTINUE OUR OPERATIONS PAST SEPTEMBER 2002. IF WE
FAIL TO OBTAIN ADDITIONAL FUNDING, WE COULD BE FORCED TO SCALE BACK OR CEASE
OPERATIONS.
Since our inception we have incurred losses totaling $173.6 million as of
December 31, 2002 and have never generated enough funds through our operations
to support our business. Although we have implemented a cost restructuring
program in January 2002 that will allow us to reduce our overall use of cash
from operations in future periods, we currently anticipate that we only have
sufficient cash to fund our operations through September 30, 2002. Our
independent auditors, Ernst & Young LLP, have indicated in their report
accompanying our year end consolidated financial statements that, based on
generally accepted accounting principles, our viability as a going concern is in
question. We will need substantial additional resources in the near term to
continue to develop our products. If we do not receive sufficient funding by the
end of September 2002 we may be forced to cease operations. The timing and
magnitude of our future capital requirements will depend on many factors,
including:
* Our ability to implement an effective cost restructuring program
to reduce our use of cash;
* The viability of SnET2 for future use;
* Our ability to establish additional collaborations;
* Our ability to stay listed on Nasdaq;
* Our ability to raise equity financing or use stock awards for
employee and consultant compensation;
* The pace of scientific progress and 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; and
* Our dependence on others for development and commercialization of
our potential products.
We plan to actively seek additional capital needed to fund our operations
through corporate collaborations or partnerships, through licensing of SnET2 or
new products and through public or private equity or debt financings. No
commitments for such collaborations or funding are currently in place. Any
inability to obtain additional financing would adversely affect our business and
could cause us to significantly scale back or cease operations. If we are
successful in obtaining additional equity financing it may result in significant
dilution to our stockholders. In addition, any new securities issued may have
rights, preferences or privileges senior to those securities held by our current
stockholders.
OUR EXISTING LOAN OBLIGATIONS, NASDAQ LISTING STATUS AND THE FUTURE DEVELOPMENT
UNCERTAINTY OF SNET2, WILL MAKE OBTAINING ADDITIONAL FUNDING DIFFICULT.
Our ability to obtain additional funding by September 30, 2002 to operate
our business may be impeded by a number of factors including:
* We currently owe Pharmacia Corporation, or Pharmacia, $10.0 million,
and are obligated to pay a portion of net proceeds from any public or
private equity financings and/or asset dispositions towards the
repayment of the $10.0 million plus accrued interest due to Pharmacia
under the Contract Modification and Termination Agreement:
* If our aggregate net equity financing and/or assets
disposition proceeds are less than or equal to $7.0 million,
we are not required to make an early repayment towards our
Pharmacia debt;
* If our aggregate net equity financing and/or assets
disposition proceeds are greater than $7.0 million but less
than or equal to $15.0 million, then we are required to
apply one-third of net the proceeds from the amount in
excess of $7.0 million up to $15.0 million, or a maximum
repayment of $2.7 million towards our Pharmacia debt;
* If our aggregate net equity financing and/or assets
disposition proceeds are greater than $15.0 million but less
than or equal to $25.0 million, then we are required to
apply one-half of the net proceeds from the amount in excess
of $15.0 million up to $25.0 million, or a maximum repayment
of $7.7 million towards our Pharmacia debt;
* If our aggregate net equity financing and/or assets
disposition proceeds are greater than $25.0 million, then we
are required to apply all of the net proceeds from the
amount in excess of $25.0 million, or repay the entire $10.0
million plus accrued interest towards our Pharmacia debt;
and
* Any early repayment of our Pharmacia debt applies first to
the loan amount due on March 4, 2003, then to the remaining
loan amount due on June 4, 2004.
* Our Common Stock is subject to being delisted from trading on
Nasdaq; and
* The uncertainty surrounding the effectiveness of SnET2, following
the January 2002 announcement, that Pharmacia, after an analysis
of the Phase III wet age-related amcular degeneration, or AMD,
clinical data, determined that the clinical trial data results
indicated that SnET2 did not meet the primary efficacy endpoint
in the study population, as defined by the clinical trial
protocol, and that they would not be filing a New Drug
Application, or NDA, with the U.S. Food and Drug Administration,
or FDA.
We will need a substantial amount of funding to further our programs
and investors may be reluctant to invest in our equity securities if the
funds necessary to grow our business are instead used to pay down our
existing debt obligations. Investors may also be reluctant to provide us
funds for fear that Pharmacia may foreclose on our assets. The fact that
our Common Stock may no longer be listed for trading on Nasdaq may also
discourage investors or result in a discount on the price that investors
may pay for our securities. We will also have to overcome investor concerns
about our other compounds given the failure of SnET2 to demonstrate success
in meeting the primary efficacy endpoint in the Phase III AMD clinical
trials. These and other factors may prevent us from obtaining additional
financing as required in the near term on favorable terms or at all.
PHARMACIA DETERMINED THAT SNET2, OUR LEADING DRUG CANDIDATE, DID NOT MEET THE
PRIMARY EFFICACY ENDPOINT FOR THE STUDY POPULATION, AS DEFINED BY THE CLINICAL
TRIAL PROTOCOL, IN OUR PHASE III AMD CLINICAL TRIALS WHICH CAUSED US TO DELAY
AND POTENTIALLY CANCEL OUR PLANS TO SEEK REGULATORY APPROVAL FOR SNET2. WE ARE
CURRENTLY ANALYZING THE CLINICAL DATA FROM THE PHASE III AMD CLINICAL TRIALS. IF
THE DATA DO NOT PRESENT ANY PROSPECT OF FUTURE DEVELOPMENT FOR SNET2, THEN WE
MAY BE UNABLE TO SUCCESSFULLY ESTABLISH A NEW COLLABORATIVE PARTNERSHIP, WHICH
COULD MATERIALLY HARM OUR DEVELOPMENT PROGRAMS.
In collaboration with Pharmacia, in December 2001, we completed two Phase
III ophthalmology clinical trials for the treatment of AMD, with our lead drug
candidate, SnET2. In January 2002, Pharmacia performed an analysis of the
clinical data and determined that the clinical data results indicated that SnET2
patients did not meet the primary efficacy endpoint in the study population, as
defined by the clinical trial protocol, and that they would not be filing an NDA
with the FDA. Based on Pharmacia's analysis of the AMD clinical data, we may not
be able to proceed with our plans to seek regulatory approval of SnET2 as
formerly planned. In March 2002, we regained the license rights to SnET2 as well
as the related data and assets from the Phase III AMD clinical trials from
Pharmacia. We are currently conducting our own detailed analysis of the clinical
data, including an analysis of the subset groups. We expect to complete our
analysis by the end of the second quarter 2002 and, based on the results of our
analysis, we will determine the future potential development of SnET2, including
the potential use of SnET2 in other disease indications. In addition, we have
terminated our license collaboration with Pharmacia, and we intend to seek a new
collaborative partner in ophthalmology for PhotoPoint(TM) PDT, our proprietary
technologies for photodynamic therapy. If our analysis of the clinical data does
not provide the information to support further development, then we may be
unable to enter into an agreement with a new collaborative partner and may be
unable to continue our current research programs. If we cease development
efforts for SnET2 it could adversely affect our funding and development efforts
for our other programs and severely harm our business.
THE CURRENT TRADING PRICE OF OUR COMMON STOCK, OUR MARKET CAPITALIZATION AND THE
AMOUNT OF OUR STOCKHOLDER'S EQUITY AND NET TANGIBLE ASSETS, COULD RESULT IN OUR
SHARES BEING DELISTED FROM TRADING ON NASDAQ. IF WE BECOME DELISTED FROM NASDAQ,
THEN OUR ABILITY TO RAISE ADDITIONAL CAPITAL MAY BE LIMITED OR IMPAIRED.
Our Common Stock is listed on the Nasdaq National Market. We currently do
not satisfy the Nasdaq continued listing standards concerning the size of our
market capitalization and the minimum bid price of our stock. Nasdaq recently
informed us of its intention to delist our Common Stock. This delisting,
however, has been stayed pending the outcome of an oral hearing scheduled on
April 18, 2002 to appeal the Nasdaq decision. If this appeal is denied, our
stock will be delisted from Nasdaq. If this were to happen, it would be much
more difficult to purchase or sell our common stock or obtain accurate
quotations as to the price of the securities.
UNDER THE CONTRACT MODIFICATION AND TERMINATION AGREEMENT ENTERED INTO WITH
PHARMACIA IN MARCH 2002, OUR OUTSTANDING DEBT TO PHARMACIA OF $10.0 MILLION
REMAINS SECURED BY ALL OF OUR ASSETS. IF WE BECOME UNABLE TO REPAY OUR
BORROWINGS OR VIOLATE THE COVENANTS UNDER THIS AGREEMENT, PHARMACIA COULD
FORECLOSE ON OUR ASSETS.
Under the terms of the Contract Modification and Termination Agreement with
Pharmacia, we have outstanding debt to Pharmacia of $10.0 million which is
secured by all of our assets. Our ability to comply with all covenants and to
make scheduled payments, early repayments as required or to refinance our debt
obligation will depend on our financial and operating performance, which in turn
will be subject to prevailing economic conditions and certain financial,
business and other factors, including factors that are beyond our control. If
our cash flow and capital resources become insufficient to fund our debt service
obligations or we otherwise default under the Contract Modification and
Termination Agreement, Pharmacia could accelerate the debt and foreclose on our
assets. As a result, we could be forced to obtain additional financing at very
unfavorable terms or significantly reduce or cease operations.
OUR FINANCIAL CONDITION AND COST REDUCTION EFFORTS COULD RESULT IN DECREASED
EMPLOYEE MORALE AND LOSS OF EMPLOYEES AND CONSULTANTS CRITICAL TO OUR SUCCESS.
Our success in the future 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. We currently have limited cash and capital resources and the efficacy
of our primary drug development candidate is questionable causing our business
outlook to be uncertain. In January 2002, we implemented measures to reduce our
expenses to provide us more flexibility. These actions included temporarily
reducing our employees salaries by approximately 20% until April 5, 2002.
Additionally, due to our ongoing limited cash balances, we try to utilize stock
options and stock awards as a key component of short-term and long-term
compensation. However, given that our current stock options outstanding are
significantly de-valued, the current value of our stock is low and the
uncertainty of our long-term prospects, our ability to use stock options and
stock awards as compensation may be limited. These measures, along with our
financial condition and unfavorable clinical data results from the Phase III AMD
clinical trials, may cause employees to question our long-term viability and
increase our turnover. These factors may also result in reduced productivity and
a decrease in employee morale causing our business to suffer. We do not have
insurance providing us with benefits in the event of the loss of key 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.
IF WE ARE NOT ABLE TO MAINTAIN AND SUCCESSFULLY ESTABLISH NEW COLLABORATIVE AND
LICENSING ARRANGEMENTS WITH OTHERS, OUR BUSINESS WILL BE HARMED.
Our business model is based on establishing collaborative relationships
with other parties both to license compounds upon which our products and
technologies are based and to manufacture, market and sell our products. As a
development company we must have access to compounds and technologies to license
for further development. For example, we are party to 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, to license or
sublicense certain photoselective compounds, including SnET2. Similarly, we must
also establish relationships with suppliers and manufacturers to build our
medical devices and to manufacture our compounds. We have partnered with Iridex
for the manufacture of certain light sources and have entered into an agreement
with Fresenius for supply of the final dose formulation of SnET2. Due to the
expense of the drug approval process it is critical for us to have relationships
with established pharmaceutical companies to offset some of our development
costs in exchange for a combination of manufacturing, marketing and distribution
rights. We formerly had a significant relationship with Pharmacia for the
development of SnET2 for the treatment of AMD. To further develop SnET2 it is
essential that we establish a new collaborative relationship with another party.
We are currently at various stages of discussions with various companies
regarding the establishment of new collaborations. If we are not successful in
establishing new collaborative partners for the potential development of SnET2
or our other molecules, we may not be able to pursue further development of such
drugs and/or may have to reduce or cease our current development programs, which
would materially harm our business. Even if we are successful in establishing
new collaborations, they are subject to numerous risks and uncertainties
including the following:
* 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 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 fulfill 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.
ALL OF OUR PRODUCTS, EXCEPT SNET2 AND MV9411, ARE IN AN EARLY STAGE OF
DEVELOPMENT AND ALL OF OUR PRODUCTS, INCLUDING SNET2 AND MV9411, MAY NEVER BE
SUCCESSFULLY COMMERCIALIZED.
Our products, except SnET2 and MV9411, are at an early stage of development
and our ability to successfully commercialize these products, including SnET2
and MV9411, 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, INCLUDING SNET2 AND MV9411, MAY NOT SUCCESSFULLY COMPLETE THE
CLINICAL TRIAL 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/or clinical trials prior to regulatory
approval for commercial use, which is a lengthy and expensive process. None of
our products, except SnET2, 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 our products are safe
and efficacious;
* Our products may not be as efficacious as our competitors
products;
* Our ability to successfully complete the testing for any of our
compounds within any specified time period, if at all;
* Clinical outcomes 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.
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.
In collaboration with Pharmacia, in December 2001, we completed two Phase
III ophthalmology clinical trials for the treatment of AMD, with our lead drug
candidate, SnET2. In January 2002, Pharmacia performed an analysis of the
clinical data and determined that the clinical data results indicated that SnET2
patients did not meet the primary efficacy endpoint in the study population, as
defined by the clinical trial protocol, and they would not be filing an NDA with
the FDA. Based on Pharmacia's analysis of the AMD clinical data, we may not be
able to proceed with our plans to seek regulatory approval of SnET2 as formerly
planned. In March 2002, we regained the license rights to SnET2 as well as the
related data and assets from the Phase III AMD clinical trials from Pharmacia.
We are currently conducting our own detailed analysis of the clinical data,
including an analysis of the subset groups. We expect to complete our analysis
by the end of the second quarter 2002 and, based on the results of our analysis,
we will determine the future potential development of SnET2, including the
potential use of SnET2 in other disease indications. In addition, we have
terminated our license collaboration with Pharmacia, and we intend to seek a new
collaborative partner in ophthalmology.
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. The failure to adequately demonstrate the safety and
effectiveness of a product under development could delay or prevent regulatory
approval of the potential product and would materially harm our business.
WE HAVE A HISTORY OF SIGNIFICANT OPERATING LOSSES AND EXPECT TO CONTINUE TO HAVE
LOSSES IN THE FUTURE, WHICH MAY FLUCTUATE SIGNIFICANTLY. WE MAY NEVER ACHIEVE
PROFITABILITY.
We have incurred significant losses since our inception in 1989 and, as of
December 31, 2001, had an accumulated deficit of approximately $173.6 million.
We expect to continue to incur significant, and possibly increasing, operating
losses over the next few years. Although we continue to incur costs for research
and development, preclinical studies, clinical trials, manufacturing and general
corporate activities, we have currently implemented a cost restructuring program
which we expect will help to reduce our overall costs. 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 SnET2 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 several years. Our revenues
to date have consisted of license reimbursements, grants awarded, royalties on
our devices, SnET2 bulk active pharmaceutical ingredient, or bulk API sales,
milestone payments, payments for our devices, and interest income. Our revenues
for the foreseeable future are expected to consist of the remaining $450,000 of
bulk API sold to Pharmacia through January 2002, reimbursements under license
agreements, milestone payments, licensing fees and interest income.
THE PRICE OF OUR COMMON STOCK HAS BEEN AND MAY CONTINUE TO BE VOLATILE.
From time to time and in particular during the last couple of months, 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 15, 2001 to March 15, 2002, our Common Stock price, per
Nasdaq closing prices, has ranged from a high of $12.42 to a low of $0.80.
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 reduce the market
price of the Common Stock. Extreme price fluctuations could be the result of the
following:
* Future development decisions related to the results of our Phase
III AMD clinical trials;
* Announcements concerning Miravant or our collaborators,
competitors or industry;
* Our ability to successfully establish new collaborations;
* 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;
* Our ability to stay listed on Nasdaq;
* 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. If these broad market fluctuations cause the trading price
of our Common Stock to significantly decline, we may be unable to obtain
additional capital that we may need through public or private financing
activities and our stock could be delisted from Nasdaq further exacerbating our
ability to raise funds and limiting your ability to sell your shares. Because
outside financing is critical to our future success, large fluctuations in our
share price that harm our financing activities could cause us to significantly
alter our business plans or cease operations altogether.
WE RELY ON THIRD PARTIES TO CONDUCT CLINICAL TRIALS ON OUR PRODUCTS, AND IF
THESE RESOURCES FAIL, OUR ABILITY TO SUCCESSFULLY COMPLETE CLINICAL TRIALS WILL
BE ADVERSELY AFFECTED AND OUR BUSINESS WILL SUFFER.
To date, we have limited experience in conducting clinical trials. We had
relied on Pharmacia, our former corporate partner, and Inveresk, Inc., formerly
ClinTrials Research, Inc., a contract research organization, for our Phase III
AMD clinical trials and we rely on a contract research organization for our
Phase II dermatology 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. The failure to have adequate resources
for conducting and managing clinical trials will have a negative impact on our
ability to develop marketable products and would harm our business. Other
contract research organizations may be available in the event that our current
contract research organizations fail; however there is no guarantee that we
would be able to engage another organization in a timely manner, if at all. This
could cause delays in our clinical trials and our development programs, which
could materially harm our business.
WE RELY ON PATIENT ENROLLMENT TO CONDUCT CLINICAL TRIALS, AND OUR INABILITY TO
CONTINUE TO ATTRACT PATIENTS TO PARTICIPATE WILL HAVE A NEGATIVE IMPACT ON OUR
CLINICAL TRIAL RESULTS.
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 clinical trials.
A specific concern for potential future AMD clinical trials is that there
currently is an approved treatment for AMD and patients enrolled in future AMD
clinical trials, if any, may choose to drop out of the trial or pursue
alternative treatments. This could result in delays or incomplete clinical trial
data.
We cannot assure 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 result in slower introduction of our potential products, a
reduction in our revenues and may prevent us from becoming profitable. 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. Failure to obtain and keep patients in our
clinical trials will delay or completely impede test results which will
negatively impact the development of our products and prevent us from becoming
profitable.
WE MAY FAIL TO ADEQUATELY PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS,
OUR PATENTS AND OUR PROPRIETARY TECHNOLOGY, WHICH WILL MAKE IT EASIER FOR OTHERS
TO MISAPPROPRIATE OUR TECHNOLOGY AND INHIBIT OUR ABILITY TO BE COMPETITIVE.
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 reduce our future income, increase our
costs and limit our ability to develop additional products. 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 prohibit us from developing our
products as planned; 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.
Further exposure could arise from the following risks and uncertainties:
* 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.
The occurrence of any of these events described above could harm 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. We may
not be successful in any such proceeding. Litigation and other proceedings are
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.
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.
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 at some commercial levels, we have not
yet manufactured any products under GMPs which can be released for commercial
use, and we have limited experience in manufacturing in commercial quantities.
We are licensed by the State of California to manufacture SnET2 bulk API at our
Santa Barbara, California facility for clinical trial and other use. We
currently manufacture the bulk API, 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 we believe we
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
commercial product sales, as well as our overall business growth could be
limited, which in turn could prevent us from becoming profitable or viable as a
business. Fresenius is the sole manufacturer of the final dose formulation of
SnET2 and Iridex is currently the sole supplier of the light producing devices
used in our AMD clinical trials. Both currently have commercial quantity
capabilities. At this time, we have no readily available back-up manufacturers
to produce the final formulation of SnET2 at commercial levels or back-up
suppliers of the light producing devices. If Fresenius could no longer
manufacture for us or Iridex was unable to supply us with devices, we could
experience significant delays in production or may be unable to find a suitable
replacement, which would reduce our revenues and harm our ability to
commercialize our products and become profitable.
We have no direct experience in marketing, distributing and selling our
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 Iridex for any medical device needs for the AMD program. 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 PRODUCTS MAY EXHIBIT ADVERSE SIDE EFFECTS THAT PREVENT THEIR WIDESPREAD
ADOPTION OR THAT NECESSITATE WITHDRAWAL FROM THE MARKET.
Our PhotoPoint PDT 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 PDT drug and
device products as potential therapeutic agents may be a period of
photosensitivity for a certain period of time after receiving PhotoPoint PDT.
This period of photosensitivity is generally dose dependent and typically
declines over time. 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.
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. For example, if we are able
to eventually obtain approval of our drugs and devices to treat
cardiac restenosis we will have to demonstrate and gain market
acceptance of this as a method of treatment over use of drug
coated stents and other restenosis treatment options;
* 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 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. Although most of our raw materials and components are available
from various sources, 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 certain key
materials or services used by us in our drug development, light producing and
light delivery device development and production operations. We are seeking to
establish relationships with additional suppliers, however, we may not be
successful in doing so and may encounter delays or other problems. If we are
unable to produce our potential products in a timely manner, or at all, our
sales would decline, our development activities could be delayed or cease and as
a result we may never achieve profitability.
WE MAY NOT HAVE ADEQUATE PROTECTION AGAINST PRODUCT LIABILITY OR RECALL, WHICH
COULD SUBJECT US TO LIABILITY CLAIMS THAT COULD MATERIALLY HARM OUR BUSINESS.
The testing, manufacture, marketing and sale of human pharmaceutical
products and medical devices 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 product liability insurance that would cover
a claim relating to the clinical or commercial use or recall of
our products;
* In the absence of product liability insurance, claims made
against us or a product recall could result in our being exposed
to large damages and expenses;
* If we obtain product liability 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 cause
us to pay large amounts in damages; and
* Liability claims relating to our products or a product recall
could negatively affect our ability to obtain or maintain
regulatory approval for our products.
We currently do not expect to obtain product liability insurance until we
have an approved product and begin distributing the product for commercial use.
We plan to obtain product liability insurance to cover our indemnification
obligations to Iridex for third party claims relating to any of our potential
negligent acts or omissions involving our SnET2 drug technology or PhotoPoint
PDT light device technology. A successful product liability claim could result
in monetary or other damages that could harm our business, financial condition
and additionally cause us to cease operations.
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
of 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.
WE RELY ON THE AVAILABILITY OF CERTAIN UNPROTECTED INTELLECTUAL PROPERTY RIGHTS,
AND IF ACCESS TO SUCH RIGHTS BECOMES UNAVAILABLE, OUR BUSINESS COULD SUFFER.
Our trade secrets may become known or be independently discovered by
competitors. Furthermore, inventions or processes discovered by our employees
will not necessarily become our property and may remain the property of such
persons or others.
In addition, 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 our rights to our
unpatented trade secrets and know-how.
In the event that the intellectual property we do or will rely on becomes
unavailable, our ability to be competitive will be impeded and our business will
suffer.
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, or
Rights Plan. The Rights 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 Rights 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
April 2001, the Rights Plan was amended to increase the trigger percentage from
20% to 25% as it applies to Pharmacia and excluded shares acquired by Pharmacia
in connection with our 2001 Credit Agreement with Pharmacia, and from the
exercise of warrants held by Pharmacia. 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 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 or may
discourage another party from acquiring voting control of us.
BUSINESS INTERRUPTIONS COULD ADVERSELY AFFECT OUR BUSINESS.
Our operations are vulnerable to interruption by fire, earthquake, power
loss, floods, 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 were subject to electricity blackouts as a
consequence of a shortage of available electrical power. There is no guarantee
that this electricity shortage has been permanently resolved, as such, we may
again in the future experience unexpected blackouts. Though we do have back-up
electrical generation systems in place, they are for use for a limited time and
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
adequate business interruption insurance to compensate us for losses that may
occur and any losses or damages incurred by us could be substantial.
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 not be purchased
or sold as expected. Our ability to commercialize our products successfully will
depend, in part, on the extent to which reimbursement for these products and
related treatment will be available from 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 prevent us
from selling our potential products profitability, may reduce our revenues 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 Food, Drug and Cosmetic Act, or 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 drug-device products. If current or future
photodynamic therapy 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 European Union, or 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, preclinical 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, device 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 PDT 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, cost and price of our light systems;
* The cost and price of our drug; and
* The amount reimbursed for the drug and device treatment by
third-party payors.
We cannot give any assurance that new drugs or future developments in
photodynamic therapy or in other drug technologies will not harm 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 the above could have an adverse effect on our business. Further, we
cannot give any assurance that developments by our competitors or future
competitors will not render our technology obsolete.
WE FACE INTENSE COMPETITION AND OUR FAILURE TO COMPETE EFFECTIVELY, PARTICULARLY
AGAINST LARGER, MORE ESTABLISHED PHARMACEUTICAL AND MEDICAL DEVICE COMPANIES,
WILL CAUSE OUR BUSINESS TO SUFFER.
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 and distribution.
Further, our competitive position could be harmed 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 PDT. 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, such as drug-eluting stents 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. Our direct competitors in our sector include QLT Inc., or QLT, DUSA
Pharmaceuticals, or DUSA, Axcan Pharmaceuticals and Pharmacyclics. QLT's drug
Visudyne has received marketing approval in the United States and certain other
countries for the treatment of AMD and has been commercialized by Novartis.
Axcan and DUSA have photodynamic therapy drugs, both of which have received
marketing approval in the United States - Photofrin(R) (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. Pharmacyclics has a photodynamic therapy drug that has
not received marketing approval, which is being used in certain preclinical
studies and/or clinical trials for ophthalmology, oncology and cardiovascular
indications. We are aware of other drugs and devices under development by these
and other photodynamic therapy competitors in additional disease areas for which
we are developing PhotoPoint PDT. These competitors as well as others that we
are not aware of, may develop superior products or reach the market prior to
PhotoPoint PDT and render our products non-competitive or obsolete.
OUR INDUSTRY IS SUBJECT TO TECHNOLOGICAL UNCERTAINTY, WHICH MAY RENDER OUR
PRODUCTS AND DEVELOPMENTS OBSOLETE AND OUR BUSINESS MAY SUFFER.
The pharmaceutical industry is subject to rapid and substantial
technological change. Developments by others may render our products under
development or our 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, biotechnology and
device 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 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 compared to our products. We
are aware that three of our competitors in the market for photodynamic therapy
drugs have received marketing approval of their product for certain uses in the
United States or 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
restenosis, 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 PDT 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 or diagnostic tools, 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 SUBJECTING US TO COMPLIANCE ISSUES THAT COULD CREATE SIGNIFICANT
ADDITIONAL EXPENDITURES AND LIMIT THE PRODUCTION AND DEMAND FOR OUR POTENTIAL
PRODUCTS.
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 limit the
demand and manufacturing of 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 hinder 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 IS SUBJECT TO ENVIRONMENTAL PROTECTION LAWS AND REGULATIONS, AND IN
THE EVENT OF AN ENVIRONMENTAL LIABILITY CLAIM, WE COULD BE HELD LIABLE FOR
DAMAGES AND ADDITIONAL SIGNIFICANT UNEXPECTED COMPLIANCE COSTS, WHICH COULD HARM
OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONs.
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 cause us to pay significant amounts of money and
harm our business. 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
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 56 - 77 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, 2001 and 2000, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 2001. 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, 2001 and 2000 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.
The accompanying financial statements have been prepared assuming that Miravant
Medical Technologies will continue as a going concern. As more fully described
in Note 1, the Company has incurred recurring operating losses, which have
resulted in an accumulated deficit and a deficit in stockholders' equity. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 1. The financial statements do not include any adjustments to reflect
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.
/S/ ERNST & YOUNG LLP
March 5, 2002
Woodland Hills, California
CONSOLIDATED BALANCE SHEETS
December 31,
2001 2000
------------------ -------------------
Assets
Current assets:
Cash and cash equivalents............................................... $ 1,458,000 $ 1,935,000
Investments in short-term marketable securities......................... 4,654,000 18,900,000
Accounts receivable..................................................... 5,080,000 932,000
Inventories............................................................. 395,000 --
Prepaid expenses and other current assets............................... 974,000 967,000
------------------ -------------------
Total current assets....................................................... 12,561,000 22,734,000
Property, plant and equipment:
Vehicles................................................................ 28,000 28,000
Furniture and fixtures.................................................. 1,404,000 1,649,000
Equipment............................................................... 5,447,000 5,882,000
Leasehold improvements.................................................. 3,382,000 4,538,000
------------------ -------------------
10,261,000 12,097,000
Accumulated depreciation................................................ (9,057,000) (9,781,000)
------------------ -------------------
1,204,000 2,316,000
Investments in affiliates.................................................. 635,000 859,000
Deferred financing costs................................................... 913,000 1,287,000
Patents and other assets................................................... 852,000 831,000
------------------ -------------------
Total assets............................................................... $ 16,165,000 $ 28,027,000
================== ===================
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable........................................................ $ 2,535,000 $ 2,665,000
Accrued payroll and expenses............................................ 786,000 638,000
------------------ -------------------
Total current liabilities.................................................. 3,321,000 3,303,000
Long-term liabilities:
Long-term debt.......................................................... 26,548,000 24,794,000
Sublease security deposits.............................................. 94,000 94,000
------------------ -------------------
Total long-term liabilities................................................ 26,642,000 24,888,000
Stockholders' equity (deficit):
Common stock, 50,000,000 shares authorized; 18,876,075 and 18,576,503
shares issued and outstanding at December 31, 2001 and
2000, respectively.................................................... 161,496,000 158,842,000
Notes receivable from officers.......................................... (822,000) (487,000)
Deferred compensation and interest...................................... (547,000) (1,220,000)
Accumulated other comprehensive loss.................................... (356,000) (132,000)
Accumulated deficit..................................................... (173,569,000) (157,167,000)
------------------ -------------------
Total stockholders' equity (deficit)....................................... (13,798,000) (164,000)
------------------ -------------------
Total liabilities and stockholders' equity (deficit)....................... $ 16,165,000 $ 28,027,000
================== ===================
See accompanying notes.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
2001 2000 1999
------------------- ------------------- ------------------
Revenues:
License - contract research and development....... $ 302,000 $ 4,481,000 $ 13,996,000
Bulk active pharmaceutical ingredient sales....... 4,306,000 -- --
Royalties......................................... 75,000 -- 143,000
Grants............................................ -- 112,000 438,000
------------------- ------------------- ------------------
Total revenues....................................... 4,683,000 4,593,000 14,577,000
Costs and expenses:
Cost of goods sold................................ 934,000 -- --
Research and development.......................... 13,318,000 19,944,000 29,749,000
Selling, general and administrative............... 6,078,000 6,273,000 7,473,000
Loss in affiliate................................. -- -- 417,000
------------------- ------------------- ------------------
Total costs and expenses............................. 20,330,000 26,217,000 37,639,000
Loss from operations................................. (15,647,000) (21,624,000) (23,062,000)
Interest and other income (expense):
Interest and other income......................... 798,000 1,370,000 1,240,000
Interest expense.................................. (2,139,000) (2,254,000) (434,000)
Gain on sale of assets............................ 586,000 -- --
Non-cash loss in investment....................... -- (3,485,000) --
------------------- ------------------- ------------------
Total net interest and other income (expense)........ (755,000) (4,369,000) 806,000
------------------- ------------------- ------------------
Net loss............................................. $ (16,402,000) $ (25,993,000) $ (22,256,000)
=================== =================== ==================
Net loss per share - basic and diluted............... $ (0.88) $ (1.42) $ (1.25)
=================== =================== ==================
Shares used in computing net loss per share.......... 18,647,071 18,294,525 17,768,670
=================== =================== ==================
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, 1999......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 and
deferred interest related to
warrants granted............. -- 1,203,000 -- (332,000) -- -- 871,000
Amortization of deferred
compensation................. -- -- -- 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 and
deferred interest related to
warrants granted and officer
notes........................ -- 937,000 (27,000) (205,000) -- -- 705,000
Amortization of deferred
compensation................ -- -- -- 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)
Comprehensive loss:
Net loss.................. -- -- -- -- -- (16,402,000)(16,402,000)
Net change in accumulated
other comprehensive
loss..................... -- -- -- -- (224,000) -- (224,000)
-------------
Total comprehensive loss..... (16,626,000)
Exercise of stock options and
warrants.................... 35,690 315,000 -- -- -- -- 315,000
Issuance of stock awards..... 263,882 2,255,000 -- -- -- -- 2,255,000
Non-cash contributions by
Pharmacia Corporation........ -- 194,000 -- -- -- -- 194,000
Officer notes................. -- -- (335,000) -- -- -- (335,000)
Deferred compensation......... -- (110,000) -- 110,000 -- -- --
Amortization of deferred
compensation................. -- -- -- 563,000 -- -- 563,000
------------ --------------- ------------- --------------- -------------- --------------- ---------
Balance at December 31, 2001....18,876,075 $ 161,496,000 $ (822,000) $ (547,000) $ (356,000) $(173,569,000)$(13,798,000)
============ =============== ============= =============== ============== =============== =========
See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
Operating activities: 2001 2000 1999
---------------- ---------------- ---------------
Net loss............................................... $ (16,402,000) $ (25,993,000) $ (22,256,000)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization....................... 1,194,000 1,743,000 2,690,000
Amortization of deferred compensation............... 563,000 761,000 1,452,000
Non-cash loss in investment......................... -- 3,485,000 --
(Gain) loss on sale of property, plant and equipment (586,000) -- 25,000
Reserve for loan receivable from affiliate.......... -- -- 250,000
Stock awards........................................ 2,255,000 760,000 1,006,000
Non-cash interest and amortization of
deferred financing costs on long-term debt........ 2,288,000 2,231,000 379,000
Reserve for patents................................. -- 74,000 412,000
Changes in operating assets and liabilities:
Accounts receivable ............................. (4,148,000) 4,785,000 (2,679,000)
Inventories...................................... (361,000) -- --
Prepaid expenses and other assets................ (33,000) 225,000 (235,000)
Accounts payable and accrued payroll............... (17,000) (1,444,000) 596,000
------------------ ------------------ ------------------
Net cash used in operating activities.................. (15,247,000) (13,373,000) (18,360,000)
Investing activities:
Purchases of marketable securities..................... (43,684,000) (31,396,000) (17,014,000)
Sales of marketable securities......................... 57,930,000 16,117,000 13,393,000
Loan to affiliate...................................... -- -- (250,000)
Purchases of property, plant and equipment............. (287,000) (263,000) (551,000)
Sublease security deposits............................. -- (33,000) 127,000
Proceeds from sale of property, plant and equipment.... 863,000 -- --
Purchases of patents................................... (67,000) (199,000) (59,000)
------------------ ------------------ ------------------
Net cash provided by (used in) investing activities.... 14,755,000 (15,774,000) (4,354,000)
Financing activities:
Proceeds from issuance of Common Stock, less
issuance costs...................................... 315,000 4,414,000 18,737,000
Proceeds from long-term debt........................... -- 7,500,000 15,000,000
Repayments (advances) of notes to officers............. (300,000) -- 1,065,000
Payments for price protection obligations under the
Amended Securities Agreement........................ -- -- (4,204,000)
------------------ ------------------ ------------------
Net cash provided by financing activities.............. 15,000 11,914,000 30,598,000
Net (decrease) increase in cash and cash equivalents... (477,000) (17,233,000) 7,884,000
Cash and cash equivalents at beginning of period....... 1,935,000 19,168,000 11,284,000
------------------ ------------------ ------------------
Cash and cash equivalents at end of period............. $ 1,458,000 $ 1,935,000 $ 19,168,000
================== ================== ==================
Supplemental disclosures:
State taxes paid....................................... $ 20,000 $ 8,000 $ 100,000
================== ================== ==================
Interest paid.......................................... $ -- $ 24,000 $ --
================== ================== ==================
See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting Policies
Description of Business and Basis of Presentation
Miravant Medical Technologies, or Miravant or the Company, is engaged in
the research and development of drugs and medical device products for use in
PhotoPoint(TM) PDT, the Company's proprietary technologies for photodynamic
therapy. The Company is located in Santa Barbara, California.
The accompanying consolidated 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, 2001, the
Company had an accumulated deficit of $173.6 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, if at all, 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. Executive
management of the Company believes that with the implementation of a cost
restructuring program in January 2002, it has sufficient resources to fund the
current required expenditures through September 30, 2002. In addition, executive
management also believes it can raise additional funding to support operations
through corporate collaborations or partnerships, licensing of SnET2 or new
products and equity or debt financings prior to September 30, 2002. However,
there can be no assurance that the Company will be successful in obtaining such
financing or that financing will be available on favorable terms. If additional
funding is not available when required, management believes it has the ability
to conserve cash required for operations through December 31, 2002 by the delay
or reduction in scope of one or more of its research and development programs
and adjusting, deferring or reducing salaries of employees and by reducing
operating and overhead expenditures to conserve cash to be used in operations.
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States 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
consolidated 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 $4.7 million and $18.9 million consisted of short-term,
interest-bearing municipal bonds and corporate stocks and bonds as of December
31, 2001 and 2000, 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, 2001 and 2000, 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.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
in a manner which approximates the first-in, first-out (FIFO) method. The
Company manufactures the bulk active pharmaceutical ingredient, or bulk API, for
its lead drug candidate, SnET2, which can be used in preclinical studies and
clinical trials and possibly for future potential commercial sales. Inventories
consist of raw materials necessary to produce additional bulk API lots, work in
process and finished lots. Inventories are shown net of applicable reserves and
allowances. There were no inventories recorded in 2000. Inventories consisted of
the following at December 31, 2001:
Raw materials.................................... $ 65,000
Work in process.................................. 264,000
Finished goods................................... 66,000
------------
Total inventories................................ $ 395,000
============
All inventories outstanding at December 31, 2001 were subsequently sold to
Pharmacia Corporation, or Pharmacia, and payment is pending pursuant to the
Contract Modification and Termination Agreement as described further in Note 12.
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 market
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 because the investment was more than 20% but not in excess of
50% of Ramus' outstanding common stock and the Company was not deemed to be able
to exercise significant influence. 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. The investment in Ramus has
been fully reserved for as of December 31, 2001 and 2000, 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 10 for further discussion on 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 of seventeen
years. Accumulated amortization was $377,000 and $305,000 at December 31, 2001
and 2000, 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.
In October 2001, the Financial Accounting Standards Board, or FASB, issued
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
SFAS No. 144 addresses financial accounting and reporting for the impairment or
disposal of long-lived assets and discontinued operations. SFAS No. 144 is
effective for all fiscal years beginning after December 15, 2001. The Company
will adopt SFAS No. 144 in the first quarter of 2002 and its adoption is not
expected to have a material effect on the Company's consolidated financial
statements.
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 including Financial Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation - an Interpretation of APB
Opinion No. 25" in accounting for its stock option plans.
The Company also has granted and continues to grant warrants and options to
various consultants of the Company. These warrants and options are generally in
lieu of cash compensation and, as such, deferred compensation is recorded
related to these grants. Deferred compensation for warrants and options granted
to non-employees has been determined in accordance with SFAS No. 123 and
Emerging Issues Task Force or EITF 96-18 as the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is more
reliably measured. Deferred compensation is amortized over the consulting or
vesting period.
Revenue Recognition
The Company recognizes revenues from product sales based on when ownership
of the product transfers to the customer and when collectibility is reasonably
assured. Sales of bulk API to Pharmacia Corporation, or Pharmacia, is recorded
as revenue in the period when the product is received by Pharmacia at their
facility. Our current licensing revenues represent reimbursements from Pharmacia
for out-of-pocket expenses incurred in our preclinical studies and clinical
trials for the SnET2 PhotoPoint PDT treatment for age related macular
degeneration, or AMD. These licensing revenues are recognized in the period when
the reimbursable expenses are incurred. Grant income is recognized in the period
in which the grant related expenses are incurred and royalty income is
recognized in the period in which the royalties are earned.
Research and Development Expenses
Research and development costs are expensed as incurred. Research and
development expenses are comprised of the following types of costs incurred in
performing research and development activities: salaries and benefits, allocated
overhead and occupancy costs, preclinical study costs, clinical trial and
related clinical device and drug manufacturing costs, contract services and
other outside costs. The acquisition of technology rights for research and
development projects and the value of equipment and drug product 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 with the change in accumulated
other comprehensive loss consisting of the following:
2001 2000 1999
-------------- --------------- ------------------
Unrealized holding gains (losses) arising from
available-for-sale securities.......................... $ (224,000) $ 107,000 $ (760,000)
Reclassification adjustment for non-cash loss in
investment recognized in net loss ..................... -- 3,485,000 --
-------------- --------------- ------------------
Net (increase) decrease in accumulated other
comprehensive loss .................................... $ (224,000) $ 3,592,000 $ (760,000)
============== =============== ==================
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 October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" or SFAS No. 144. SFAS No. 144
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets and discontinued operations. SFAS No. 144 is effective for all
fiscal years beginning after December 15, 2001. The adoption of SFAS No. 144 is
not expected to have a material effect on the Company's consolidated financial
statements.
In June 1998, the FASB 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. Collaborative Funding and Credit Arrangements
The following represents a description of the Company's past agreements
entered into with Pharmacia. In March 2002, the 2001 Credit Agreement and the
Manufacturing Facility Asset Purchase Agreement were significantly modified
and/or terminated by the Contract Modification and Termination Agreement. See
Note 12 for further discussion of the modifications and terminations of the
agreements with Pharmacia.
Credit Agreements
In February 1999, the Company and Pharmacia entered into a Credit Agreement
which extended to the Company $22.5 million in credit to be used to support the
Company's ophthalmology, oncology and other development programs, as well as for
general corporate purposes. The Credit Agreement allowed 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. Beginning in
2001, the Company was allowed to continue to issue promissory notes for the
quarterly interest due for any quarter in which its adjusted net earnings, as
described by the Credit Agreement, was less than the quarterly interest due. The
promissory notes, which accrue interest at the prime rate, mature in June 2004.
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, the Company 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 issued
promissory notes for the $22.5 million principal balance as well as promissory
notes totaling $379,000 in 1999, $1.9 million in 2000 and $1.8 million in 2001
for the quarterly interest due. The interest rate for these notes was 4.75% at
December 31, 2001. Additionally, the warrants granted, which have been valued at
$1.7 million using the Black-Scholes valuation model, have been recorded as
deferred financing costs on the balance sheet and were being amortized on a
straight-line basis to interest expense over the life of the loans.
In connection with the Credit Agreement, the Company and Pharmacia 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.
In May 2001, the Company and Pharmacia finalized a funding arrangement that
could have provided the Company up to $20.0 million in additional funding. See
Note 12 for further discussion of the modifications and terminations of the
agreements with Pharmacia. The $20.0 million of potential funding consisted of
the following agreements:
Amended and Restated Credit Agreement
In May 2001, the Company entered into an Amended and Restated Credit
Agreement, or 2001 Credit Agreement with Pharmacia. Under this agreement, which
amended and restated the previous $22.5 million Credit Agreement entered into
with Pharmacia in February 1999, Pharmacia could have provided up to an
additional $13.2 million in credit to the Company beginning in April 2002. The
loans available under the 2001 Credit Agreement were subject to certain
conditions and are allocated into two separate borrowing amounts. Up to $3.2
million would be available to the Company beginning April 1, 2002. Up to an
additional $10.0 million would be available to the Company beginning July 1,
2002 provided: (i) Pharmacia has filed a New Drug Application with the U.S. Food
and Drug Administration for the SnET2 PhotoPoint PDT for AMD; or (ii) the SnET2
Phase III clinical trial data meet certain clinical statistical standards as
defined by the clinical trial protocols. The borrowings under the 2001 Credit
Agreement would accrue interest based on the prime rate.
Manufacturing Facility Asset Purchase Agreement, or Asset Purchase Agreement
Under this agreement, Pharmacia issued a purchase order to buy the
Company's existing SnET2 bulk API inventory at cost for $2.2 million. The
existing bulk API inventory had been previously expensed in research and
development costs in prior periods. Pharmacia also committed to buy up to an
additional $2.8 million of the bulk API which would be manufactured by the
Company through March 2002. Additionally, Pharmacia agreed to purchase the
manufacturing equipment necessary to produce the bulk API for $863,000, its fair
market value as appraised by an independent appraisal firm. The sale of the bulk
API manufacturing equipment resulted in a gain on sale of property, plant and
equipment of $586,000. Sales of bulk API manufactured and shipped through
December 31, 2001, were paid by Pharmacia directly into an inventory escrow
account. The inventory escrow account was released to the Company in full in
January 2002. The equipment escrow account, containing a principal balance of
$863,000, was scheduled to be released in June 2002. The interest earned by
these accounts accrued to the Company and was available upon the release of each
escrow account. The escrow accounts will secure certain indemnification
obligations with respect to the purchase of the bulk API manufacturing
equipment. Management believes such indemnification obligations are of routine
nature and under the Company's control; therefore, these obligations did not
result in a charge against the funds in escrow. All amounts received into escrow
are recorded as accounts receivable until the amounts are released.
3. Stockholders' Equity
Collaboration with Pharmacia
In January 1999, the Company and Pharmacia entered into an Equity
Investment Agreement pursuant to which Pharmacia 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. The shares purchased under the 1999 Equity
Investment Agreement are in addition to Pharmacia's original equity investment
of $13.0 million in 1995 in connection with the original SnET2 license
agreement, under which Pharmacia received 725,001 shares of the Company's Common
Stock.
Private Placements
In September and October 1997, the Company completed three private equity
placements, through separate Securities Purchase Agreements, totaling $70.8
million, which provided net proceeds to the Company of $68.2 million. The
private placements included three separate purchasers for 900,000 shares,
500,000 shares and 16,000 shares for a total of 1,416,000 shares of Common Stock
issued at $50.00 per share, as well as one detachable Common Stock warrant for
each share of Common Stock purchased. With respect to the 1,416,000 warrants
issued in connection with these private 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 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.
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 was a change in the price protection provisions. Under the
Amendment Agreement, the Company's obligation under the price protection
provision was 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 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 the purchasers of 900,000 shares under the Securities Purchase
Agreement was reduced to $35.00. In addition, under the terms of the Amendment
Agreement, the Company was required to issue an additional 450,000 warrants to
these purchasers at an exercise price of $35.00 per share. The original 900,000
warrants and the additional 450,000 warrants expired on December 25, 2001 and
were cancelled accordingly.
In accordance with the price protection provisions of 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 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.
In October 1998, for the purchasers of 500,000 shares under the October
1997 private placements, the Company satisfied its price protection obligation
by issuing an additional 2,364,907 shares of Common Stock. Additionally, the
Company amended their warrant agreements by changing the warrant exercise price
to $20.00 per share and reducing the number of warrant shares issued from
500,000 warrants to 450,000 warrants. These warrant agreements were subsequently
amended again in September 2001 to extend the expiration date to December 31,
2003 and reduce the exercise price to $10.00 per share. As of December 31, 2001,
the 450,000 warrants were all exercisable and none had been exercised.
Also, in October 1998, for the purchasers of 16,000 shares, the Company
satisfied its price protection obligation by issuing an additional 79,473 shares
of Common Stock. The warrants to purchase 16,000 shares issued to these
purchasers were not repriced or extended. As such, these warrants expired on
December 31, 2001 and were cancelled accordingly.
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% or more of Miravant's Common Stock, or (ii) announces a tender offer that
would result in ownership of 20% or more of the Common Stock. In April 2001, the
Rights Plan was amended to increase the trigger percentage from 20% to 25% as it
applies to Pharmacia and excluded shares acquired by Pharmacia in connection
with our 2001 Credit Agreement with Pharmacia, and from the exercise of warrants
held by Pharmacia. 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% 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% 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.
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, 2001 the total
balance of these loans was $147,000. Additionally, in 1998 and 2001, the Board
of Directors approved two separate secured loans made to the Company's Chief
Executive Officer; the loans accrue interest at fixed rates between 4.7% and
5.5% and as of December 31, 2001 and 2000, had a total balance of $675,000 and
$348,000, respectively.
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. No further grants will be issued from the Prior Plans.
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, of which 1,031,000 shares
have been granted as of December 31, 2001. 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.
Stock Options
In connection with certain employment agreements and/or related to service
performance, the Company has granted its executives, directors and eligible
employees, non-qualified stock options to purchase shares of Common Stock. The
options generally become exercisable in equal installments over four years
beginning one year from the grant date and expire ten years from the original
grant date. The following table summarizes all stock option activity:
Weighted
Average
Exercise price Exercise Stock
per share Price Options
- ---------------------------------------------------------------------------------------------
Outstanding at January 1, 1999.......... $ 0.67 - 55.50 $ 19.03 2,434,856
Granted.............................. 7.00 - 13.31 10.98 856,875
Exercised............................ 4.00 - 8.00 5.49 (29,952)
Canceled............................. 6.00 - 40.00 20.90 (103,853)
- ---------------------------------------------------------------------------------------------
Outstanding at December 31, 1999........ 0.67 - 55.50 16.91 3,157,926
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 4,047,302
Granted.............................. 7.25 - 10.68 8.67 608,000
Exercised............................ 0.67 - 9.31 8.84 (35,690)
Canceled............................. 7.63 - 28.00 9.99 (60,500)
- ---------------------------------------------------------------------------------------------
Outstanding at December 31, 2001........ $ 1.00 - 55.50 $ 14.60 4,559,112
- ---------------------------------------------------------------------------------------------
Options outstanding by price range at
December 31, 2001.................... $ 1.00 - 6.00 $ 2.64 575,356
$ 7.13 - 9.00 $ 8.44 626,518
$ 9.28 - 12.00 $ 9.68 1,523,500
$12.50 - 13.31 $ 13.14 576,675
$15.00 - 28.00 $ 22.12 455,063
$29.63 - 55.50 $ 34.12 802,000
Exercisable at:
December 31, 1999....................... $ 0.67 - 55.50 $ 17.01 1,499,069
December 31, 2000....................... $ 0.67 - 55.50 $ 17.99 1,955,916
December 31, 2001....................... $ 1.00 - 55.50 $ 16.76 2,815,521
In accordance with APB Opinion No. 25 and related interpretations and in
connection with accounting for the Company's stock-based compensation plans, the
Company recorded $80,000 and $15,000 for the years ended December 31, 2000 and
1999, respectively, with respect to 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 $538,000, $540,000 and
$540,000 of compensation expense related to these loans for each of the years
ended December 31, 2001, 2000 and 1999, respectively.
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:
2001 2000 1999
----------------------------------------- -------------------- ----------------------- --------------------
Net loss
As reported...................... $ (16,402,000) $ (25,993,000) $ (22,256,000)
Pro forma........................ $ (21,010,000) $ (32,063,000) $ (28,511,000)
Loss per share - basic and diluted
As reported...................... $ (0.88) $ (1.42) $ (1.25)
Pro forma........................ $ (1.13) $ (1.75) $ (1.61)
----------------------------------------- -------------------- ----------------------- --------------------
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:
2001 2000 1999
----------------------------------------- -------------------- ----------------------- -------------------
Expected dividend yield............. 0% 0% 0%
Expected stock price volatility..... 50% 50% 50%
Risk-free interest rate............. 3.50% - 5.25% 5.75% - 6.00% 6.17% - 6.77%
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, 2001, 2000 and 1999 was 6.25 years, 7.1 years and 7.1 years,
respectively.
Warrants
From time to time warrants are issued to consultants of the Company or will
be issued in connection with an equity investment in the Company or in
connection with other private placements. The following is a description of the
significant warrants that have been issued over time:
1993 and 1994 Warrants
In 1993 and 1994, the Company issued detachable Common Stock warrants in
connection with a private placement offering and a corporate partner to purchase
a total of 685,714 shares. Each warrant provided 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 156,115 shares and 1,563 shares of Common Stock were
exercised during 2000 and 1999, respectively. As of December 31, 2000, warrants
to purchase 45,311 shares of Common Stock expired and were cancelled accordingly
and no further warrants are outstanding under the 1993 and 1994 private
placements.
1994 Convertible Note Warrants
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 297,776 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 148,888 shares of Common Stock. Each warrant provided
for the purchase of one share of Common Stock at $8.00 per share and expired
December 31, 2000. Warrants to purchase 65,566 shares and 4,687 shares of Common
Stock were exercised during 2000 and 1999, respectively. As of December 31,
2000, the remaining warrants to purchase 17,186, shares of Common Stock expired
and were cancelled accordingly and no further warrants are outstanding under the
1994 convertible notes.
1995 Selling Agent and Consultant Warrants
In January 1995, in connection with a loan received from a principal of its
designated selling agent, the Company issued warrants to purchase 15,000 shares
of Common Stock. Each warrant provided for the purchase of one share of Common
Stock at $10.67 per share with the warrants expiring December 31, 2000. Warrants
to purchase all 15,000 shares of Common Stock were exercised during 2000.
During 1995 in connection with our initial public offering, the Company
issued warrants to purchase 805,000 shares of Common Stock to various
consultants. Warrants covering 770,000 shares provided for the purchase of one
share of Common Stock at $10.67 per share with the warrants expiring April 11,
2000. Warrants covering 35,000 shares provided for the purchase of one share of
Common Stock at $34.75 per share with the warrants expiring November 20, 2000.
Warrants to purchase 154,000 shares of Common Stock were exercised during 2000.
As of December 31, 2000, warrants to purchase 651,000 shares of Common Stock
expired and were cancelled accordingly and no further warrants are outstanding
under the 1995 consultant warrants.
Consultant Warrants
During 1997 and 1998, in connection with consulting agreements and a
co-development agreement, the Company issued warrants to purchase a total of
342,000 shares 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 $28.75 per share with expiration dates ranging from April 2001 through
October 2008. During 1999, 2000 and 2001 in connection with consulting
agreements, the Company issued warrants to purchase a total of 145,000 shares 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 $13.31 per
share with expiration dates ranging from June 2004 through January 2010. The
consulting agreements can be terminated by the Company at any time with only
those warrants vested as of the date of termination exercisable. None of the
above warrants were exercised in 2001, 2000 or 1999. As of December 31, 2001,
warrants to purchase 20,000 shares of Common Stock expired and were cancelled
accordingly. The Company recorded an increase to deferred compensation
associated with the value of these warrants of $205,000 and $276,000 in 2000 and
1999, respectively, and for the year ended December 31, 2001, the Company
reduced deferred compensation by $109,000. The fluctuations in deferred
compensation are a result of variable accounting combined with a fluctuating
stock price from period to period. The Company recorded compensation expense of
$25,000, $224,000 and $843,000 for the years ended December 31, 2001, 2000 and
1999 respectively.
1997 Private Placements
In 1997, in connection with three private equity placements as previously
discussed, the Company 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 expiring in December 2001. 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. These additional warrants also expired in December
2001. For the purchasers of 500,000 shares, 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. These warrants were subsequently amended again in September
2001, to extend the expiration date to December 31, 2003 and reduce the exercise
price to $10.00 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 September 2001, the terms of these
warrants were amended to extend the expiration date to December 31, 2003 and the
exercise price was reduced to $20.00 per share. As of December 31, 2001, none of
the 1997 private placement warrants had been exercised. As of December 31, 2001,
warrants to purchase 1,366,00 shares of Common Stock expired and were cancelled
accordingly.
Pharmacia Warrants
During 1999 and 2000, in connection with the loans received under the
Credit Agreement with Pharmacia, the Company issued 360,000 warrants to purchase
Common Stock at an exercise price of $11.87 per share for 120,000 shares issued
on May 10, 1999, $14.83 per share for 120,000 shares issued on November 12, 1999
and $20.62 per share for the final 120,000 shares issued on May 23, 2000. The
warrants expire 5 years from the date of issuance. As of December 31, 2001 none
of the warrants had been exercised.
As of December 31, 2001, the Company has warrants outstanding to purchase a
total of 1,513,000 shares of its Common Stock at an average exercise price of
$13.55, with expiration dates ranging from June 2002 through January 2010. The
following table provides further detail on the warrants outstanding by price
range:
Weighted
Average
Exercise price Exercise Warrant
per share Price Shares
===============================================================================
Warrants outstanding by price range at
December 31, 2001.................... $ 7.00 - 9.31 $ 7.23 275,000
$10.00 - 10.01 $ 10.00 449,100
$11.87 - 20.00 $ 16.33 618,900
$20.62 - 30.75 $ 22.99 170,000
--------------------------------------
Total warrants outstanding at
December 31, 2001.................... $ 7.00 - 30.75 $ 13.55 1,513,000
================================================================================
4. 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.
In December 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 2001,
2000 and 1999 plan years, are made on a quarterly basis and vest over a five
year period. Total Company matching contributions for 2001, 2000 and 1999 were
not significant.
5. 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:
2001 2000
----------------------------------------------------------------
Current Non-current Current Non-current
--------------------------------------------------------------
Deferred tax assets:
Uniform capitalization................ $ 75,000 $ -- $ -- $ --
Other accruals and reserves........... 168,000 -- 131,000 --
Capitalized research and development.. -- 778,000 -- 778,000
Non-cash loss in investment........... 1,493,000
Net operating losses and tax credits.. -- 71,057,000 -- 60,298,000
--------------------------------------------------------------
Total deferred tax assets............... 243,000 71,835,000 131,000 62,569,000
Deferred tax liabilities:
Amortization and depreciation 953,000 230,000
expense. --
Federal benefit for state income taxes 17,000 2,677,000 9,000 2,556,000
--------------------------------------------------------------
Total deferred tax liabilities.......... 17,000 3,630,000 9,000 2,786,000
--------------------------------------------------------------
Net deferred tax assets................. 226,000 68,205,000 122,000 59,783,000
Less valuation reserve.................. (226,000) (68,205,000) (122,000) (59,783,000)
--------------------------------------------------------------
$ -- $ -- $ -- $ --
==============================================================
The Company has net operating loss carryforwards for federal tax purposes
of $171.5 million, which expire in the years 2002 to 2022. Research credit
carryforwards aggregating $8.7 million are available for federal and state tax
purposes and expire in the years 2002 to 2021. The Company also has a state net
operating loss carryforward of $46.4 million which expires in the years 2002 to
2006. Of the $46.4 million in state net operating loss carryforwards, $17.5
million will expire during 2002 and 2003. 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.
6. Commitments and Contingencies
The Company has entered into agreements with various parties to perform
research and development and conduct clinical trials on behalf of the Company.
For the research and development agreements, the Company has the right to use
and license, patent and commercialize any products resulting from these
agreements. The Company does not have any financial commitments with respect to
these agreements and records these expenses as the services and costs are
incurred. The Company has also entered into licensing and OEM agreements to
develop, manufacture and market drugs and devices for photodynamic therapy and
other related uses. The agreements provide for the Company to receive or pay
royalties at various rates. The Company has recorded royalty income received
from device sales of $75,000 and $143,000 for the years ended December 31, 2001
and 1999, respectively and no royalty income for the year ended December 31,
2000. Additionally, for the years ended December 31, 2001, 2000 and 1999, the
Company has not paid any royalties under these agreements.
In 1994, the Company entered into a development and commercial supply
agreement with Pharmacia to receive formulation and packaging services for one
of the Company's drugs at specified prices. For the years ended December 31,
2001, 2000 and 1999, the Company paid $38,000, $372,000 and $1.3 million,
respectively, and recorded as expense $21,000, $308,000 and $881,000,
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 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, 2001, 2000 and 1999, the Company recorded license revenues of
$302,000, $4.5 million and $14.0 million, respectively, related to the billing
for the reimbursement of certain preclinical studies and clinical trial costs.
The Company has not yet received any royalty income under these agreements and
will only do so based on future commercial drug product sales. In March 2002,
the prior and current License Agreements with Pharmacia were terminated. See
Note 12 for further discussion regarding the terminations and modifications of
the agreements that the Company has with Pharmacia.
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. The Company recorded no income from grants for the
year ended December 31, 2001 and recorded $112,000 and $438,000 for the years
ended December 31, 2000 and 1999, 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.
7. Leases
The Company leases four buildings for a total monthly rental expense of
approximately $134,000. Three of the leases were renewed in 1999 and expire
between August 2002 and December 2003. In 2001, the Company extended its other
lease for its bulk API manufacturing facility to October 31, 2006. The leases
provide for annual rental increases based upon a consumer price index. 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 $35,000 per month. Sublease rental income is netted against the
Company's rent expense.
In May 2001, in connection with the Asset Purchase Agreement, Pharmacia
agreed to assume the lease obligations and related building property taxes
through December 31, 2003 for the Company's bulk API manufacturing facility. The
total amount of the rental and property tax payments due through December 31,
2003 is approximately $950,000 and is being accounted for as a capital
contribution and rent expense, or as a component of cost of goods sold, over the
lease obligation term. In 2001, Pharmacia paid $194,000 related to the rent and
property taxes for the bulk API manufacturing facility, of which the Company has
recorded $50,000 as rent expense, $110,000 as cost of goods sold and $34,000
into the value of the year end bulk API inventory. In March 2002, the 2001
Credit Agreement was amended and the Company has agreed to reassume the lease
obligations and related property taxes through the remainder of the lease term.
See Note 12 for further discussions regarding the modifications and terminations
of the agreements with Pharmacia.
Future minimum operating lease payments, net of sublease rental income, as
of December 31, 2001 are as follows:
Lease Amount Minimum
Payable Sublease Revenues Net
------------------ -------------------- ------------------
2002....................................... $ 1,297,000 $ 423,000 $ 874,000
2003....................................... 688,000 352,000 336,000
2004....................................... 314,000 -- 314,000
2005....................................... 314,000 -- 314,000
2006 and thereafter........................ 262,000 -- 262,000
------------------ -------------------- ------------------
Total minimum lease payments............... $ 2,875,000 $ 775,000 $ 2,100,000
------------------ -------------------- ------------------
Rent expense was $1.1 million, $1.1 million and $1.3 million for the years
ended December 31, 2001, 2000 and 1999, respectively, net of sublease income of
$384,000, $365,000 and $47,000, respectively.
8. Related Party Transactions
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,
2001, the balance of the loan, including principal and accrued interest, was
$2.6 million. The loan, which was used to fund Ramus' clinical trials and
operating costs, accrues interest at a variable rate (4.75% as of December 31,
2001) based on the Company's bank rate. In March 2000, the loan term was
extended indefinitely. It was determined that it was probable that the Company
would be unable to collect the amounts due from Ramus under the contractual
terms of the loan agreement. Therefore, the Company has established a reserve
for the entire outstanding balance of the loan receivable at December 31, 2001
and 2000.
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 equity investment in 1999. In connection with general legal
services provided by the law firm, the Company recorded as expense $55,000,
$40,000 and $46,000 for the years ended December 31, 2001, 2000 and 1999,
respectively. From 1996 through December 31, 2001, this individual's law firm
has received warrants to purchase a total of 87,500 shares of Common Stock for
his services as acting in-house legal counsel and Secretary of the Company.
9. Fair Value of Financial Instruments
The following is information concerning the fair value of each class of
financial instrument as of December 31, 2001 and 2000:
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.
10. Investments in Affiliate
During 2000, the Company determined that the decline in the value of its
investment in Xillix was other-than-temporary. Since the Company made the
investment in June 1998, the value of the Xillix common stock had decreased by
approximately 70% and had been at similar levels for the eighteen months prior
to the adjustment. 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, 2001, 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.
11. Quarterly Results of Operations (Unaudited)
Three Months Ended
----------------------------------------------------------------------------
March 31, June 30, September 30, December 31,
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)
================ =============== ================== ===============
2001:
Revenues......................................... 82,000 2,483,000 783,000 1,335,000
Costs and expenses............................... 4,549,000 4,786,000 5,346,000 5,649,000
Net interest and other income (expense).......... (327,000) 275,000 (337,000) (366,000)
---------------- --------------- ------------------ ---------------
Net loss......................................... $ (4,794,000) $ (2,028,000) $ (4,900,000) $ (4,680,000)
================ =============== ================== ===============
Net loss per share:
Basic and diluted............................ $ (0.26) $ (0.11) $ (0.26) $ (0.25)
================ =============== ================== ===============
12. Subsequent Event
On March 5, 2002, Miravant and Pharmacia entered into a Contract
Modification and Termination Agreement pursuant to which the Company regained
all of the rights and related data and assets to our lead drug candidate, SnET2,
and restructured its outstanding debt to Pharmacia.
Under the terms of the Contract Modification and Termination Agreement,
various agreements and side letters between Miravant and Pharmacia have been
terminated. Most of these agreements related to SnET2 license agreements and
related drug and device supply agreements, side letters, the Manufacturing
Facility Asset Purchase Agreement and various supporting agreements.
The termination of the various agreements provided that all ownership of
the rights, data and assets related to SnET2 and the Phase III AMD clinical
trials will revert back to the Company. The rights transferred back to the
Company include the ophthalmology Investigational New Drug application, or IND,
and the related filings, data and reports and the ability to license the rights
to SnET2. The assets which the Company received ownership rights to include the
lasers utilized in the Phase III AMD clinical trials, the bulk API manufacturing
equipment, all of the bulk API inventory sold to Pharmacia in 2001 and 2002 and
the finished dose formulation, or FDF, inventory. In addition to receiving back
all of the bulk API inventory sold to Pharmacia in 2001, the Company will also
receive a payment of approximately $450,000 for the costs of the in-process and
finished bulk API inventory manufactured through January 23, 2002. The Company
will also reassume the lease obligations and related property taxes for its bulk
API manufacturing facility. The lease agreement expires in October 2006 and
currently has a base rent of approximately $26,000 per month.
As a condition of the Contract Modification and Termination Agreement,
Pharmacia has released to the Company $880,000, which included accrued interest,
held in an equipment escrow account, which was originally scheduled for release
in June 2002. These funds represent the $863,000 purchase price that Pharmacia
paid under the Manufacturing Facility Asset Purchase Agreement for the purchase
of the Company's bulk API manufacturing equipment in May 2001 plus interest
earned through the release date.
The Contract Modification and Termination Agreement also modifies the 2001
Credit Agreement. The outstanding debt that the Company owes to Pharmacia of
approximately $26.8 million will be reduced to $10.0 million plus accrued
interest. The Company will be required to make a payment of $5.0 million plus
accrued interest on each of March 4, 2003 and June 4, 2004. Interest on the debt
will be recorded at the prime rate, which was 4.75% at March 5, 2002.
Additionally, the early repayment provisions and many of the covenants were
eliminated or modified. In exchange for these changes and the rights to SnET2,
the Company terminated its right to receive a $3.2 million loan that was
available under the 2001 Credit Agreement. Also, as Pharmacia has determined
that they will not file an NDA for the SnET2 PhotoPoint PDT for AMD and the
Phase III clinical trial data did not meet certain clinical statistical
standards, as defined by the clinical trial protocols, the Company will not have
available an additional $10.0 million of borrowings as provided for under the
2001 Credit Agreement.
In accordance with Statement of Financial Standards No. 15, "Accounting by
Debtors and Creditors for Troubled Debt Restructurings", the Company will
permanently reduce the debt due to Pharmacia to the total future cash payments
of the debt, including amounts designated as interest and principal. The total
future cash payments, at the current interest rate, are estimated to be $10.8
million. The difference between the total debt outstanding of $25.9 million (net
of the unamortized debt issuance costs of approximately $900,000) and the total
future cash payments of the restructured debt of $10.8 million will be recorded
as an increase to stockholders' equity due to Pharmacia being a greater than 10%
stockholder in Miravant. Therefore, we will record a $15.1 million increase to
stockholders' equity in the first quarter of 2002.
The agreement also provides for the transfer ownership of several assets
back to the Company, including the lasers utilized in the Phase III AMD clinical
trials, the bulk API and FDF inventories and the bulk API manufacturing
equipment used to manufacture SnET2. The Company will record the transfer of
ownership of the bulk API manufacturing equipment at its net carrying value
prior to sale to Pharmacia, which was $277,000. Under generally accepted
accounting principles, there will not be any value recorded on the balance sheet
for the transfer of ownership of the lasers, and the bulk API and FDF inventory,
since these assets, according to the Company's accounting policies, have been
expensed as research and development costs in prior years.
13. Pro Forma Disclosure for Subsequent Events (Unaudited)
The following unaudited consolidated pro forma condensed balance sheet
information presented below includes adjustments for the subsequent event above
in Note 12 related to the Contract Modification and Termination Agreement:
Pro Forma
Actual Adjustments for Pro Forma
December 31, 2001 Subsequent Events December 31, 2001
----------------------------------------- ------------------------ --------------------------- -----------------------
(Audited)
Current assets...................... $ 12,561,000 $ -- $ 12,561,000
Net property, plant and equipment... 1,204,000 277,000 (1) 1,481,000
Deferred financing costs............ 913,000 (913,000) (2) --
Other assets........................ 1,487,000 -- 1,487,000
--------------------- --------------------- -----------------------
Total assets........................ $ 16,165,000 $ (636,000) $ 15,529,000
===================== ===================== =======================
Other liabilities................... $ 3,415,000 $ -- $ 3,415,000
Long-term liabilities .............. 26,548,000 (15,756,000) (3) 10,792,000
--------------------- --------------------- -----------------------
Total liabilities................... 29,963,000 (15,756,000) 14,207,000
Common stock........................ 161,496,000 15,120,000 (4) 176,616,000
Other equity........................ (1,725,000) -- (1,725,000)
Accumulated deficit................. (173,569,000) -- (173,569,000)
--------------------- --------------------- -----------------------
Total stockholders' equity (deficit) (13,798,000) 15,120,000 1,322,000
--------------------- --------------------- -----------------------
Total liabilities and stockholders'
equity (deficit).................. $ 16,165,000 $ (636,000) $ 15,529,000
----------------------------------------- ===================== ===================== =======================
(1) The $277,000 adjustment represents the net book value of the
API manufacturing equipment to be returned to the Company.
(2) The $913,000 adjustment removes the deferred financing asset
recorded in connection with the drawdowns on the original
debt.
(3) The $15,756,000 represents the net reduction of the debt due
to Pharmacia.
(4) The $15,120,000 represents the net adjustment of the debt
reduction of $15,756,000 and the $277,000 equipment
adjustment offset by the removal of the deferred financing
cost asset of $913,000.
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 56
Consolidated Balance Sheets as of
December 31, 2001 and 2000 57
Consolidated Statements of Operations for the
years ended December 31, 2001, 2000 and 1999 58
Consolidated Statements of Stockholders'
Equity for the years ended December 31,
2001, 2000 and 1999 59
Consolidated Statements of Cash Flows for the
years ended December 31, 2001, 2000 and 1999 60
Notes to Consolidated Financial Statements 61
(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 80 to 83
(c) Reports on Form 8-K:
-------------------
On May 24, 2001, Miravant Medical Technologies and Pharmacia
Corporation finalized funding arrangements that could provide
Miravant up to $20.0 million in funding.
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]
10.48 Amended and Restated Credit Agreement dated May 24, 2001 between the Registrant and [Y]
Pharmacia Treasury Services AB.**
10.49 Manufacturing Facility Asset Purchase Agreement dated May 24, 2001 between the Registrant [Y]
and Pharmacia & Upjohn Company.
10.50 Site Access License Agreement dated May 31, 2001 between the Registrant and Pharmacia & [Y]
Upjohn Company.
10.51 APA Escrow Agreement dated May 31, 2001 between the Registrant and Pharmacia & Upjohn [Y]
Company.
10.52 API Escrow Agreement dated May 24, 2001 between the Registrant and Pharmacia & Upjohn [Y]
Company.
10.53 Amended and Restated Development and License Agreement dated June 8, 1998 between the [T]
Registrant and Pharmacia & Upjohn S.p.A.*
10.54 Amendment dated as of December 16, 1996 to Product Supply Agreement between Registrant [Z] [10.20+]
and Pharmacia & Upjohn S.p.A. and Pharmacia & Upjohn AB.
10.55 SnET2 Device Supply Agreement for Ophthalmology dated as of December 20, 1996 between [Z] [10.21+]
Registrant and Pharmacia & Upjohn AB.
10.56 Amendment No. 9 dated as of January 1, 2001 to Employment Agreement between the [X] [10.1]
Registrant and Gary S. Kledzik.**
10.57 Amendment No. 14 dated as of January 1, 2001 to Employment Agreement between the [X] [10.2]
Registrant and David E. Mai.**
10.58 Amendment No. 6 dated as of January 1, 2001 to Employment Agreement between the [X] [10.3]
Registrant and John M. Philpott.**
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Auditors.
- -------------------------------------------
[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).
[X] Incorporated by reference from the exhibit referred to in
brackets contained in the Registrant's Form 10-Q for the quarter
ended March 31, 2001 (File No. 0-25544).
[Y] Incorporated by reference from the exhibit referred to in
brackets contained in the Registrant's Form 10-Q for the quarter
ended June 30, 2001 (File No. 0-25544).
[Z] 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).
** 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, 2002
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, 2002
- ------------------------------------ and Chief Executive Officer,
Gary S. Kledzik, Ph.D. (Principal Executive Officer)
/S/ David E. Mai Director and President March 29, 2002
- ------------------------------------
David E. Mai
/S/ John M. Philpott Chief Financial Officer and Treasurer March 29, 2002
- ------------------------------------ (Principal Financial Officer and
John M. Philpott Principal Accounting Officer)
/S/ Larry S. Barels Director March 29, 2002
- ------------------------------------
Larry S. Barels
/S/ William P. Foley II Director March 29, 2002
- ------------------------------------
William P. Foley II
/S/ Charles T. Foscue Director March 29, 2002
- ------------------------------------
Charles T. Foscue
/S/ Jonah Shacknai Director March 29, 2002
- ------------------------------------
Jonah Shacknai