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, 2002
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)
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. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes [ ]. No [X].
The approximate aggregate market value of voting stock held by
non-affiliates as of June 30, 2002 based upon the last sale price of the Common
Stock of $0.53 per share, as reported on the Nasdaq National Market
(Subsequently delisted and currently trading on the OTC Bulletin Board(R)), was
approximately $8,594,414. 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 14, 2003 was
24,272,305.
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 2003 Annual
Meeting of Stockholders scheduled to be held on June 12, 2003. 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, 2002
TABLE OF CONTENTS
PART I
Item 1. Business ...........................................................................................4
Item 2. Properties .........................................................................................23
Item 3. Legal Proceedings...................................................................................24
Item 4. Submission of Matters to a Vote of Security-Holders.................................................24
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholders Matters..............................25
Item 6. Selected Consolidated Financial Data................................................................27
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...............28
Item 7A. Qualitative and Quantitative Disclosures About Market Risk..........................................62
Item 8. Financial Statements and Supplementary Data.........................................................62
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure................86
PART III
Item 10. Directors and Executive Officers of the Registrant .................................................87
Item 11. Executive Compensation..............................................................................87
Item 12. Security Ownership of Certain Beneficial Owners and Management......................................87
Item 13. Certain Relationships and Related Transactions......................................................87
Item 14. Controls and Procedures.............................................................................87
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.....................................88
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; our ability to raise funds to continue our
operations; the timing and our ability to complete of our planned New Drug
Application, or NDA, filing for the use of SnET2 to treat wet age-related
macular degeneration, or AMD, with the U.S. Food and Drug Administration, or
FDA; our ability to make or negotiate new debt repayment terms for our first
debt payment due to Pharmacia Corporation, or Pharmacia, on June 30, 2003; our
ability to continue to receive the $1.0 million monthly borrowings through
November 2003 under the December 2002 Convertible Debt Agreement, or the Debt
Agreement; our ability to resolve any contingencies associated with our NDA
after it is filed with the FDA; the assumption that we will continue as a going
concern; our ability to regain our listing status on Nasdaq; our plans to
collaborate with other parties and/or license SnET2; 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: failure to obtain additional funding timely, if at all;
failure to make our scheduled payment or negotiate new debt repayment terms with
Pharmacia prior to June 30, 2003 resulting in foreclosure on all our assets; we
may be unable to continue borrowing under the Debt Agreement if we fail to meet
certain requirements or if these requirements are not met to the satisfaction of
the Lenders; unanticipated complexity or difficulty preparing and completing the
NDA filing; a failure of our drugs and devices to receive regulatory approval;
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 most significant company developments are as follows:
* In January 2003, we announced that we intend to file our first New
Drug Application, or NDA, for marketing approval of PhotoPoint SnET2,
a new drug for the treatment of wet age-related macular degeneration,
or AMD. Our decision came after we completed our analyses of the Phase
III AMD clinical data, which showed positive results in a significant
number of drug-treated patients versus placebo control patients, and
after holding discussions with regulatory and the U.S. Food and Drug
Administration, or FDA, consultants;
* Previously, 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 NDA with the FDA. 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. In
addition, we have terminated our license collaboration with Pharmacia,
and we are currently seeking a new collaborative partner for
PhotoPoint PDT in ophthalmology;
* In August 2002, we completed a private placement financing which
consisted of the sale of unregistered shares of Common Stock for gross
proceeds of $2.5 million at $0.50 per share, based on a premium of
approximately 20% of the average closing price for the prior 10
trading days. For every two common shares acquired, the equity
purchase included a warrant to purchase one share of Common Stock at a
price of $0.50 per share, with an exercise period of 5 years from the
date of grant. A group of private investors participated in the
offering;
* In December 2002, we entered into a Convertible Debt and Warrant
Purchase Agreement, or the Debt Agreement, with a group of private
accredited investors, or the Lenders. The $12.0 million Debt Agreement
allows us to borrow up to $1.0 million per month, with any unused
monthly borrowings to be carried forward. The maximum aggregate loan
amount is $12.0 million with the last available borrowing in November
2003. The Lenders obligation to fund each borrowing request is
subject to material conditions described in the Debt Agreement. In
addition, the Lenders may terminate its obligations under the Debt
Agreement if: (i) Miravant has not filed an NDA by March 31, 2003,
(ii) such filing has been rejected by the Federal Drug Administration,
or (iii) Miravant, in the reasonable judgment of the Lenders, is not
meeting its business objectives. We have received a waiver from the
Lenders with regard to the NDA filing deadline of March 31, 2003. This
deadline has been extended to the end of the third quarter of 2003;
and
* During 2002, the trading price of our Common Stock, the size of our
market capitalization and the amount of stockholders' equity and net
tangible assets have caused us to fail to comply with certain
continued listing standards of the Nasdaq National Market System, and
in July 2002 we were delisted from Nasdaq. We currently trade on the
OTC Bulletin Board(R), or OTCBB. Management will continue to review
our ability to regain our listing status with Nasdaq, however, there
are no guarantees we will achieve this.
Based on our ability to successfully obtain additional funding, our ability
to obtain new collaborative partners, our ability to license and pursue
development and commercialization of SnET2 for AMD or other disease indications,
our ability to reduce operating costs as needed, our ability to regain our
listing status 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. If we are unable to secure additional funding, or
our Lenders terminate our funding prior to November 2003, we may be unable to
continue as a going concern.
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 own and 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
populations 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 have developed and manufactured
light delivery and measurement devices for clinical use, 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 developed 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 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.
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. In
addition, we have terminated our license collaboration with Pharmacia, and we
intend to seek a new collaborative partner for PhotoPoint PDT in ophthalmology.
During 2002, we completed our own detailed analysis of the Phase III AMD
clinical data. In January 2003, based on the results of our analysis and certain
discussions with regulatory and FDA consultants, we announced our plans to move
forward with an NDA filing for marketing approval of PhotoPoint SnET2, for the
treatment of wet AMD.
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 focus on AMD.
Cardiovascular Disease
We are investigating the use of PhotoPoint PDT for the treatment of
cardiovascular disease, in particular for the prevention and treatment of
vulnerable plaque and restenosis. Vulnerable plaque is an unstable and
rupture-prone inflammation within the artery walls; restenosis is the
renarrowing of an artery that commonly occurs after balloon angioplasty for
obstructive artery disease. 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 in the process of formulating a
new lead drug, MV0633, and, pending the outcome of our preclinical studies with
this and other photoselective drugs and financial considerations and other
factors, we may prepare an Investigational New Drug application, or IND, in
cardiovascular disease for MV0633 or another photoselective drugs. The timing of
the IND is dependent on numerous factors including preclinical results and
available funding and personnel.
As a result of our preclinical studies in cardiovascular disease, we are
evaluating the use of PhotoPoint PDT for the prevention and/or treatment of
stenosis in arterial-venous grafts, or AV grafts. AV grafts are placed in
patients with End Stage Renal Disease to provide access for hemodialysis.
Pending the results of our preclinical studies as well as financial
considerations, corporate collaborations and other factors, we may decide to
file an IND for the commencement of clinical trials in this field.
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. In our dermatology program,
we use a topical gel formulation to deliver MV9411, a proprietary 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
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 treatment of the patients by the second quarter 2003,
with some follow-up required. If we are unable to see any satisfactory results
from the clinical trial, we will likely put any further development on hold.
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. 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
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 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 reassumed the
lease obligations and related property taxes for our bulk API manufacturing
facility. The lease agreement expires in March 2006 and currently has a base
rent of approximately $26,000 per month. In January 2003, we sublet this
facility through December 2005.
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:
* Pharmacia agreed to buy our existing bulk API inventory at cost for
$2.2 million. During 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, 2002, we had sold $2.5 million during 2001
and 2002 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. 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;
* The interest earned by the inventory and equipment escrow accounts
accrued to us and was released in full from each escrow account in
January 2002 and March 2002, respectively. All amounts received into
escrow were recorded as accounts receivable until the amounts were
released.
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;
* The first payment of $5.0 million plus accrued interest was due on
March 5, 2003 and was subsequently extended to June 30, 2003. The
second payment of $5.0 million plus accrued interest is due on June 4,
2004. Interest on the debt will be recorded at the prime rate, which
was 4.75% on March 5, 2002 and 4.25% at December 31, 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, based upon
their overall analysis of the Phase III AMD data, 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 were modified 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.
As of March 31, 2003, our aggregate equity financings amount to
$2.5 million;
* 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 the net
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 June 30, 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 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.
In addition, as of March 5, 2003, our first payment on our debt to
Pharmacia was due in the amount of $5.0 million plus accrued interest. We have
since negotiated with Pharmacia an extension on the first payment due to June
30, 2003. In connection with the extension of the first debt payment date, we
agreed to pay a total of $250,000 payable in two installments of $125,000 each
on March 24, 2003 and April 17, 2003. This amount related to the interest
accrued through March 5, 2003 of $229,000 as well as an extension fee of
$21,000. We paid the first installment of $125,000 on March 24, 2003. If we
cannot make the scheduled payment or negotiate new terms for the debt repayment
with Pharmacia, then Pharmacia can exercise all its rights to secure all the
collateral under the agreement, which includes all our assets. There is no
guarantee that we will be able to make the scheduled payment or that new debt
repayment terms will be negotiated timely, if at all.
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 an SnET2 formulation and commercial supply
agreement, or Formulation Agreement, with Pharmacia to develop an emulsion
formulation suitable for intravenous administration of SnET2 in a finished dose
formulation, or FDF. Effective November 30, 1998, Pharmacia entered into an
Asset Transfer Agreement with Fresenius Kabi Nutrition AB, a subsidiary of
Fresenius Kabi AG, or Fresenius. Effective November 30, 1998, Pharmacia
simultaneously assigned its rights and obligations under the Formulation
Agreement to Fresenius and entered into its own Contract Manufacturing Agreement
for Fresenius' direct supply of SnET2 FDF to Pharmacia.
As part of the activities necessary under the Pharmacia Contract
Modification and Termination Agreement, on June 27, 2002, Pharmacia and Miravant
entered into an agreement whereby all of Pharmacia's rights and obligations
under the Contract Manufacturing Agreement were assigned to Miravant. By
operation of Fresenius' consent to the assignment, the Formulation Agreement has
been superceded by the terms of the Contract Manufacturing Agreement. The
operating terms of this agreement are as follows:
* Fresenius remains our exclusive manufacturer and supplier of our
worldwide requirements for SnET2 FDF;
* Fresenius will not develop or supply drug formulations or services for
use in any photodynamic therapy applications for any other company;
and
* The agreement term is indefinite except that it may be terminated ten
years after the first commercial sale of SnET2 FDF.
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. In April 1998, we entered into a $2.0 million revolving credit
agreement with Ramus. Between 1998 and 1999, Ramus borrowed the entire $2.0
million available under the credit agreement. In March 2000, the loan term was
extended indefinitely. It was determined that it was probable that we would be
unable to collect the amounts due from Ramus under the contractual terms of the
loan agreement. Therefore, we have established a reserve for the entire
outstanding balance of the loan receivable at December 31, 2002 and 2001. We are
currently in discussions with Ramus to convert the entire amount of the loans
receivable from Ramus, including accrued and unpaid interest to Ramus preferred
stock.
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 and again in 2002, we determined that the decline
in the value of our investment in Xillix was other-than-temporary. Since we made
the investment in June 1998, the value of the Xillix common stock had decreased
by approximately 70% through 2000 and approximately an additional 20% through
2002 and had been at similar levels for at least nine months prior to the
write-down. In December 2000, we recognized a loss write-down totaling $3.5
million and in December 2002 another $598,000 loss write-down was recorded, to
reduce our investment in Xillix to its estimated current fair value based on
quoted market prices as of December 31, 2002. This loss is included in "Non-cash
loss in investment" in the consolidated statements of operations, stockholders'
equity (deficit) and cash flows. As of December 31, 2002, we still hold the
2,691,904 shares of Xillix common stock received in the original investment
transaction. The adjusted cost basis in the investment is $393,000 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 (deficit).
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.
Non-Definitive Agreements
Executive management is currently pursuing various potential strategic
partners in fields of ophthalmology and cardiovascular disease. In the field of
ophthalmology we entered into a non-binding letter of intent with Bausch & Lomb
in June 2002, for SnET2 for the treatment of AMD. As of October 1, 2002 the
letter of intent has expired, however, we continue to have discussions with
Bausch & Lomb regarding this opportunity. Bausch & Lomb may still continue to
pursue potential licensing opportunities with us for SnET2, or other compounds,
however, at this time we have not entered into any definitive or exclusive
agreements with them. In the field of cardiovascular disease, we are in
discussions with various potential strategic partners, but also have not entered
into any definitive or exclusive agreements. There are no guarantees that Bausch
& Lomb or any other potential strategic partner will enter into a license
agreement or provide us with any potential funding to advance our research and
development programs.
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 $9.5 million, $13.5
million and $20.2 million on research and development activities during 2002,
2001 and 2000, 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 periodically 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 contract manufacturing
organizations in the pharmaceutical and medical device sector for certain
elements of our manufacturing processes. We were licensed by the State of
California to manufacture bulk API at one of our Santa Barbara, California
facilities for clinical trial and other use. This particular manufacturing
facility was shut down in 2002 and is currently being reconstructed in our
existing operating facility. We expect to have the manufacturing facility at the
new location operational in 2003, pending any required regulatory approvals by
the State of California and federal regulatory agencies. In the original
manufacturing facility, we have manufactured bulk API for SnET2, the process up
to the final formulation and packaging step, and have in inventory what we
believe is an adequate supply for an initial commercial launch of SnET2, if and
when regulatory approval on both the facility and the existing bulk API
inventory is received, if at all. We also have the ability to manufacture, at
very small levels, light producing devices and light delivery devices and
conduct other production and testing activities to support current clinical
programs, at this location. However, we have limited capabilities, personnel and
experience in the manufacture of finished drug, and at commercial levels, 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 regained ownership of bulk API inventory and lasers
from Pharmacia, which are not subject to expiration dates, whereas the FDF
received has expired.
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
Iridex and Fresenius are currently manufacturing under. 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-seven issued United States patents, primarily
device, expiring 2010 through 2021;
* Record owner of ten issued foreign patents, expiring 2012 through
2019;
* Exclusive license rights under twenty issued United States patents,
primarily pharmaceutical, expiring 2006 through 2017;
* Exclusive license rights under seven 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. We were licensed by the State of
California to manufacture bulk API at one of our Santa Barbara, California
facilities for clinical trial and other use. This particular manufacturing
facility was shut down in 2002 and is currently being reconstructed in our
existing operating facility. We expect to have the manufacturing facility at the
new location operational in 2003, pending any required regulatory approvals by
the State of California and federal regulatory agencies.
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) 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 if we obtain 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 14, 2003, we employed 72 individuals, approximately 37 of which
were engaged in research and development, 4 were engaged in manufacturing and
clinical activities and 31 in general and administrative activities. We believe
that our relationship with our employees is good and none of the employees are
represented by a labor union.
Our future success also depends on our continuing ability to attract, train
and retain highly qualified scientific and technical personnel. Competition for
these personnel is intense, particularly in Santa Barbara where we are
headquartered. Due to the limited number of people available with the necessary
scientific and technical skills 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 our current 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. 53 Chairman of the Board and
Chief Executive Officer
David E. Mai 58 President of Miravant
Medical Technologies,
Miravant Systems, Inc.,
Miravant Pharmaceuticals,
Inc. and Director
John M. Philpott 42 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 and Chief Executive Officer since September 1992. 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. from September 1992 to June 2001,
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.
Where You Can Find More Information
We make our annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and all amendments to such reports filed pursuant
to Section 13(a) or 15(d) of the Exchange Act, available, free of charge, on or
through our Internet website located at www.miravant.com, as soon as reasonably
practicable after they are filed with or furnished to the SEC.
ITEM 2. PROPERTIES
We currently have three leases in place for approximately 86,000 square
feet of office, laboratory and manufacturing space in Santa Barbara, California,
of which approximately 46,300 square feet has been subleased.
Our primary building, which currently houses all of our operations and
employees, represents approximately 39,700 square feet of office, laboratory and
manufacturing space. We entered into this lease in August 1996. This lease
provides for rent to be adjusted annually based on increases in the consumer
price index and the base rent is approximately $52,000 per month. In August 2002
this lease was renewed for one year, with a minimum of three months notice for
termination and has two one-year options to extend. 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.
The remaining two buildings under lease have been subleased. The first
building for approximately 18,900 square feet of space was leased 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 March 2006. The leased property is located in a business
park and is subject to a master lease agreement. In January 2003, we sublet this
facility through December 2005, for a monthly payment amount equal to our base
rent. The other building for approximately 27,400 square feet of primarily
office space was leased in July 1998 and the base rent is currently
approximately $39,000 per month. The lease expires in October 2003 and provides
for rent to be adjusted annually based on increases in the consumer price index.
We sublet this building to two separate parties in December 1999. The sublease
agreements expire in October 2003, with rent based upon the percentage of square
footage occupied. Currently rental income, which is approximately $37,000 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 facility 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.
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 2002.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
Our Common Stock is traded on the OTC Bulletin Board(R), or OTCBB, 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 price of our Common Stock as reported
on the Nasdaq National Market under the symbol MRVT.OB on March 14, 2003 was
$1.17.
High Low
2002:
Fourth quarter............................................$ 1.05 $ 0.40
Third quarter............................................ 0.99 0.19
Second quarter............................................ 1.68 0.50
First quarter............................................. 9.90 0.74
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
As of March 14, 2003 there were approximately 274 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 notified by Nasdaq on July 11, 2002 that our Common Stock would be
delisted and begin trading on the OTCBB effective as of the opening of business
on July 12, 2002. The OTCBB is a regulated quotation service that displays
real-time quotes, last-sale prices and volume information in over-the-counter
equity securities. OTCBB securities are traded by a community of market makers
that enter quotes and trade reports. Our Common Stock trades under the ticker
symbol MRVT and can be viewed at www.otcbb.com. Management continues to review
our ability to regain our listing status with Nasdaq, however, there are no
guarantees we will be able to raise the additional capital needed or to increase
the current trading price of our Common Stock to allow us to meet the relisting
requirements for the Nasdaq National Market or the Nasdaq Small Cap Market on a
timely basis, if at all.
Recent Sales of Unregistered Securities - Fourth Quarter 2002
In connection with each borrowing under the Debt Agreement, we will issue
to the Lenders a warrant to purchase one-quarter (1/4) of a share of Miravant
Common Stock for every $1.00 borrowed. The exercise price of each warrant will
be equal to the greater of $1.00 per share or 150% of the average of the closing
prices of Miravant's Common Stock for the ten (10) trading days preceding the
date of the Note. In addition, upon execution of the Debt Agreement we issued
the Lenders a warrant to acquire 250,000 shares of our Common Stock, with an
exercise price of $0.50 per share. Each warrant will terminate on December 31,
2008, unless previously exercised. We have also agreed to provide the Lenders
certain registration rights in connection with this transaction. On December 19,
2002, pursuant to the Debt Agreement, we borrowed $1.0 million, which has a
conversion price of $0.97 per share or convertible into 1,029,601 shares of
Common Stock and issued the Lenders a warrant exercisable for 250,000 shares of
our Common Stock at $1.17 per share. The convertible debt and warrants were
issued pursuant to an exemption from registration under Rule 506 promulgated
under Regulation D of the Securities Act. The proceeds are being used for
research, development and general corporate purposes. For further discussion see
Item 7 Management's Discussion & Analysis.
Equity Compensation Plan Information
The following table gives information about our Common Stock that may be
issued upon the exercise of options, warrants and rights under all of our
existing equity compensation plans as of December 31, 2002.
(a) (b) (c)
Number of Number of securities
securities to be remaining available for
issued upon Weighted average future issuance under
exercise of exercise price equity compensation
outstanding of outstanding plans (excluding
options, warrants options, securities reflected in
and rights warrants and column(a))
Plan Category rights
----------------------------------------- -------------------- ------------------ --------------------------
Equity compensation plans approved by
security holders(1)(2)................. 5,989,137 $ 2.94 3,198,985
-----------------------------------------
Equity compensation plans not approved
by security holders(3)................. 347,500 $ 9.75 --
----------------------------------------- -------------------- ------------------ --------------------------
Total.................................. 6,336,637 $ 3.32 3,198,985
----------------------------------------- -------------------- ------------------ --------------------------
(1) These plans include: The 2000 Stock Compensation Plan, or 2000 Plan,
the 1989 Plan, the 1992 Plan, the 1994 Plan and the 1996 Plan, or the
Prior Plans. The 2000 Plan has superceded the Prior Plans.
(2) The maximum amount of shares that could be awarded under the 2000 Plan
over its term is 8,000,000 shares, of which approximately 5,843,514
shares have been granted or issued and 1,042,499 shares have been
cancelled netting 4,801,015 shares, which were granted or issued under
the 2000 Plan as of December 31, 2002.
(3) Over time warrants to purchase shares of our Common Stock have been
issued to various consultants for services rendered not from an
approved equity compensation plan.
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, 2002. The consolidated financial statements for the five fiscal years ended
December 31, 2002 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,
----------------------------------------------------------------------------------
2002 2001 2000 1999 1998
--------------- --------------- --------------- --------------- ---------------
(in thousands, except share and per share data)
Statement of Operations Data:
Revenues ......................... $ 499 $ 4,683 $ 4,593 $ 14,577 $ 10,179
Costs and expenses:
Cost of goods sold............. 479 934 -- -- --
Research and development....... 9,549 13,493 20,194 29,749 29,233
Selling, general and
administrative............... 5,726 5,903 6,023 7,473 9,626
Loss in affiliate.............. -- -- -- 417 2,929
--------------- --------------- --------------- --------------- ---------------
Total costs and expenses.......... 15,754 20,330 26,217 37,639 41,788
--------------- --------------- --------------- --------------- ---------------
Loss from operations.............. (15,255) (15,647) (21,624) (23,062) (31,609)
Interest and other income (expense)
Interest and other income...... 169 798 1,370 1,240 3,546
Interest expense............... (286) (2,139) (2,254) (434) (1)
Gain on sale of assets......... 10 586 -- -- --
Non-cash loss in investment (3) (598) -- (3,485) -- --
--------------- --------------- --------------- --------------- ---------------
Total net interest and other
income (expense)............... (705) (755) (4,369) 806 3,545
--------------- --------------- --------------- --------------- ---------------
Net loss.......................... $ (15,960) $ (16,402) $ (25,993) $ (22,256) $ (28,064)
=============== =============== =============== =============== ===============
Net loss per share (1) ........... $ (.78) $ (.88) $ (1.42) $ (1.25) $ (1.94)
=============== =============== =============== =============== ===============
Shares used in computing net
loss per share (1) ............ 20,581,214 18,647,071 18,294,525 17,768,670 14,464,044
=============== =============== =============== =============== ===============
December 31,
----------------------------------------------------------------------------------
2002 2001 2000 1999 1998
--------------- ---------------- ------------- -------------- ------------
(in thousands)
Balance Sheet Data:
Cash and marketable securities (2) $ 723 $ 6,112 $ 20,835 $ 22,789 $ 11,284
Working capital (deficit)......... (5,953) 9,240 19,431 24,933 11,134
Total assets...................... 3,769 16,165 28,027 35,823 23,810
Long-term liabilities ............ 6,652 26,642 24,888 15,506 --
Accumulated deficit............... (189,529) (173,569) (157,167) (131,174) (108,918)
Total stockholders' equity
(deficit)......................... (10,110) (13,798) (164) 15,597 19,686
- -----------
(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; our ability to
raise funds to continue our operations; the timing and our ability to complete
of our planned New Drug Application, or NDA, filing for the use of SnET2 to
treat wet age-related macular degeneration, or AMD, with the U.S. Food and Drug
Administration, or FDA; our ability to make or negotiate new debt repayment
terms for our first debt payment due to Pharmacia Corporation, or Pharmacia, on
June 30, 2003; our ability to continue to receive the $1.0 million monthly
borrowings through November 2003 under the December 2002 Convertible Debt
Agreement, or the Debt Agreement; our ability to resolve any contingencies
associated with our NDA after it is filed with the FDA; the assumption that we
will continue as a going concern; our ability to regain our listing status on
Nasdaq; our plans to collaborate with other parties and/or license SnET2; 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: failure to obtain additional
funding timely, if at all; failure to make our scheduled payment or negotiate
new debt repayment terms with Pharmacia prior to June 30, 2003 resulting in
foreclosure on all our assets; we may be unable to continue borrowing under the
Debt Agreement if we fail to meet certain requirements or if these requirements
are not met to the satisfaction of the Lenders; unanticipated complexity or
difficulty preparing and completing the NDA filing; a failure of our drugs and
devices to receive regulatory approval; 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.
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
$189.5 million as of December 31, 2002. As we currently do not have any 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 cost of preparing and filing an NDA and
related follow-up expenses, 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. As of March 5, 2003, our first payment was due on our
debt to Pharmacia Corporation, or Pharmacia, in the amount of $5.0 million plus
accrued interest. We have since negotiated with Pharmacia an extension on the
first payment due to June 30, 2003. If we cannot make the scheduled payment or
negotiate new terms for the debt repayment with Pharmacia, then Pharmacia can
exercise all its rights to secure all the collateral under the agreement, which
includes all our assets. There is no guarantee that we will be able to make the
scheduled payment or that new debt repayment terms will be negotiated timely, if
at all.
We are continuing scaled back efforts in research and development and the
preclinical studies and clinical trials of our products. These efforts, and
along with preparing an NDA and the cost of 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 our product in order to achieve a level of revenues adequate to
support our cost structure. In December 2002, we entered into a $12.0 million
Convertible Debt and Warrant Agreement, or Debt Agreement, with a group of
private accredited investors, or the Lenders, that provided us the availability
to borrow up to $1.0 million per month through November 2003. The monthly
borrowing request can be limited if certain requirements are not met or are not
satisfactory to the Lenders. As of March 15, 2003, we had borrowed $4.0 million
under the Debt Agreement. Executive management of Miravant believes that if the
remaining $8.0 million remains available to us under the Debt Agreement that we
will have sufficient resources to fund the current required expenditures through
November 30, 2003. In addition, executive management also believes we can raise
additional funding to support operations through corporate collaborations or
partnerships, licensing of SnET2 or new products and additional equity or debt
financings prior to December 31, 2003, especially due to our announcement that
we intend to file an NDA in 2003. However, there can be no assurance that we
will receive the remaining $8.0 million under the Debt Agreement, if certain
requirements are not met or are not satisfactory to the Lenders, and there is no
guarantee that we will be successful in obtaining additional financing or that
financing will available on favorable terms. If additional funding is not
available when required, management believes that we have the ability to
conserve cash required for operations through December 31, 2003 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
facilities 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 and through January 2002, we sold approximately $4.8 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 NDA
filing for SnET2 for the treatment of wet age-related macular degeneration, or
AMD. The January 2002 sales of bulk API of $479,000 was the final amount sold to
Pharmacia.
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 results from our ongoing preclinical studies and
clinical trials, the timing and outcome of applications for regulatory
approvals, including our NDA for AMD to be filed in 2003, our ability to
re-license SnET2 and 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 December 2002, we entered into a $12.0 million Debt Agreement. The $12.0
million Debt Agreement allows us to borrow up to $1.0 million per month, with
any unused monthly borrowings to be carried forward. The maximum aggregate loan
amount is $12.0 million with the last available borrowing in November 2003. The
Lenders obligation to fund each borrowing request is subject to material
conditions described in the Debt Agreement. In addition, the Lenders may
terminate its obligations under the Debt Agreement if: (i) Miravant has not
filed an NDA by March 31, 2003, (ii) such filing has been rejected by the
Federal Drug Administration, or (iii) Miravant, in the reasonable judgment of
the Lenders, is not meeting its business objectives. We have received a waiver
from the Lenders with regard to the NDA filing deadline of March 31, 2003. This
deadline has been extended to the end of the third quarter of 2003.
In August 2002, we completed a private placement financing which consisted
of the sale of unregistered shares of Common Stock for gross proceeds of $2.5
million at $0.50 per share, based on a premium of approximately 20% of the
average closing price for the prior 10 trading days. For every two common shares
acquired, the equity purchase included a warrant to purchase one share of Common
Stock at a price of $0.50 per share, with an exercise period of 5 years from the
date of grant. A group of private investors participated in the offering.
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.
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
completed our own detailed analysis of the clinical data during 2002, including
an analysis of the subset groups. In January 2003, based on the results of our
analysis and certain discussions with regulatory and FDA consultants, we
announced our plans to move forward with an NDA filing for SnET2 for the
treatment of AMD. In addition, we are currently seeking a new collaborative
partner for PhotoPoint PDT in ophthalmology.
Executive management is currently pursuing various potential strategic
partners in fields of ophthalmology and cardiovascular disease. In the field of
ophthalmology we entered into a non-binding letter of intent with Bausch & Lomb
in June 2002, for SnET2 for the treatment of AMD. As of October 1, 2002 the
letter of intent has expired, however, we continue to have discussions with
Bausch & Lomb regarding this opportunity. Bausch & Lomb may still continue to
pursue potential licensing opportunities with us for SnET2, or other compounds,
however, at this time we have not entered into any definitive or exclusive
agreements with them. In the field of cardiovascular disease, we are in
discussions with various potential strategic partners, but also have not entered
into any definitive or exclusive agreements. There are no guarantees that Bausch
& Lomb or any other potential strategic partner will enter into a license
agreement or provide us with any potential funding to advance our research and
development programs.
We were notified by Nasdaq on July 11, 2002 that our Common Stock would be
delisted and begin trading on the OTC Bulletin Board(R), or OTCBB, effective as
of the opening of business on July 12, 2002. The OTCBB is a regulated quotation
service that displays real-time quotes, last-sale prices and volume information
in over-the-counter equity securities. OTCBB securities are traded by a
community of market makers that enter quotes and trade reports. Our Common Stock
trades under the ticker symbol MRVT and can be viewed at www.otcbb.com.
Management continues to review our ability to regain our listing status with
Nasdaq, however, there are no guarantees we will be able to raise the additional
capital needed or to increase the current trading price of our Common Stock to
allow us to meet the relisting requirements for the Nasdaq National Market or
Nasdaq Small Cap Market on a timely basis, if at all.
In ophthalmology, besides the possible use of SnET2 alone or in combination
with other therapies, we have identified a few potential next generation drug
compounds for use in various eye diseases. These drugs are in the early stage of
development and will not likely begin further development until obtaining a
corporate partner or other collaboration in ophthalmology.
In our dermatology program, we use a topical gel formulation to deliver
MV9411, a proprietary 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 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 treatment of the patients by the first quarter 2003, with some
follow-up required. If we are unable to see any satisfactory results from the
clinical trial we will likely put any further development on hold.
We are also conducting preclinical studies of SnET2 with existing and new
photoselective drugs for cardiovascular diseases, in particular for the
prevention and treatment of vulnerable plaque and restenosis. Vulnerable plaque
is unstable and a rupture-prone inflamation within the artery walls and
restenosis is the renarrowing of an artery that commonly occurs after balloon
angioplasty for obstructive artery disease. We are in the process of formulating
a new lead drug, MV0633, and, pending the outcome of our preclinical studies
with some existing photoselective drugs and financial considerations and other
factors, we may prepare an Investigational New Drug application, or IND, in
cardiovascular disease for MV0633 or one of the existing photoselective drugs.
The timing of the IND is dependent on numerous factors including preclinical
results and available funding and personnel.
As a result of our preclinical studies in cardiovascular disease, we are
evaluating the use of PhotoPoint PDT for the prevention and/or treatment of
stenosis in arterial-venous grafts, or AV grafts. AV grafts are placed in
patients with End Stage Renal Disease to provide access for hemodialysis.
Pending the results of our preclinical studies as well as financial
considerations, corporate collaborations and other factors, we may decide to
file an IND for the commencement of clinical trials in this field.
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 license and pursue further
development of SnET2 for AMD or other disease indications, our ability to file
an NDA for SnET2, our ability to reduce operating costs as needed, our ability
to regain our listing status 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.
Below is a summary of the disease programs and their related stages of
development. The information in the column labeled "Estimate of Completion of
Phase" contains forward-looking statements regarding timing of completion of
product development phases. The actual timing of completion of those phases
could differ materially from the estimates provided in the table. Additionally,
due to the uncertainty of the scientific results of any of these programs as
well as the uncertainty regarding the Company's ability to fund these programs,
we are unable to provide an accurate estimate as to the costs, capital
requirements or the specific timing necessary to complete any of these programs.
For a discussion of the risks and uncertainties associated with the timing of
completing a product development phase for our company as well as our industry
as a whole, see the "Risk Factors" section of "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
Estimate of Completion
Program Description/Indication Phase of Development of Phase
-------------------- ------------------------------ ---------------------------- ------------------------
Ophthalmology AMD (SnET2) Preparing an NDA Q3 2003
New drug compounds Research studies **
Dermatology Psoriasis (MV9411) Phase II Q2 2003
Cardiovascular Restenosis (MV6033 and other
disease compounds) Preclinical studies **
AV Graft (SnET2) Preclinical studies **
Oncology Tumor research Research studies **
** Based on the early development stage of these programs we cannot
reasonably estimate the time at which these programs may move from a
research or preclinical development phase to the clinical trial phase.
The decision and timing of whether these programs will move to the
clinical trial phase will depend on a number of factors including; the
results of the preclinical studies, the estimated costs of the
programs, the availability of alternative therapies and our ability to
fund or obtain additional financing or to obtain new collaborative
partners to help fund the programs.
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 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 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 reassumed the
lease obligations and related property taxes for our bulk API manufacturing
facility. The lease agreement expires in March 2006 and currently has a base
rent of approximately $26,000 per month. In January 2003, we sublet this
facility through December 2005.
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:
* Pharmacia agreed to buy our existing bulk API inventory at cost for
$2.2 million. During 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, 2002, we had sold $2.5 million during 2001
and 2002 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. 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;
* The interest earned by the inventory and equipment escrow accounts
accrued to us and was released in full from each escrow account in
January 2002 and March 2002, respectively. All amounts received into
escrow were recorded as accounts receivable until the amounts were
released.
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;
* The first payment of $5.0 million plus accrued interest was due on
March 5, 2003 and was subsequently extended to June 30, 2003. The
second payment of $5.0 million plus accrued interest is due on June 4,
2004. Interest on the debt will be recorded at the prime rate, which
was 4.75% on March 5, 2002 and 4.25% at December 31, 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, based upon
their overall analysis of the Phase III AMD data, 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 were modified 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.
As of March 31, 2003, our aggregate equity financings amount to
$2.5 million;
* 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 the net
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 June 30, 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 addition, as of March 5, 2003, our first payment was due on our debt to
Pharmacia in the amount of $5.0 million plus accrued interest. We have since
negotiated with Pharmacia an extension on the first payment due to June 30,
2003. If we cannot make the scheduled payment or negotiate new terms for the
debt repayment with Pharmacia, then Pharmacia can exercise all its rights to
secure all the collateral under the agreement, which includes all our assets.
There is no guarantee that we will be able to make the scheduled payment or that
new debt repayment terms will be negotiated timely, if at all.
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 API 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 revenue
reimbursement 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 or low likelihood of alternative future use, are also included in research
and development expenses.
Stock-Based Compensation. Statement of Financial Accounting Standards, or
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. 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 April 2002, SFAS No. 145, "Recission of FASB statements No. 4, 44 and
64, Amendment of FASB statement No. 13 and Technical corrections", was issued
and becomes effective for fiscal years beginning after May 15, 2002. SFAS No. 4
and No. 64 related to reporting gains and losses from debt extinguishment. Under
prior guidance, if material gains and losses were recognized from debt
extinguishment, the amount was not included in income from operations, but was
shown as an extraordinary item net of related income tax cost or benefit, as the
case may be. Under the new guidance, all gains and losses from debt
extinguishment are subject to criteria prescribed under APB 30 in determining an
extraordinary item classification. SFAS No. 44 is not applicable to our
operations. SFAS No. 13 was amended to require certain lease modifications with
similar economic effects to be accounted for the same way as a sale-leaseback.
We will adopt this statement effective January 1, 2003 and does not believe this
adoption will have a material effect on our consolidated results of operations
or consolidated financial position.
SFAS No. "146 Accounting for the costs associated with Exit or Disposal
Activities", was issued in June 2002. This statement is effective for any
disposal or exit of business activities started after December 31, 2002. The
statement nullifies EITF 94-3, which required that once a plan of disposal was
put in motion, a liability for the estimated costs needed to be recorded. SFAS
No. 146 states that a liability should not be recorded until the liability is
incurred. This statement does not affect any liabilities established related to
exiting an operation with duplicate facilities when acquired in a business
combination. We will adopt this accounting guidance at the prescribed date of
January 1, 2003. SFAS No. 146 currently would not effect our consolidated
results of operations or consolidated financial position.
Results of Operations
The following table provides a summary of our revenues for the years ended
December 31, 2002, 2001 and 2000:
---------------------------------------------------------------------------------------------------------------------------
Consolidated Revenues 2002 2001 2000
---------------------------------------------------------------------------------------------------------------------------
License - contract research and development................... $ 20,000 $ 302,000 $ 4,481,000
Bulk active pharmaceutical ingredient sales................... 479,000 4,306,000 --
Royalties..................................................... -- 75,000 --
Grants........................................................ -- -- 112,000
---------------------------------------------------------------------------------------------------------------------------
Total revenues................................................ $ 499,000 $ 4,683,000 $ 4,593,000
---------------------------------------------------------------------------------------------------------------------------
Revenues
Revenues. Our revenues increased slightly from $4.6 million in 2000 to $4.7
million in 2001 and decreased significantly to $499,000 in 2002. 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 they agreed to buy bulk API
inventory through March 2002. We recorded revenue related to bulk API sales of
$4.3 million for the year ended December 31, 2001 and $479,000 for the year
ended December 31, 2002. There were no bulk API sales in 2000. No further bulk
API was sold to Pharmacia after January 2002 in connection with the Contract
Modification and Termination Agreement entered into with Pharmacia in March
2002.
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 $4.5 million in 2000 to $302,000 in 2001 and
$20,000 in 2002. The decrease in license income is specifically related to the
conclusion of the Phase III AMD clinical trials in December 2001 and the
completion of the preclinical studies and our AMD clinical trial
responsibilities. Reimbursements received during 2001 and 2002 were primarily
for costs incurred to complete preclinical studies and clinical trial oversight
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. We will not have any further license income from
Pharmacia in the future.
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
$479,000. 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 for the year ended
December 31, 2000. There was no grant income recorded for 2001 and 2002. Grant
income related to a two-year grant received in 1997 that was extended to the end
of 2000. If feasible, we will continue to pursue obtaining grants as a means of
funding research and development programs, though we have not submitted any
grants recently and currently do not have any grant funds available to us.
Additionally, there can be no assurance that we will be successful in obtaining
any future grants.
Royalty Income. We earned royalty income from a 1992 license agreement with
Laserscope, which provided royalties on the sale of our previously designed
device products. We recorded income of $75,000 in 2001. We did not record any
royalty income under this agreement in 2000 and 2002. 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.
Expenses
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
$479,000 in manufacturing costs for the year ended December 31, 2002 compared to
$934,000 in 2001. The amounts recorded as cost of goods sold in 2002 represent
the costs incurred for only the newly manufactured bulk API in 2002. Most of the
amounts recorded for cost of goods sold in 2001 represent the costs for the
final preparation of existing bulk API that had been manufactured in 1999 and
2000 and were recorded as research and development expenses in those periods. 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, no further cost of goods sold are expected, as Pharmacia will not be
making any further purchases of bulk API.
Research and Development. Research and development expenses are expensed as
incurred. Research and development expenses are comprised of direct and indirect
costs. Direct costs consist of preclinical study costs, clinical trial and
related clinical drug and device development and manufacturing costs, drug
formulation costs, contract services and other research and development
expenditures. Indirect costs consist of salaries and benefits, overhead and
facility costs, and other support service expenses. Our research and development
expenses decreased from $20.2 million in 2000 to $13.5 million in 2001 to $9.5
million in 2002. 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 $15.7 million in 2000, $13.2 million in
2001 and $9.5 million in 2002.
Additionally, the Company incurred research and development expenses for:
* Development work associated with the development of new devices,
delivery systems, drug compounds and formulations for the dermatology
and cardiovascular programs;
* Preclinical studies and clinical trial costs for our Phase I and Phase
II dermatology program; and
* Costs incurred to complete preclinical studies for the Phase III AMD
program in 2001 and to compile and review the Phase III AMD clinical
data in 2002.
As previously disclosed, we have four research and development programs for
which we have focused our research and development efforts: ophthalmology,
dermatology, cardiovascular disease and oncology. Research and development costs
are initially identified as direct costs and indirect costs, with only direct
costs tracked by specific program. These direct costs consist of clinical,
preclinical, drug and formulation development, device development and research
costs. We do not track our indirect research and development costs by program.
These indirect costs consist of labor, overhead and other indirect costs. The
specific program research and development costs represent the direct costs
incurred. Certain reclassifications have been made to direct costs and indirect
costs for the years ended December 31, 2001 and 2000 based on further analysis
of these costs during the periods then ended. The direct research and
development costs by program are as follows:
Program 2002 2001 2000
----------------------------------- ----------------- ---------------- -----------------
Direct costs:
Ophthalmology.............. $ 239,000 $ 1,060,000 $ 6,112,000
Dermatology................ 503,000 639,000 1,474,000
Cardiovascular disease..... 1,136,000 2,038,000 1,217,000
Oncology................... 45,000 126,000 655,000
----------------- ---------------- -----------------
Total direct costs.............. $ 1,923,000 $ 3,863,000 $ 9,458,000
Indirect costs ................. 7,626,000 9,630,000 10,736,000
----------------- ---------------- -----------------
Total research and development
costs........................... $ 9,549,000 $ 13,493,000 $ 20,194,000
================= ================ =================
Ophthalmology. Our direct ophthalmology program costs have decreased from
$6.1 million in 2000 to $1.1 million in 2001 and to $239,000 in 2002. Costs
incurred in the ophthalmology program have consisted of clinical trial expenses
for the screening, treatment and monitoring of individuals participating in the
AMD clinical trials, internal and external preclinical study costs, and drug and
device development and manufacturing costs. The continued decrease from 2000 to
2001 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 SnET2 preclinical studies and our AMD
clinical trial responsibilities. The decrease in 2002 is specifically related to
the conclusion of the Phase III AMD clinical trials in December 2001 and the
completion of the SnET2 preclinical studies and our AMD clinical trial
responsibilities. Additionally, costs for 2002 have primarily consisted of
outside consultants and Clinical Research Organization expenses for the analysis
of the AMD clinical data.
Dermatology. Our direct dermatology program costs decreased from $1.5
million in 2000 to $639,000 in 2001 and to $503,000 in 2002. Costs incurred in
the dermatology program include expenses for drug development and drug
formulation, internal and external preclinical study costs, and Phase I clinical
trial expenses. The decrease from 2000 to 2001 was due to the majority of the
costs for preclinical studies and drug formulation were incurred in 2000, while
2001 consisted primarily of the relatively minor cost for the Phase I clinical
trial. The decrease from 2001 to 2002 is due to 2002 consisting primarily of the
cost of the Phase II clinical trial, while 2001 consisted primarily of the cost
for the Phase I clinical trial as well as expenditures related to preclinical
studies and device and drug formulation development and manufacturing.
Cardiovascular Disease. Our direct cardiovascular disease program costs
increased from $1.2 million in 2000 to $2.0 million in 2001 and decreased to
$1.1 million in 2002. Our cardiovascular disease program costs include expenses
for the development of new drug compounds and light delivery devices, drug
formulation and manufacturing and internal and external preclinical study costs.
The increase from 2000 to 2001 is related to the progress of the program which
required expanded preclinical studies, as well as, the increase in development
and manufacturing activities for drug and devices used in the preclinical
studies. The decrease from 2001 to 2002 is related to a decrease in the
development and manufacturing activities for drug and devices used in the
preclinical studies and a reduction in the preclinical studies performed due to
cost constraints.
Oncology. Our direct oncology program costs have decreased from $655,000 in
2000 to $126,000 in 2001 and to $45,000 in 2002. Our oncology program costs have
primarily consisted of costs for a Phase I clinical trial for prostate cancer,
internal and external preclinical study costs and expenses for the development
of new drug compounds. The decrease in oncology program costs from 2000 to 2002
is related to our decision in 2000 to suspend the further development of the
prostate cancer clinical trial and to focus on more discovery and research
programs for use of PhotoPoint PDT in oncology.
Indirect Costs. Our indirect costs have decreased from $10.7 million in
2000 to $9.6 million in 2001 and to $7.6 million in 2002. Generally, the
decrease from 2000 to 2002 was attributed to a reduction in our responsibilities
in the AMD program, as well as a continued reduction in labor costs due to
employee attrition. The decrease was also related to the sublease of two of our
buildings, which reduced facility and overhead costs. In addition, the decrease
from 2000 to 2001 was primarily attributed to the reclassification of certain
research and development labor costs to cost of goods sold due to API sales
associated with the Manufacturing Asset Purchase Agreement entered into with
Pharmacia in 2001.
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, the costs incurred for the preparation of the NDA for SnET2 in
AMD and related follow-on work 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 $6.0 million in 2000 to $5.9 million in
2001 and $5.7 million in 2002. Selling, general and administrative expenses
consist primarily of payroll, payroll taxes, employee benefits and operating
costs such as rent and utilities. The slight decrease from 2000 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. The decrease from 2001 to 2002 was a result of a decrease in the
number of administrative employees as well as a temporary reduction in wages
taken by all employees during the first quarter of 2002. These decreases in 2002
were offset by employee and officer loan reserves of $690,000 recorded in 2002.
As disclosed in Note 3 in our consolidated financial statements for the
year ended December 31, 2002, we have made loans to officers and employees over
the years secured by stock and stock options and certain unsecured loans. In
light of the decrease in our stock price and certain other factors affecting the
collectibility of these loans, we recorded a reserve for these loans to officers
and employees in the amount of $872,000, of which $690,000 is included in
general and administrative expenses and $182,000 is included in research and
development expenses. For the years ended December 31, 2001 and 2000, we had
recorded employee loan reserves of $73,000 and $15,000, respectively, which was
included in research and development expenses. As of December 31, 2002 and 2001,
the aggregate balance of these loans to officers and employees, net of reserves,
is $610,000 and $1,318,000, respectively of which $40,000 and $496,000 are
included in other assets at December 31, 2002 and 2001, respectively, and
$570,000 and $822,000 are included in notes receivable from officers at December
31, 2002 and 2001, respectively.
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 required for research and development activities, the
costs associated with potential financing and partnering activities, continuing
corporate development and professional services, compensation expense associated
with stock options and warrants granted to consultants and expenses for general
corporate matters.
Interest and Other Income. Interest and other income was $1.4 million in
2000 and $1.4 million in 2001 and decreased to $179,000 in 2002. Interest and
other income earned in 2000 represent interest earned on cash and marketable
security balances. 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 2002 represent interest earned
primarily on cash and marketable security balances throughout the year as well
as interest on employee and executive loans. The fluctuations in interest and
other income are directly related to the levels of cash and marketable
securities earning interest and the rates of interest being earned. 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 decreased from $2.3 million in 2000 to
$2.1 million in 2001 and to $286,000 in 2002. Interest expense represents
interest related to borrowings under the 2001 Credit Agreement with Pharmacia
and the cost related to the value of the warrants issued in connection with
these borrowings, which were recorded as deferred financing costs. 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 accrued interest at the prime
rate which was 4.75% and 9.5% at December 31, 2001 and 2000, respectively. The
decrease from 2001 to 2002 was primarily related to the restructuring of the
Pharmacia loans in March 2002, which provided for interest for only two months
in 2002. In accordance with the SFAS No. 15 with the restructuring of the
Pharmacia debt in March 2002, we reduced our outstanding debt to the total
future cash payments of the debt, which included $792,000 designated as interest
and $10.0 million as principal. Also, with the restructuring of the debt, the
value of the warrants issued to Pharmacia, recorded as deferred financing costs,
was reduced to zero. Therefore, unless there is an increase in the prime rate
used of 4.75%, no further interest expense will be recorded for the Pharmacia
loans. The level of other interest expense in future periods will relate to the
amount of borrowings received under our Debt Agreement. All borrowings received
accrue interest at 9.4% plus amortization of the related warrants issued with
each borrowing. As of March 15, 2003 we had received borrowings of $4.0
million.
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 and
again in 2002, we determined that the decline in the value of our investment in
Xillix was other-than-temporary. Since we made the investment in June 1998, the
value of the Xillix common stock had decreased by approximately 70% through 2000
and approximately an additional 20% through 2002 and had been at similar levels
for at least nine months prior to the write-down. In December 2000, we
recognized a loss write-down totaling $3.5 million and in December 2002 another
$598,000 loss write-down was recorded, to reduce our investment in Xillix to its
estimated current fair value based on quoted market prices as of December 31,
2002. This loss is included in "Non-cash loss in investment" in the consolidated
statements of operations, stockholders' equity (deficit) and cash flows. As of
December 31, 2002, we still hold the 2,691,904 shares of Xillix common stock
received in the original investment transaction. The adjusted cost basis in the
investment is $393,000 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 (deficit).
Income Taxes. As of December 31, 2002, we had net operating loss
carryforwards for federal tax purposes of $170.5 million, which expire in the
years 2003 to 2022. Research credit carryforwards aggregating $9.0 million are
available for federal and state tax purposes and expire in the years 2003 to
2022. The Company also has a state net operating loss carryforward of $36.4
million, which expires in the years 2003 to 2007. Of the $36.4 million in state
net operating loss carryforwards, $19.4 million will expire during 2003 and
2004. Under Section 382 of the Internal Revenue Code, utilization of the net
operating loss carryforwards may be limited based on our changes in the
percentage of ownership. Our ability to utilize the net operating loss
carryforwards, without limitation, is uncertain.
We do not believe inflation has had a material impact on our results of
operations.
Liquidity and Capital Resources
Since inception through December 31, 2002, we have accumulated a deficit of
approximately $189.5 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, 2002, we have
received proceeds from the sale of equity securities, convertible notes and
credit arrangements of approximately $226.5 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, 2002, our consolidated financial statements have been
prepared assuming we will continue as a going concern. Our independent auditors,
Ernst & Young LLP, have indicated in their report accompanying our year end
consolidated financial statements that, based on generally accepted auditing
standards, our viability as a going concern is in question.
In March 2002, Miravant and Pharmacia entered into a Contract Modification
and Termination Agreement pursuant to which we regained all of the rights and
related data and assets to our lead drug candidate, SnET2, and 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 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 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 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 final drug formulation, or FDF, inventory. In
addition to receiving back all of the bulk API inventory sold to Pharmacia in
2001, we also received a payment of approximately $479,000 for the costs of the
in-process and finished bulk API inventory manufactured through January 23,
2002. We reassumed the lease obligations and related property taxes for our bulk
API manufacturing facility effective March 2002. The lease agreement expires in
March 2006 and currently has a base rent of approximately $26,000 per month. We
sublet this facility in January 2003 through December 2005.
As a condition of the Contract Modification and Termination Agreement,
Pharmacia had released to us in March 2002 the $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 our bulk API manufacturing equipment in May 2001 plus interest
earned through the release date.
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 has been reduced to $10.0 million plus accrued
interest. The first payment of $5.0 million plus accrued interest was due on
March 5, 2003 and was subsequently extended to June 30, 2003. The second payment
of $5.0 million plus accrued interest is due on June 4, 2004. Interest on the
debt will be recorded at the prime rate, which was 4.75% on March 5, 2002 and
had decreased to 4.25% as of December 31, 2002. Additionally, the early
repayment provisions were modified and many of the covenants were eliminated or
modified. 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 Phase III clinical trial data
did not meet certain clinical statistical standards, as defined by the clinical
trial protocols, we will not have available an additional $10.0 million of
borrowings as provided for under the 2001 Credit Agreement.
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.
Statement of Cash Flows
For 2000, 2001 and 2002, we required cash for operations of $13.4 million,
$15.2 million and $8.6 million, respectively. The increase in net cash required
for operations from 2000 as compared to 2001 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 decrease in net cash required for operations from 2001 to 2002 was due
to a decrease in inventories and accounts receivables as well as an overall
decrease in operating costs. The decrease was offset by an increase in accounts
payable.
For 2000 net cash used in investing activities was $15.8 million. For 2001
and 2002, net cash provided by investing activities was $14.8 million and $4.6
million, respectively. The net cash used for investing activities in 2000 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 and patents. The net cash provided by investing 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 provided by investing activities in 2002 was related to the proceeds
from the net sales of marketable securities offset by the purchases of patents.
For 2000, 2001 and 2002, net cash provided by financing activities was
$11.9 million, $15,000 and $3.3 million, respectively. 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 2001 was
related to $315,000 provided by warrant and option exercises which was offset by
$300,000 in loans provided to one of our executive officers. Cash provided by
financing activities in 2002 related to the funding received from the August
2002 sale of Common Stock of $2.4 million and the first $1.0 million drawdown
received under our Debt 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
--------------- ----------------- -------------- --------------- --------------
Debt(1)................ $ 5,000,000 $ 5,000,000 $ 1,000,000 $ -- $ 11,000,000
Building Leases(2)..... 428,000 83,000 -- -- 511,000
--------------- ----------------- -------------- --------------- --------------
Total Contractual
Cash Obligations....... $ 5,428,000 $ 5,083,000 $ 1,000,000 $ -- $ 11,511,000
=============== ================= ============== =============== ==============
(1) $10.0 million of this debt represents the principal amounts due
to Pharmacia under the terms of the Contract Modification and
Termination Agreement entered into in March 2002. Additionally,
$1.0 million of this debt represents the first drawdown under the
Debt Agreement.
(2) The amounts recorded for building leases consist of leases on
three buildings and is net of sublease revenue of $684,000 in
2003 and $656,000 in 2004 and 2005. Two of the leases, including
our lease, expire during 2003.
We invested a total of $9.6 million in property, plant and equipment from
1996 through December 31, 2002. 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 make the $5.0 million, plus interest, payments on the
debt due to Pharmacia on the related payment dates of June 30, 2003
and June 4, 2004;
* Our ability to successfully negotiate new debt repayment terms on our
$10.0 million debt plus interest due to Pharmacia if we cannot make
the scheduled payments;
* Our ability to continue our efforts to reduce our use of cash, while
continuing to advance programs;
* Our ability to meet our obligations under the Debt Agreement;
* The viability of SnET2 for future use;
* The costs and time involved in preparing a New Drug Application, or
NDA, filing;
* The time and costs involved and ability to obtain regulatory approval
for our NDA filed;
* Our ability to establish additional collaborations and/or license
SnET2;
* Our ability to raise equity financing or use stock awards for employee
and consultant compensation;
* Our ability to regain our listing status on Nasdaq;
* 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 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.
As of December 31, 2002, our consolidated financial statements have been
prepared assuming we will continue as a going concern. We are continuing our
efforts in research and development and the preclinical studies and clinical
trials of our 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 our product in order to achieve a level of revenues adequate to
support our cost structure. In December 2002, we entered into a Debt Agreement
that provided us the availability to borrow up to $1.0 million per month through
November 2003. The monthly borrowing request can be limited if certain
requirements are not met or are not satisfactory to the Lenders. As of March 15,
2003, we had borrowed $4.0 million under the Debt Agreement. Executive
management believes that if the remaining $8.0 million remains available to it
under the Debt Agreement that it has sufficient resources to fund the current
required expenditures through December 31, 2003. 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 additional equity or debt financings prior to December 31, 2003,
especially due to our announcement that we intend to file an NDA in 2003.
However, there can be no assurance that we will receive the remaining $8.0
million under the Debt Agreement, if certain requirements are not met or are not
satisfactory to the Lenders, and there is no guarantee that we will be
successful in obtaining additional financing or that financing will available on
favorable terms. If additional funding is not be available when required,
management believes it has the ability to conserve cash required for operations
through December 31, 2003 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 facilities and overhead
expenditures to conserve cash to be used in operations. Our ability to raise
funds has become more difficult as our stock has been 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:
* Our ability to successfully prepare and file an NDA for SnET2 in 2003;
* The outcome from FDA upon the potential NDA filing;
* The potential future use of SnET2 for ophthalmology or other disease
indications;
* Our ability to successfully raise funds in the near future through
public or private equity or debt financings, or establish
collaborative arrangements or raise funds from other sources;
* 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 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 repayment of our debt of $10.0 million
plus accrued interest due to Pharmacia under the Contract Modification
and Termination Agreement;
* The future development and results of our Phase II dermatology
clinical trial and our ongoing cardiovascular and oncology preclinical
studies;
* 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, consisting
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. Our independent auditors, Ernst & Young LLP, have indicated in
their report accompanying our year end consolidated financial statements that,
based on generally accepted auditing standards, our viability as a going concern
is in question.
Related Party Transactions
In April 1998, we entered into a $2.0 million revolving credit agreement
with our affiliate, Ramus. Between 1998 and 1999, Ramus borrowed the entire $2.0
million available under the credit agreement. As of December 31, 2002, the
balance of the loan, including principal and accrued interest, was $2.7 million.
The loan, which was used to fund Ramus' clinical trials and operating costs,
accrues interest at a variable rate (4.25% as of December 31, 2002) based on the
prime rate. In March 2000, the loan term was extended indefinitely. It was
determined that it was probable that we would be unable to collect the amounts
due from Ramus under the contractual terms of the loan agreement. Therefore, we
have established a reserve for the entire outstanding balance of the loan
receivable at December 31, 2002 and 2001. We are currently in discussions with
Ramus to convert the entire amount of the loans receivable from Ramus, including
accrued and unpaid interest to Ramus preferred stock.
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 $47,000
in 2002, $55,000 in 2001 and $40,000 in 2000. In addition, over the years we
have issued warrants to Mr. Nida's firm to purchase a total of 131,250 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 Miravant and our 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 DECEMBER 31, 2003. IF
WE FAIL TO OBTAIN ADDITIONAL FUNDING OR MEET THE REQUIREMENTS OF OUR DECEMBER
2002 CONVERTIBLE DEBT AND WARRANT AGREEMENT, OR DEBT AGREEMENT, WE COULD BE
FORCED TO SIGNIFICANTLY SCALE BACK OR CEASE OPERATIONS.
Since our inception we have incurred losses totaling $189.5 million as of
December 31, 2002 and have never generated enough funds through our operations
to support our business. We are continuing our efforts in research and
development and the preclinical studies and clinical trials of our 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
our product in order to achieve a level of revenues adequate to support our cost
structure. In December 2002, we entered into a $12.0 million Debt Agreement with
a group of private accredited investors, or the Lenders, that provides us the
availability to borrow up to $1.0 million per month through November 2003,
subject to certain limitations. The monthly borrowing request can be limited if
certain requirements are not met or are not satisfactory to the Lenders. As of
March 15, 2003, we had borrowed $4.0 million under the Debt Agreement. Executive
management believes that if the remaining $8.0 million remains available to us
under the Debt Agreement we would have sufficient resources to fund the current
required expenditures through December 31, 2003.
In addition, as of March 5, 2003, our first payment was due on our debt to
Pharmacia Corporation, or Pharmacia, in the amount of $5.0 million plus accrued
interest, and we did not make this payment. We have since negotiated with
Pharmacia an extension on the date of the first payment due to June 30, 2003.
Executive management also believes we can raise additional funding to support
operations through corporate collaborations or partnerships, licensing of SnET2
or new products and additional equity or debt financings prior to December 31,
2003, especially due to our announcement that we intend to file a New Drug
Application, or NDA, for SnET2 in 2003. However, there can be no assurance that
we will receive the remaining $8.0 million under the Debt Agreement, if certain
requirements are not met or are not satisfactory to the Lenders, or that we will
be able to make our first payment to Pharmacia on June 30, 2003 or again
negotiate new payment terms, and there is no guarantee that we will be
successful in obtaining additional financing or that financing will available on
favorable terms. Our independent auditors, Ernst & Young LLP, have indicated in
their report accompanying our year end consolidated financial statements that,
based on generally accepted auditing standards, our viability as a going concern
is in question.
We will need substantial additional resources in the near term to complete
the NDA filing, to develop our products and to continue our operations. If we do
not receive sufficient funding prior to December 2003 we may be forced to
significantly reduce or cease operations. The timing and magnitude of our future
capital requirements will depend on many factors, including:
* Our ability to make the $5.0 million, plus interest, payments on the
debt due to Pharmacia on the related payment dates of June 30, 2003
and June 4, 2004;
* Our ability to successfully negotiate new debt repayment terms on our
$10.0 million debt plus interest due to Pharmacia if we cannot make
the scheduled payments;
* Our ability to continue our efforts to reduce our use of cash, while
continuing to advance programs;
* Our ability to meet our obligations under the Debt Agreement;
* The viability of SnET2 for future use;
* The costs and time involved in preparing a New Drug Application, or
NDA, filing;
* The time and costs involved and ability to obtain regulatory approval
for our NDA filed;
* Our ability to establish additional collaborations and/or license
SnET2;
* Our ability to raise equity financing or use stock awards for employee
and consultant compensation;
* Our ability to regain our listing status on Nasdaq;
* 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 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 are actively seeking 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 corporate collaborations 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 or convertible debt financing this 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.
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. AS OF MARCH 5, 2003 THE FIRST $5.0 MILLION
WAS DUE AND HAS SINCE BEEN EXTENDED TO JUNE 30, 2003. IF WE BECOME UNABLE TO
REPAY OUR BORROWINGS OR ARE UNABLE TO NEGOTIATE NEW DEBT REPAYMENT TERMS OR
VIOLATE THE COVENANTS UNDER THIS AGREEMENT, PHARMACIA COULD FORECLOSE ON OUR
ASSETS, WHICH WOULD HAVE A MATERIAL ADVERSE AFFECT ON OUR BUSINESS AND WE MAY BE
FORCED TO CEASE OPERATIONS.
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. As of March 5, 2003, our first payment was due on
our debt to Pharmacia in the amount of $5.0 million plus accrued interest, and
we did not make this payment. We have since negotiated with Pharmacia an
extension on the first payment due to June 30, 2003. If we cannot make the
scheduled payments or are unable to negotiate new terms for the debt repayment
with Pharmacia, then Pharmacia can exercise all its rights to secure all the
collateral under the agreement, which includes all our assets. There is no
guarantee that if we cannot make this payment new debt repayment terms will be
negotiated timely, if at all. Our ability to comply with all covenants and to
make scheduled payments, early repayments as required or to refinance our debt
obligations 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 ABILITY TO CONTINUE TO BORROW $1.0 MILLION PER MONTH THROUGH NOVEMBER 2003
UNDER THE DEBT AGREEMENT ENTERED INTO IN DECEMBER 2002, IS CONTINGENT ON US
MEETING CERTAIN OBLIGATIONS. IF THESE OBLIGATIONS ARE NOT MET OR ARE NOT
SATISFACTORY TO THE LENDERS, WE MAY BE UNABLE TO BORROW THE FUNDS AS PLANNED AND
THIS MAY FORCE US TO SIGNIFICANTLY REDUCE OR CEASE OPERATIONS.
In December 2002, we entered into a Debt Agreement with a group of private
accredited investors, or the Lenders. The $12.0 million Debt Agreement allows us
to borrow up to $1.0 million per month, with any unused monthly borrowings to be
carried forward. We have borrowed $4.0 million under this agreement through
March 15, 2003. The maximum aggregate loan amount is $12.0 million with the last
available borrowing in November 2003. The Lenders obligation to fund each
borrowing request is subject to material conditions described in the Debt
Agreement. In addition, the Lenders may terminate its obligations under the Debt
Agreement if: (i) Miravant has not filed an NDA by March 31, 2003, (ii) such
filing has been rejected by the Federal Drug Administration, or (iii) Miravant,
in the reasonable judgment of the Lenders, is not meeting its business
objectives. We have received a waiver from the Lenders with regard to the March
31, 2003 NDA filing deadline. This deadline has been extended to the end of the
third quarter 2003. However, there is no guarantee we will receive the remaining
$8.0 million under this agreement, and if we are unable to borrow the remaining
$8.0 million as planned we may be forced to
significantly reduce or cease operations.
OUR EXISTING LOAN OBLIGATIONS TO PHARMACIA, OVERALL CURRENT MARKET ENVIRONMENT
AND OUR THE OTC BULLETIN BOARD(R), OR OTCBB, LISTING STATUS WILL MAKE OBTAINING
ADDITIONAL FUNDING DIFFICULT.
Our ability to obtain additional funding by December 31, 2003 to operate
our business may be impeded by a number of factors including:
* We currently owe 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.
As of March 31, 2003, our aggregate equity financings amount to
$2.5 million;
* 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 the net
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 due on June 30, 2003, then to the remaining loan amount due
on June 4, 2004;
* Our Common Stock is currently being traded on the OTCBB and there is
no guarantee we will be able to regain our listing status on Nasdaq,
in the near term or at all; and
* As a result of many current economic and political factors, the
present market for raising capital is relatively difficult and we may
be unable to raise the funding we need timely, if at all, if certain
economic and political factors do not improve.
We will need a substantial amount of funding to further our programs and to
complete our planned NDA filing for SnET2 in 2003, 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 to
Pharmacia. Investors may also be reluctant to provide us funds for fear that
Pharmacia may foreclose on our assets. The fact that our Common Stock is no
longer 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 many current economic and political
factors. These and other factors may prevent us from obtaining additional
financing as required in the near term on favorable terms or at all.
PREPARING AND FILING AN NDA REQUIRES SIGNIFICANT EXPENSES, THE APPROPRIATE
PERSONNEL AND ACCESS TO CONSULTANTS AND OTHER RESOURCES AS NEEDED. OUR PLANS TO
COMPLETE AN NDA FILING WITH THE FDA FOR SNET2 FOR THE TREATMENT OF AMD IN 2003
IS DEPENDENT ON OUR ABILITY TO SUCCESSFULLY RAISE SUBSTANTIAL ADDITIONAL
FUNDING, OR ENGAGE A COLLABORATIVE PARTNER, AND TO ENGAGE CONSULTANTS AND
PERSONNEL AS NEEDED ALL IN A TIMELY MANNER. IF WE ARE UNABLE TO MEET THESE
REQUIREMENTS OUR PLANS TO FILE AN NDA WITH THE FDA MAY BE SIGNIFICANTLY DELAYED
OR MAY NOT GET FILED AT ALL.
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.
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
completed our own detailed analysis of the clinical data during 2002, including
an analysis of the subset groups. In January 2003, based on the results of our
analysis and certain discussions with regulatory and FDA consultants, we
announced our plans to move forward with an NDA filing for SnET2 for the
treatment of AMD. In addition, we are currently seeking a new collaborative
partner for PhotoPoint PDT in ophthalmology. The cost of preparing an NDA
requires a significant amount of funding and personnel. We will have to engage
numerous consultants and clinical research organizations, or CROs, to assist in
the preparation of the NDA. Our ability to engage the appropriate CROs and
consultants in a timely manner and have them available to us when we need them
is costly and may cause delays in the filing of the NDA. Additionally, our
ability to raise funding or engage a collaborative partner to assist us in the
funding and preparation of the NDA may not be available to us timely or not at
all. If we are unable to raise adequate funding, we will likely have to further
reduce our funding and development efforts of our other programs and adjust our
overall business structure to reduce expenses. If we are unable to file an NDA
for SnET2 as a result of funding or other constraints or if our filing is not
accepted by the FDA, this could severely harm our business.
ONCE OUR NDA FOR SNET2 FOR THE TREATMENT OF AMD IS FILED, IF FILED AT ALL, THERE
CAN BE NO ASSURANCE THAT WE WILL BE ABLE TO GET APPROVAL FROM THE FDA OR THAT
ISSUES UNDERLYING ANY CONTINGENT APPROVAL RECEIVED WILL BE ADEQUATELY AND TIMELY
RESOLVED BY US OR THAT SUCH APPROVAL WILL MEET OUR MARKETING AND REVENUE
EXPECTATIONS. ADDITIONALLY, WE CAN NOT BE ASSURED THAT WE WILL BE ABLE TO
MAINTAIN OUR FAST TRACK DESIGNATION WITH THE FDA BECAUSE OF SUBSEQUENT FDA
APPROVALS RECEIVED FOR THE TREATMENT OF AMD TO THIRD PARTIES.
If we are able to file our NDA for SnET2 for the treatment of AMD, there
can be no guarantee the we will be able to get an approval from the FDA or that
we will be able to resolve any issues or contingent requirements requested by
the FDA. For instance, the FDA may require follow-up clinical or pre-clinical
studies prior to final approval, which may be costly and may cause a significant
delay in the timing of receiving FDA approval. If the FDA does approve this NDA,
the approved label claims could be for a limited market, resulting in smaller
than expected markets and revenue. Additionally, we received a fast track
designation on our clinical program in 1998 primarily due to the lack of an
existing approved treatment for AMD. Subsequently, there has been an approval by
the FDA for the treatment of a specific portion of the AMD disease thus there
can be no guarantee that we will be able to maintain our fast track designation,
and related benefits, from the FDA which may further delay the timing of a
potential FDA approval. Any delay in receiving FDA approval further limits our
ability to begin market commercialization and harms our on-going funding
requirements and 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, HAS RESULTED IN OUR
SHARES BEING DELISTED FROM TRADING ON NASDAQ. AS A RESULT OF BEING DELISTED FROM
NASDAQ, OUR ABILITY TO RAISE ADDITIONAL CAPITAL MAY BE LIMITED OR IMPAIRED.
We were notified by Nasdaq on July 11, 2002 that our Common Stock would be
delisted and begin trading on the OTCBB effective as of the opening of business
on July 12, 2002. The OTCBB is a regulated quotation service that displays
real-time quotes, last-sale prices and volume information in over-the-counter
equity securities. OTCBB securities are traded by a community of market makers
that enter quotes and trade reports. Our Common Stock trades under the ticker
symbol MRVT and can be viewed at www.otcbb.com. Our management continues to
review our ability to regain our listing status with Nasdaq, however, there are
no guarantees we will be able to raise the additional capital needed or to
increase the current trading price of our Common Stock to allow us to meet the
relisting requirements for the Nasdaq National Market or the Nasdaq Small Cap
Market on a timely basis, if at all, and there is no guarantee that Nasdaq would
approve our relisting request even if we met all the listing requirements.
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 our ability to
raise funds 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 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, which was terminated in March
2002. To further develop SnET2 for AMD or other indications 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, 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. 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 completed our own detailed analysis of the clinical data during
2002, including an analysis of the subset groups. In January 2003, based on the
results of our analysis and discussions with regulatory and FDA consultants, we
announced our plans to move forward with an NDA filing for SnET2 for the
treatment of AMD. In addition, we have terminated our license collaboration with
Pharmacia, and are currently seeking a new collaborative partner for PhotoPoint
PDT in ophthalmology. If we are unable to file an NDA for SnET2 as a result of
funding or other constraints or if our filing is not accepted by the FDA, this
could adversely affect our funding and development efforts for our other
programs and severely harm our business.
Our clinical trials may not demonstrate the sufficient levels of safety and
efficacy necessary to obtain the requisite regulatory approval or may not result
in marketable products. 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 OR BE ABLE TO MAINTAIN PROFITABILITY.
We have incurred significant losses since our inception in 1989 and, as of
December 31, 2002, had an accumulated deficit of approximately $189.5 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 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 sustained
profitability depends upon our ability, alone or with others, to receive
regulatory approval on our NDA filing for SnET2 in AMD, 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. Our ability to achieve significant
levels of revenues within the next few years is dependent on our ability to
establish a corporate partner collaboration and/or license SnET2 and the timing
of receiving regulatory approval, if at all, for SnET2 in AMD. 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. We do not
expect any significant revenues for the foreseeable future.
THE PRICE OF OUR COMMON STOCK HAS BEEN AND MAY CONTINUE TO BE VOLATILE.
From time to time and in particular during the year ended December 31,
2002, the price of our Common Stock has been highly volatile. These fluctuations
create a greater risk of capital losses for our stockholders as compared to less
volatile stocks. From January 1, 2002 to March 14, 2003, our Common Stock price,
per Nasdaq and OTCBB closing prices, has ranged from a high of $9.90 to a low of
$0.25.
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:
* Our ability to successfully file an NDA for SnET2;
* Our ability to continue to borrow monthly under the Debt Agreement
through November 2003;
* Our ability to make the $5.0 million, plus interest, payments on the
debt due to Pharmacia on the related payment dates of June 30, 2003
and June 4, 2004;
* Our ability to successfully negotiate new debt repayment terms on our
$10.0 million debt plus interest due to Pharmacia if we cannot make
the scheduled payments;
* Announcements concerning Miravant or our collaborators, competitors or
industry;
* Our ability to successfully establish new collaborations and/or
license SnET2;
* The results of the FDA review of our intended NDA filing, when and if
it is filed;
* 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 regain our listing status on Nasdaq;
* 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
* Litigation, such as from stockholder lawsuits or patent infringement;
* 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 decline further, we may be unable to obtain additional
capital that we may need through public or private financing activities and our
stock may not be relisted on 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 CRO, 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 CROs may be available in
the event that our current CROs 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, if any, 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. IF WE ARE UNABLE TO MAINTAIN AND DEVELOP OUR
PAST MANUFACTURING CAPABILITY, OR IF WE ARE UNABLE TO FIND SUITABLE THIRD PARTY
MANUFACTURERS, OUR OPERATING RESULTS COULD SUFFER AND WE MAY ENCOUNTER DELAYS IN
CONNECTION WITH OUR PLANNED NDA FILING AND APPROVAL.
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 clinical manufacturing 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 were licensed by the State of California to manufacture bulk API
at one of our Santa Barbara, California facilities for clinical trial and other
use. This particular manufacturing facility was shut down in 2002 and is
currently being reconstructed in our existing operating facility. We expect to
have the manufacturing facility at the new location operational in 2003, pending
any required regulatory approvals by the State of California and federal
regulatory agencies.
In the original manufacturing facility, we have manufactured bulk API, the
process up to the final formulation and packaging step for SnET2. We believe the
quantities we have manufactured and have in inventory are enough to support an
initial commercial launch of SnET2, though there can be no assurance that SnET2
and our new manufacturing facility will be approved by the FDA or that if such
approval is received, the existing commercial bulk API inventory will be
approved for commercial use. We also have the ability to manufacture light
producing devices and light delivery devices, and conduct other production and
testing activities to support current clinical programs, at this location.
However, we have limited capabilities, personnel and experience in the
manufacture of finished drug product, and at commercial levels 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. We are currently the sole manufacturer of bulk API for
SnET2, 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. All currently have commercial quantity capabilities. At
this time, we have no readily available back-up manufacturers to produce the
bulk API for SnET2, or 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 LIMITED MARKETING CAPABILITY AND EXPERIENCE AND THUS RELY HEAVILY UPON
THIRD PARTIES IN THIS REGARD.
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 in the event of war,
terrorism, 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) 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 63 - 92 in Item
15 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, 2002 and 2001, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended December 31, 2002. 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, 2002 and 2001 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2002, 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 a working capital deficit, 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
Woodland Hills, California
March 12, 2003, except as to Note 12, as
to which the date is March 25, 2003
CONSOLIDATED BALANCE SHEETS
December 31,
2002 2001
------------------ -------------------
Assets
Current assets:
Cash and cash equivalents............................................... $ 723,000 $ 1,458,000
Investments in short-term marketable securities......................... -- 4,654,000
Accounts receivable..................................................... -- 5,030,000
Inventories............................................................. -- 395,000
Prepaid expenses and other current assets............................... 551,000 295,000
------------------ -------------------
Total current assets....................................................... 1,274,000 11,832,000
Property, plant and equipment:
Vehicles................................................................ 28,000 28,000
Furniture and fixtures.................................................. 1,389,000 1,404,000
Equipment............................................................... 5,531,000 5,447,000
Leasehold improvements.................................................. 3,495,000 3,382,000
------------------ -------------------
10,443,000 10,261,000
Accumulated depreciation................................................ (9,837,000) (9,057,000)
------------------ -------------------
606,000 1,204,000
Investments in affiliates.................................................. 393,000 635,000
Deferred financing costs................................................... 379,000 913,000
Patents, net............................................................... 978,000 980,000
Other assets............................................................... 139,000 601,000
------------------ -------------------
Total assets............................................................... $ 3,769,000 $ 16,165,000
================== ===================
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable........................................................ $ 1,361,000 $ 2,535,000
Accrued payroll and expenses............................................ 628,000 786,000
Short-term debt......................................................... 5,238,000 --
------------------ -------------------
Total current liabilities.................................................. 7,227,000 3,321,000
Long-term liabilities:
Convertible debt........................................................ 1,003,000 --
Long-term debt.......................................................... 5,555,000 26,548,000
Sublease security deposits.............................................. 94,000 94,000
------------------ -------------------
Total long-term liabilities................................................ 6,652,000 26,642,000
Stockholders' equity (deficit):
Common stock, 50,000,000 shares authorized; 24,225,089 and
18,876,075 shares issued and outstanding at December 31, 2002 and
2001, respectively.................................................... 180,255,000 161,496,000
Notes receivable from officers.......................................... (570,000) (822,000)
Deferred compensation................................................... (266,000) (547,000)
Accumulated other comprehensive loss.................................... -- (356,000)
Accumulated deficit..................................................... (189,529,000) (173,569,000)
------------------ -------------------
Total stockholders' equity (deficit)....................................... (10,110,000) (13,798,000)
------------------ -------------------
Total liabilities and stockholders' equity (deficit)....................... $ 3,769,000 $ 16,165,000
================== ===================
See accompanying notes.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
2002 2001 2000
------------------- ------------------- ------------------
Revenues:
License - contract research and development....... $ 20,000 $ 302,000 $ 4,481,000
Bulk active pharmaceutical ingredient sales....... 479,000 4,306,000 --
Royalties......................................... -- 75,000 --
Grants............................................ -- -- 112,000
------------------- ------------------- ------------------
Total revenues....................................... 499,000 4,683,000 4,593,000
Costs and expenses:
Cost of goods sold................................ 479,000 934,000 --
Research and development.......................... 9,549,000 13,493,000 20,194,000
Selling, general and administrative............... 5,726,000 5,903,000 6,023,000
------------------- ------------------- ------------------
Total costs and expenses............................. 15,754,000 20,330,000 26,217,000
Loss from operations................................. (15,255,000) (15,647,000) (21,624,000)
Interest and other income (expense):
Interest and other income......................... 169,000 798,000 1,370,000
Interest expense.................................. (286,000) (2,139,000) (2,254,000)
Gain on sale of assets............................ 10,000 586,000 --
Non-cash loss in investment....................... (598,000) -- (3,485,000)
------------------- ------------------- ------------------
Total net interest and other income (expense)........ (705,000) (755,000) (4,369,000)
------------------- ------------------- ------------------
Net loss............................................. $ (15,960,000) $ (16,402,000) $ (25,993,000)
=================== =================== ==================
Net loss per share - basic and diluted............... $ (0.78) $ (0.88) $ (1.42)
=================== =================== ==================
Shares used in computing net loss per share.......... 20,581,214 18,647,071 18,294,525
=================== =================== ==================
See accompanying notes.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Notes Accumulated
Receivable Deferred Other
Common Stock from Compensation Comprehensive Accumulated
Shares Amount Officers and Interest Loss Deficit Total
------------ --------------- ------------- --------------- -------------- --------------- ----------
Balance at January 1, 2000....18,038,270 $ 152,731,000 $ (460,000) $ (1,776,000) $(3,724,000) $(131,174,000) $15,597,000
Comprehensive loss:
Net loss.................. -- -- -- -- -- (25,993,000) (25,993,000)
Net change in accumulated
other comprehensive
loss..................... -- -- -- -- 3,592,000 -- 3,592,000
-------------
Total comprehensive loss..... (22,401,000)
Exercise of stock options
and warrants................ 486,979 4,414,000 -- -- -- -- 4,414,000
Issuance of stock awards..... 51,254 760,000 -- -- -- -- 760,000
Deferred compensation,
deferred interest related to
warrants granted and non-cash
interest on 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 and non-cash
interest on 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)
Comprehensive loss:
Net loss................... -- -- -- -- -- (15,960,000) (15,960,000)
Net change in accumulated
other comprehensive loss.. -- -- -- -- 356,000 -- 356,000
-------------
Total comprehensive loss...... (15,604,000)
Issuance of stock at $0.50 per
share (net of approximately
$81,000 of offering costs)...5,000,000 2,419,000 -- -- -- -- 2,419,000
Issuance of stock awards and
ESOP Employer matching
contribution................. 349,014 78,000 -- -- -- -- 78,000
Non-cash contributions by
Pharmacia Corporation:
Lease payments............. -- 40,000 -- -- -- -- 40,000
Debt restructuring......... -- 15,393,000 -- -- -- -- 15,393,000
Officer notes and non-cash
interest on officer notes.... -- -- (248,000) -- -- -- (248,000)
Reserve for officer notes..... -- -- 500,000 -- -- -- 500,000
Deferred compensation and
deferred interest related to
warrants granted............. -- 829,000 -- (534,000) -- -- 295,000
Amortization of deferred
compensation.................. -- -- -- 815,000 -- -- 815,000
------------ --------------- ------------- --------------- ------------- --------------- ----------
Balance at December 31, 2002....24,225,089 $ 180,255,000 $ (570,000) $(266,000) $ -- $(189,529,000)$(10,110,000)
============ =============== ============= =============== ============= ============== ============
See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
Operating activities: 2002 2001 2000
---------------- ---------------- ---------------
Net loss............................................... $ (15,960,000) $ (16,402,000) $ (25,993,000)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization....................... 887,000 1,194,000 1,743,000
Amortization of deferred compensation............... 815,000 563,000 761,000
Non-cash loss in investment......................... 598,000 -- 3,485,000
Gain on sale of property, plant and equipment....... (10,000) (586,000) --
Stock awards and ESOP matching contribution......... 78,000 2,255,000 760,000
Non-cash interest and amortization of
deferred financing costs on long-term debt........ 319,000 2,288,000 2,231,000
Reserve for patents................................. 81,000 -- 74,000
Provision for employee and officer loans, net of non-
cash interest on officer loans................... 802,000 (68,000) (53,000)
Changes in operating assets and liabilities:
Accounts receivable ............................. 5,030,000 (4,148,000) 4,785,000
Prepaid expenses, inventories and other assets... 122,000 (326,000) 225,000
Accounts payable and accrued payroll............... (1,332,000) (17,000) (1,444,000)
------------------ ------------------ ------------------
Net cash used in operating activities.................. (8,570,0000) (15,247,000) (13,373,000)
Investing activities:
Purchases of marketable securities..................... (28,679,000) (43,684,000) (31,396,000)
Sales of marketable securities......................... 33,333,000 57,930,000 16,117,000
Purchases of property, plant and equipment............. -- (287,000) (263,000)
Sublease security deposits............................. -- -- (33,000)
Proceeds from sale of property, plant and equipment.... 71,000 863,000 --
Purchases of patents................................... (154,000) (67,000) (199,000)
------------------ ------------------ ------------------
Net cash provided by (used in) investing activities.... 4,571,000 14,755,000 (15,774,000)
Financing activities:
Proceeds from issuance of Common Stock, less
issuance costs...................................... 2,419,000 315,000 4,414,000
Proceeds from promissory notes and long-term debt...... 1,000,000 -- 7,500,000
Advances of notes to officers.......................... (155,000) (300,000) --
------------------ ------------------ ------------------
Net cash provided by financing activities.............. 3,264,000 15,000 11,914,000
Net decrease in cash and cash equivalents.............. (735,000) (477,000) (17,233,000)
Cash and cash equivalents at beginning of period....... 1,458,000 1,935,000 19,168,000
------------------ ------------------ ------------------
Cash and cash equivalents at end of period............. $ 723,000 1,458,000 $ 1,935,000
================== ================== ==================
Supplemental disclosures:
State taxes paid....................................... $ 4,000 $ 20,000 $ 8,000
================== ================== ==================
Interest paid.......................................... $ -- $ -- $ 24,000
================== ================== ==================
See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Description of Business, Basis of Presentation and Going Concern:
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, 2002, the
Company had an accumulated deficit of $189.5 million and expects to continue to
incur substantial, and possibly increasing, operating losses for the next few
years. As of March 5, 2003, the Company's first payment was due on its debt to
Pharmacia Corporation, or Pharmacia, in the amount of $5.0 million plus accrued
interest, and we did not make this payment. The Company has, subsequent to
December 31, 2002 (see Note 12), negotiated with Pharmacia an extension on the
first payment due to June 30, 2003. If the Company cannot make the scheduled
payment or negotiate new terms for the debt repayment, then Pharmacia can
exercise all of its rights to secure all of the collateral under the agreement,
which includes all of the Company's assets.
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. In December
2002, the Company entered into a $12.0 million Convertible Debt and Warrant
Purchase Agreement, or Debt Agreement, with a group of private accredited
investors, or the Lenders, that provided the Company the availability to borrow
up to $1.0 million per month through November 2003, subject to certain
limitations. The monthly borrowing request can be limited if certain
requirements are not met or are not satisfactory to the Lenders. As of March 15,
2003, the Company had borrowed $4.0 million under the Debt Agreement. For
further discussion see Note 2. Executive management of the Company believes that
if the remaining $8.0 million remains available to it under the Debt Agreement
that it has sufficient resources to fund the current required expenditures
through December 31, 2003 (unaudited). 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
additional equity or debt financings prior to December 31, 2003, especially due
to the Company's announcement that it intends to file a New Drug Application, or
NDA, in 2003. However, there can be no assurance that the Company will receive
the remaining $8.0 million under the Debt Agreement, if certain requirements are
not met or are not satisfactory to the Lenders, and there is no guarantee that
the Company will be successful in obtaining additional 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, 2003 (unaudited) 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
facilities 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.
Certain reclassifications of prior year amounts have been made for purposes
of consistent presentation.
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.
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 consisted of short-term, interest-bearing municipal
bonds and corporate stocks and bonds as of December 31, 2001. There were no
marketable security balances as of December 31, 2002. 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, 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 previously manufactured 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 2002. 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. In connection with the Contract Modification and Termination
Agreement, all bulk API inventory and the finished dose formulation, or FDF,
sold to Pharmacia in 2001 and 2002 was returned to the Company in 2002. Payment
for all amounts of bulk API sold to Pharmacia was received during 2002. As of
December 31, 2002, no inventory was recorded for the returned bulk API, since
these inventories, according to the Company's accounting policies, have been
expensed as either cost of goods sold in 2001 or as research and development
costs in prior years.
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. As the Company was the main source of
financing for Ramus, the Company 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, 2002 and 2001, 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:
Costs of acquiring patents are capitalized and amortized on the
straight-line basis over the estimated useful life of the patents, generally
seventeen years. Costs of patents filed or in the filing process, or patents
pending, are capitalized as prepaid patents and are not amortized until the
patent is issued. Accumulated amortization was $453,000 and $377,000 at December
31, 2002 and 2001, respectively, and reserves recorded for patents amounted to
$566,000 and $486,000 at December 31, 2002 and 2001, respectively. The costs of
servicing the Company's patents are expensed as incurred. The weighted average
amortization period for the Company's patents is approximately 12.4 years.
Amortization expense related to patents amounted to $76,000, $72,000 and $74,000
for the years ended December 31, 2002, 2001 and 2000, respectively.
The estimated amortization expense related to patents for the next five
years is as follows:
2003 $ 85,000
2004 $ 85,000
2005 $ 85,000
2006 $ 85,000
2007 $ 85,000
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. The Company
periodically reviews the carrying value of its patents and provides reserves for
any patents which are not actively being researched or marketed. During the
years ended December 31, 2002, 2001 and 2000, the Company increased the patent
reserve by $81,000, zero and $75,000, respectively. For the year ended December
31, 2001 there was no expense related to patent reserves. No other impairment
losses have been recorded 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
adopted SFAS No. 144 in the first quarter of 2002 and its adoption has not had 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 were recorded as revenue in the period
when the product was received by Pharmacia at their facility. Licensing revenues
represent reimbursements from Pharmacia for out-of-pocket expenses incurred in
preclinical studies and clinical trials for the SnET2 PhotoPoint PDT treatment
for age related macular degeneration, or AMD. These licensing revenues were
recognized in the period when the reimbursable expenses were 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 or low likelihood of 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 (deficit) with the change in
accumulated other comprehensive loss consisting of the following:
2002 2001 2000
-------------- --------------- ------------------
Unrealized holding gains (losses) arising from
available-for-sale securities.......................... $ (242,000) $ (224,000) $ 107,000
Reclassification adjustment for other-than-temporary
non-cash loss in investment............................ 598,000 -- 3,485,000
-------------- --------------- ------------------
Net (increase) decrease in accumulated other
comprehensive loss .................................... $ 356,000 $ (224,000) $ 3,592,000
============== =============== ==================
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 April 2002, SFAS No. 145, "Recission of FASB statements No. 4, 44 and
64, Amendment of FASB statement No. 13 and Technical corrections", was issued
and becomes effective for fiscal years beginning after May 15, 2002. SFAS No. 4
and No. 64 related to reporting gains and losses from debt extinguishment. Under
prior guidance, if material gains and losses were recognized from debt
extinguishment, the amount was not included in income from operations, but was
shown as an extraordinary item net of related income tax cost or benefit, as the
case may be. Under the new guidance, all gains and losses from debt
extinguishment are subject to criteria prescribed under APB No. 30 in
determining an extraordinary item classification. SFAS No. 44 is not applicable
to the Company's operations. SFAS No. 13 was amended to require certain lease
modifications with similar economic effects to be accounted for the same way as
a sale-leaseback. The Company will adopt this statement effective January 1,
2003 and does not believe this adoption will have a material effect on its
consolidated results of operations or consolidated financial position.
SFAS No. 146 "Accounting for the costs associated with Exit or Disposal
Activities", was issued in June 2002. This statement is effective for any
disposal or exit of business activities started after December 31, 2002. The
statement nullifies EITF 94-3, which required that once a plan of disposal was
put in motion, a liability for the estimated costs needed to be recorded. SFAS
No. 146 states that a liability should not be recorded until the liability is
incurred. This statement does not affect any liabilities established related to
exiting an operation with duplicate facilities when acquired in a business
combination. The Company will adopt this accounting guidance at the prescribed
date of January 1, 2003. SFAS No. 146 currently would not effect the Company's
consolidated results of operations or consolidated financial position.
2. Credit Arrangements and Collaborative Funding
December 2002 Convertible Debt Agreement:
In December 2002, the Company entered into a Convertible Debt and Warrant
Purchase Agreement, or Debt Agreement, with a group of private accredited
investors, or the Lenders. The $12.0 million Debt Agreement allows the Company
to borrow up to $1.0 million per month, with any unused monthly borrowings to be
carried forward. The maximum aggregate loan amount is $12.0 million with the
last available borrowing in November 2003. The Lender's obligation to fund each
borrowing request is subject to material conditions described in the Debt
Agreement. In addition, the Lenders may terminate its obligations under the Debt
Agreement if: (i) Miravant has not filed an NDA by March 31, 2003, (ii) such
filing has been rejected by the Federal Drug Administration, or (iii) Miravant,
in the reasonable judgment of the Lenders, is not meeting its business
objectives. Subsequent to December 31, 2002, the Company has received a waiver
from the Lenders with regard to the NDA filing deadline of March 31, 2003. This
deadline has been extended to the end of the third quarter of 2003 (see Note 12
for further discussion).
A separate convertible promissory note, or Note, will be issued for each
borrowing request received and such Notes will earn interest at 9.4% per annum
and be due December 31, 2008. The interest on each Note can be accrued and added
to the existing Notes. Each Note and any accrued interest can be converted into
shares of Miravant's Common Stock on the earlier of March 31, 2003, or the date
on which the trading price of our Common Stock exceeds 250% of the conversion
price of the Note. Each Note's conversion price is determined as the greater of
$0.75 per share or 125% of the average closing prices of Miravant's Common Stock
for the ten (10) trading days immediately prior to the date of each Note.
In connection with each borrowing, the Company will net from the borrowing
proceeds a 3% drawdown fee. The Company will also issue to the Lenders a warrant
to purchase one-quarter (1/4) of a share of Miravant Common Stock for every
$1.00 borrowed. The exercise price of each Warrant will be equal to the greater
of $1.00 per share or 150% of the average of the closing prices of Miravant's
Common Stock for the ten (10) trading days preceding the date of each Note. In
addition, upon execution of the Debt Agreement, the Company issued the Lenders a
warrant to acquire 250,000 shares of the Company's Common Stock, with an
exercise price of $0.50 per share. Each Warrant will terminate on December 31,
2008, unless previously exercised. The Company has also agreed to provide the
Lenders certain registration rights in connection with this transaction.
On December 19, 2002, pursuant to the Debt Agreement, the Company borrowed
$1.0 million, which has a conversion price of $0.97 per share or convertible
into 1,029,601 shares of Common Stock and issued the Lenders a warrant
exercisable for 250,000 shares of our Common Stock at $1.17 per share. Upon
execution of the Debt Agreement and the first borrowing related thereto, the
Company recorded deferred financing costs of $379,000, including the value of
the warrants granted using the Black-Scholes valuation model of $295,000, which
are being amortized as interest expense over the life of the Debt Agreement.
Subsequent to December 31, 2002, the Company has received an additional $3.0
million through March 15, 2003. See Note 12 for further discussion.
2002 Pharmacia Agreement:
In March 2002, the May 2001 amended and restated credit agreement, or the
2001 Credit Agreement, and the Manufacturing Facility Asset Purchase Agreement
with Pharmacia were significantly modified and/or terminated by the Contract
Modification and Termination Agreement. The following represents the terms of
the modifications and terminations of the agreements with Pharmacia.
The Contract Modification and Termination Agreement modified the 2001
Credit Agreement. The outstanding debt that the Company owed to Pharmacia of
approximately $26.8 million was reduced to $10.0 million plus accrued interest.
The first payment of $5.0 million plus accrued interest was due March 5, 2003
and subsequent to December 31, 2002 (see Note 12 for further discussion), has
been extended to June 30, 2003 and the second and final payment of $5.0 million
plus accrued interest is due June 4, 2004. Interest on the debt will be recorded
at the prime rate, which was 4.75% at March 5, 2002 and 4.25% at December 31,
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 SFAS No. 15, "Accounting by Debtors and Creditors for
Troubled Debt Restructurings", the Company permanently reduced 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
then current interest rates, was estimated to be $10.8 million. The difference
between the total debt outstanding of $26.2 million (net of the unamortized
deferred financing costs of approximately $900,000) and the total future cash
payments of the restructured debt of $10.8 million was recorded as an increase
to stockholders' equity due to Pharmacia being a greater than 10% stockholder in
the Company at the time. Therefore, the Company recorded a $15.4 million
increase to stockholders' equity in the first quarter of 2002.
The Contract Modification and Termination Agreement also provided 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
recorded 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 was no 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, had been expensed as research and development costs in prior years.
1999 and 2001 Pharmacia Agreements:
The following represents a description of the Company's 1999 and 2001
agreements entered into with Pharmacia.
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. The promissory notes, which accrue
interest at the prime rate, mature in June 2004.
The Company 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. Under
the Credit Agreement, 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. As of
March 2002, the total of all promissory notes for principal and interest was
approximately $27.1 million. The interest rate for these notes was 4.75% at
December 31, 2001. Additionally, the warrants granted, which had been valued at
$1.7 million using the Black-Scholes valuation model, had been recorded as
deferred financing costs on the balance sheet and were being amortized as
interest expense over the life of the loans. The Company amortized $374,000 and
$315,000 in 2001 and 2000, respectively.
In May 2001, the Company and Pharmacia finalized an additional funding
arrangement. The May 2001 Amended and Restated Credit Agreement, or 2001 Credit
Agreement with Pharmacia, amended and restated the previous $22.5 million Credit
Agreement entered into with Pharmacia in February 1999, under which Pharmacia
could have provided up to an additional $13.2 million in credit to the Company
beginning in April 2002. As discussed above, the 2001 Credit Agreement was
modified and terminated prior to the availability of the additional $13.2
million in credit.
Under the May 2001 Manufacturing Facility Asset Purchase Agreement, or
Asset Purchase 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 released in
March 2002. The interest earned by these accounts accrued to the Company and was
available upon the release of each escrow account. The escrow accounts secured
certain indemnification obligations with respect to the purchase of the bulk API
manufacturing equipment. Management believes such indemnification obligations
were 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 were recorded as accounts receivable until the amounts are
released.
3. Stockholders' Equity
Private Placements:
In August 2002, the Company completed a private placement financing which
consisted of the sale of unregistered shares of Common Stock for gross proceeds
of $2.5 million at $0.50 per share, based on a premium of approximately 20% of
the average closing price for the prior 10 trading days. For every two common
shares acquired, the equity purchase included a warrant to purchase one share of
Common Stock at a price of $0.50 per share, with an exercise period of 5 years
from the date of grant. In addition, an origination warrant was issued to
purchase 300,000 shares of Common Stock at $0.50 per share. A group of private
investors participated in the offering.
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 the 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. As of December 31, 2002, the total balance of
these loans was $156,000. Additionally, from 1998 through 2002, the Board of
Directors have approved other secured loans made to the Company's Chief
Executive Officer and President; these loans accrue interest at fixed rates
between 4.7% and 5.9% and as of December 31, 2002 and 2001, had a total balance
of $914,000 and $675,000, respectively. No future loans to executive officers
have been approved after June 2002.
The loans the Company has made to officers and certain loans made to
employees over the years are either unsecured, or secured by stock or stock
options. In light of the decrease in the Company's stock price during 2002 and
certain other factors affecting the collectibility of these loans, the Company
recorded a reserve for these loans to officers and employees in the amount of
$872,000 during the quarter ended September 30, 2002. Of the amount recorded,
$182,000 is included in research and development expenses and $690,000 is
included in general and administrative expenses in the statements of operations
for the year ended December 31, 2002. For the years ended December 31, 2001 and
2000, the Company had recorded employee loan reserves of $73,000 and $15,000,
respectively, which was included in research and development expenses. As of
December 31, 2002 and 2001, the aggregate balance of these loans to officers and
employees, net of reserves, is $610,000 and $1,318,000, respectively, of which
$40,000 and $496,000 are included in other assets at December 31, 2002 and 2001,
respectively, and $570,000 and $822,000 are included in notes receivable from
officers at December 31, 2002 and 2001, 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 8,000,000 shares, of which approximately
5,843,514 shares have been granted or issued and 1,042,499 shares have been
cancelled netting 4,801,015 shares, which were granted or issued under the 2000
Plan as of December 31, 2002. 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 Option Summary:
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, 2000.......... $ 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
Granted.............................. 0.51 - 1.35 0.83 3,272,710
Canceled............................. 0.91 - 40.75 15.73 (3,358,489)
- ---------------------------------------------------------------------------------------------
Outstanding at December 31, 2002........ $ 0.50 - 55.50 $ 3.69 4,473,333
- ---------------------------------------------------------------------------------------------
Options outstanding by price range at
December 31, 2002.................... $ 0.51 - 0.51 $ 0.51 840,000
$ 0.91 - 0.91 $ 0.91 1,791,770
$ 1.00 - 7.13 $ 2.16 896,614
$ 7.25 - 30.75 $13.02 907,449
$31.25 - 55.50 $42.75 37,500
Exercisable at:
December 31, 2000....................... $ 0.67 - 55.50 $17.99 1,955,916
December 31, 2001....................... $ 1.00 - 55.50 $16.76 2,815,521
December 31, 2002....................... $ 0.51 - 55.50 $ 6.24 2,117,521
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 for the year ended December 31, 2000 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, $538,000 and $540,000 of
compensation expense related to these loans for each of the years ended December
31, 2002, 2001 and 2000, respectively. The deferred compensation related to
these loans was fully amortized as of December 31, 2002, as such no further
future amortization expense will be incurred.
In November 2002, the Board of Directors approved a Stock Option Exchange
Program for certain key employees. The program allowed these employees to
exchange each fully vested stock option with an exercise price of greater than
$5.00 for one-half share of restricted Common Stock. The restricted Common Stock
will be fully vested by December 31, 2003. The total number of stock options
exchanged and canceled under this program was 2,253,750 shares and the total
number of restricted Common Stock issued was 1,126,875 shares. In accordance
with the accounting guidance for this type of transaction, the Company recorded
deferred compensation of $507,000, which is being amortized over the vesting
period. As of December 31, 2002, the Company recorded amortization expense
related to the restricted stock of $254,000.
SFAS No. 123 Pro Forma Disclosure:
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:
2002 2001 2000
----------------------------------------- --- ----------------- -- --------------------- -- ------------------
Net loss
As reported........................... $ (15,960,000) $ (16,402,000) $ (25,993,000)
Stock-based employee cost included
in reported net loss............... 538,000 538,000 540,000
Pro forma stock-based employee
compensation cost under SFAS No.
123................................ (2,701,000) (4,717,000) (6,129,000)
----------------- --------------------- ------------------
Pro forma............................ $ (18,123,000) $ (20,581,000) $ (31,582,000)
----------------------------------------- --- ----------------- -- --------------------- -- ------------------
Loss per share - basic and diluted:
As reported...................... $ (0.78) $ (0.88) $ (1.42)
Pro forma........................ $ (0.88) $ (1.10) $ (1.73)
----------------------------------------- --- ----------------- -- --------------------- -- ------------------
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:
2002 2001 2000
----------------------------------------- --- ----------------- --- -------------------- -------------------
Expected dividend yield............. 0% 0% 0%
Expected stock price volatility..... 75% 50% 50%
Risk-free interest rate............. 3.10% - 5.00% 3.50% - 5.25% 5.75% - 6.00%
Expected life of options............ 2 - 4 years 2 - 4 years 2 - 4 years
----------------------------------------- --- ----------------- --- -------------------- -------------------
Under these assumptions, the weighted average fair value of the stock
option grants during the years ended December 31, 2002, 2001 and 2000 were
$0.48, $3.77 and $4.38, respectively. These 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, 2002, 2001 and 2000 was 7.3 years, 6.3 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 the remaining 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:
From 1997 to 2001, the Company has issued warrants to various consultants
in connection with consulting agreements and a co-development agreement. As of
December 31, 2002, warrants to purchase a total of 365,000 shares of Common
Stock remained outstanding related to the warrants granted from 1997 through
2001. These warrants were priced at the fair market value on the date of grant
and the prices ranged from $7.00 to $30.75 per share with expiration dates
ranging from January 2003 through January 2010. During 2002, the Company issued
to a consultant a warrant to purchase 43,750 shares of Common Stock with an
exercise price of $0.91 and expiration date of February 2012. 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 2002, 2001 or 2000. As of December 31, 2002, warrants to
purchase 88,000 shares of Common Stock expired and were cancelled accordingly.
In connection with the consulting warrants the Company is required to
record deferred compensation expense based on a Black-Scholes valuation model
and amortized over the vesting period of the warrant. As of December 31, 2002
and 2001, the Company had deferred compensation balances of $11,000 and $3,000,
respectively. The Company recorded an increase to deferred compensation
associated with the change in the value of these warrants of $27,000 for the
year ended December 31, 2002 and $205,000 for the year ended December 31, 2000
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 $24,000, $25,000 and
$224,000 for the years ended December 31, 2002, 2001 and 2000, 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, to extend
the expiration date to December 31, 2003 and reduce the exercise price to $1.00
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 consideration for reducing the exercise price to
$1.00 per share and extending the expiration date to December 31, 2004, the
warrant shares were reduced to 125,000 shares. As of December 31, 2002, none of
the 1997 private placement warrants had been exercised and warrants to purchase
1,366,000 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, 2002 none
of the warrants had been exercised.
2002 Private Placement:
In August 2002, in connection with a private equity placement as previously
discussed, the Company issued warrants to purchase 2,800,000 shares of Common
Stock with an exercise price of $0.50 per share expiring in August 2007. The
shares underlying these warrants have not been registered and the Company has
also agreed to provide the investors certain registration rights in connection
with this transaction.
2002 Convertible Debt Warrants:
In connection with each borrowing under the Debt Agreement, the Company
will issue to the Lenders a warrant to purchase one-quarter (1/4) of a share of
Miravant Common Stock for every $1.00 borrowed. The exercise price of each
warrant will be equal to the greater of $1.00 per share or 150% of the average
of the closing prices of Miravant's Common Stock for the ten (10) trading days
preceding the date of the Note. In addition, upon execution of the Debt
Agreement the Company issued the Lenders a warrant to acquire 250,000 shares of
the Company's Common Stock, with an exercise price of $0.50 per share. Each
warrant will terminate on December 31, 2008, unless previously exercised. The
Company has also agreed to provide the Lenders certain registration rights in
connection with this transaction. On December 19, 2002, the Company borrowed
$1.0 million pursuant to the Debt Agreement, and issued the Lenders a warrant
exercisable for 250,000 shares of our Common Stock at $1.17 per share.
Warrant Summary:
As of December 31, 2002, the Company has warrants outstanding to purchase a
total of 4,642,850 shares of its Common Stock at an average exercise price of
$2.56, with expiration dates ranging from January 2003 through February 2012.
The following table provides further detail on the warrants outstanding by price
range:
Exercise Price Weighted Average Warrant
per Share Exercise Price Shares
- -------------------------------------------------------------------------------------------------------------------------
Warrants outstanding by price range at December 31, 2002..... $ 0.50 - 0.50 $ 0.50 3,050,000
$ 0.91 - 11.87 $ 3.48 1,272,850
$13.31 - 28.00 $ 17.84 300,000
$30.75 - 30.75 $ 30.75 20,000
------------------------------------------------------------
Total warrants outstanding at December 31, 2002................$ 0.50 - 30.75 $ 2.56 4,642,850
==========================================================================================================================
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 2002,
2001 and 2000 plan years, are made on a quarterly basis and vest over a five
year period. Total Company matching contributions for 2002, 2001 and 2000 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:
2002 2001
----------------------------------------------------------------
Current Non-current Current Non-current
--------------------------------------------------------------
Deferred tax assets:
Uniform capitalization.................. $ -- $ -- $ 75,000 $ --
Other accruals and reserves............. 106,000 -- 168,000 --
Capitalized research and development.... -- 778,000 -- 778,000
Non-cash loss in investment............. -- 1,749,000 1,493,000
Net operating losses and tax credits.... -- 70,190,000 -- 69,564,000
--------------------------------------------------------------
Total deferred tax assets................. 106,000 72,717,000 243,000 71,835,000
Deferred tax liabilities:
Amortization and depreciation
expense................................. -- 1,541,000 -- 953,000
Federal benefit for state income taxes 7,000 2,539,000 17,000 2,677,000
--------------------------------------------------------------
Total deferred tax liabilities............ 7,000 4,080,000 17,000 3,630,000
--------------------------------------------------------------
Net deferred tax assets................... 99,000 68,637,000 226,000 68,205,000
Less valuation reserve.................... (99,000) (68,637,000) (226,000) (68,205,000)
--------------------------------------------------------------
$ -- $ -- $ -- $ --
==============================================================
The Company has net operating loss carryforwards for federal tax purposes
of $170.5 million, which expire in the years 2003 to 2022. Research credit
carryforwards aggregating $9.0 million are available for federal and state tax
purposes and expire in the years 2003 to 2022. The Company also has a state net
operating loss carryforward of $36.4 million which expires in the years 2003 to
2007. Of the $36.4 million in state net operating loss carryforwards, $19.4
million will expire during 2003 and 2004. Under Section 382 of the Internal
Revenue Code, the utilization of the Company's tax net operating losses may be
limited based on changes in the percentage of ownership in the Company.
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 for the year ended December 31, 2001 and no royalty
income for the years ended December 31, 2000 and 2002. Additionally, for the
years ended December 31, 2002, 2001 and 2000, 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,
2002, 2001 and 2000 the Company paid $5,000, $38,000 and $372,000 respectively,
and recorded as expense $5,000, $21,000 and $308,000 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 License Agreements, Pharmacia has provided the Company with
funding and development for the right to sell and market the funded products
once approved. For the years ended December 31, 2002, 2001 and 2000 the Company
recorded license revenues of $20,000, $302,000 and $4.5 million respectively,
related to the reimbursement of certain preclinical studies and clinical trial
costs. In March 2002, all License Agreements with Pharmacia were terminated.
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, 2002 and 2001 and recorded $112,000 for the year ended
December 31, 2000.
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
During 2002, the Company had leases for four buildings for a total average
monthly rental expense of approximately $124,000. One of the leases was assumed
by an unrelated party in its entirety in March 2002. Another lease was sublet in
December 1999 to two separate parties and expires in August 2003 at the same
time as our lease. Currently sublease rental income from these parties is
$37,000 per month, which represents most of the Company's rental cost. A third
lease, which formerly contained our bulk API manufacturing operations, has been
assumed by an unrelated party from January 1, 2003 through December 31, 2005 and
pays the full cost of the building directly to the landlord. The Company will be
responsible for the lease for the remainder of the term of the lease from
January 1, 2006 through March 2006 at a monthly cost currently at $26,000. The
final lease, which currently contains the entire operations of the Company,
expires in August 2003 with two one-year options available to renew. The monthly
base rent amount is approximately $52,000. All leases and subleases provide for
annual rental increases based upon a consumer price index and all 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 made by Pharmacia were
accounted for as a capital contribution and rent expense, or as a component of
cost of goods sold, over the lease obligation term. In 2002, Pharmacia paid
$40,000 related to the rent for the bulk API manufacturing facility, of which
the Company recorded $10,000 as rent expense and $30,000 as cost of good sold.
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 had agreed to reassume the lease obligations and related
property taxes through the remainder of the lease term, or March 2006. As of
January 2003, this facility was subleased through December 2005.
Future minimum operating lease payments, net of sublease rental income, are
as follows:
Lease Amount Minimum
Payable Sublease Revenues Net
------------------ -------------------- ------------------
2003.......................................... $ 1,112,000 $ 684,000 $ 428,000
2004.......................................... 324,000 324,000 --
2005.......................................... 332,000 332,000 --
2006.......................................... 83,000 -- 83,000
2007 and thereafter........................... -- -- --
------------------ -------------------- ------------------
Total minimum lease payments.................. $ 1,851,000 $ 1,340,000 $ 511,000
------------------ -------------------- ------------------
Rent expense was $1.1 million for each of the years ended December 31,
2002, 2001 and 2000, respectively, net of sublease income of $408,000, $384,000
and $365,000, 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,
2002, the balance of the loan, including principal and accrued interest, was
$2.7 million. The loan, which was used to fund Ramus' clinical trials and
operating costs, accrues interest at a variable rate (4.25% as of December 31,
2002) 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, 2002
and 2001 and no interest income is being accrued under the loan. The Company is
currently in discussions with Ramus to convert the entire amount of the loans
receivable from Ramus, including accrued and unpaid interest to Ramus preferred
stock.
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. In connection with general legal services provided by the law firm, the
Company recorded as expense $47,000, $55,000 and $40,000 for the years ended
December 31, 2002, 2001 and 2000, respectively. From 1996 through December 31,
2002, this individual's law firm has received warrants to purchase a total of
131,250 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, 2002 and 2001:
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.
Debt:
At December 31, 2002, the fair value of the Company's obligations are
approximately $11.1 million estimated based on the Company's current incremental
borrowing rate or similar types of financing arrangements. At December 31, 2001,
the carrying amount of the Company's obligations approximate their fair values
due to variable interest rates on these obligations.
10. Investments in Affiliate
During 2000 and again in 2002, 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% through 2000 and approximately an additional
20% through 2002 and had been at similar levels for at least nine months prior
to the write-down. In December 2000, the Company recognized a loss write-down
totaling $3.5 million and in December 2002 another $598,000 loss write-down was
recorded, to reduce its investment in Xillix to its estimated current fair value
based on quoted market prices as of December 31, 2002. This loss is included in
"Non-cash loss in investment" in the consolidated statements of operations,
stockholders' equity (deficit) and cash flows. As of December 31, 2002, the
Company still holds the 2,691,904 shares of Xillix common stock received in the
original investment transaction. The adjusted cost basis in the investment is
$393,000 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 (deficit).
11. Quarterly Results of Operations (Unaudited)
Three Months Ended
----------------------------------------------------------------------------
2001: March 31, June 30, September 30, December 31,
---------------- --------------- ------------------ ---------------
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)
================ =============== ================== ===============
2002:
Revenues......................................... $ 499,000 $ -- $ -- $ --
Costs and expenses............................... 4,767,000 3,622,000 3,911,000 3,454,000
Net interest and other income (expense).......... (207,000) 44,000 38,000 (580,000)
---------------- --------------- ------------------ ---------------
Net loss......................................... $ (4,475,000) $ (3,578,000) $ (3,873,000) $ (4,034,000)
================ =============== ================== ===============
Net loss per share:
Basic and diluted............................ $ (0.24) $ (0.19) $ (0.19) $ (0.16)
================ =============== ================== ===============
12. Subsequent Events
In January 2003, February 2003 and March 2003, the Company received
borrowings of $1.0 million in each of those months under the Debt Agreement and
the Company issued the Lenders a Note convertible into Common Stock at a per
share price of $0.97, $1.62 and $1.53, respectively. In addition, in connection
with these borrowings, the Company issued three separate of warrants of 250,000
shares each at exercise prices of $1.16 per share, $1.95 per share and $1.83 per
share, related to the January 2003, February 2003 and March 2003 borrowings,
respectively.
In connection with the Debt Agreement, the Lenders obligation to fund each
borrowing request is subject to material conditions described in the Debt
Agreement. In addition, the Lenders may terminate its obligations under the Debt
Agreement if: (i) Miravant has not filed an NDA by March 31, 2003, (ii) such
filing has been rejected by the Federal Drug Administration, or (iii) Miravant,
in the reasonable judgment of the Lenders, is not meeting its business
objectives. In March 2003, the Company has received a waiver from the Lenders
with regard to the NDA filing deadline of March 31, 2003. This deadline has been
extended to the end of the third quarter of 2003.
In March 2003, the Company finalized the negotiation with Pharmacia for an
extension on its first debt payment of $5.0 million, which was due on March 5,
2003. The first payment of $5.0 million is now due on June 30, 2003. In
connection with the extension of the first debt payment date, the Company agreed
to pay a total of $250,000 payable in two installments of $125,000 each on March
24, 2003 and April 17, 2003. This amount related to the interest accrued through
March 5, 2003 of $229,000 as well as an extension fee of $21,000. The Company
paid the first installment of $125,000 on March 24, 2003.
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.
ITEM 14. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
Our chief executive officer and our chief financial officer, after
evaluating our "disclosure controls and procedures" (as defined in Securities
Exchange Act of 1934 (the "Exchange Act") Rules 13a-14(c) and 15-d-14(c)) as of
a date (the "Evaluation Date") within 90 days before the filing date of this
Annual Report on Form 10-K, have concluded that as of the Evaluation Date, our
disclosure controls and procedures are effective to ensure that information we
are required to disclose in reports that we file or submit under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms.
(b) Changes in internal controls.
Subsequent to the Evaluation Date, there were no significant changes in our
internal controls or in other factors that could significantly affect our
disclosure controls and procedures, nor were there any significant deficiencies
or material weaknesses in our internal controls. As a result, no corrective
actions were required or undertaken.
PART IV
ITEM 15. 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 61
Consolidated Balance Sheets as of
December 31, 2002 and 2001 62
Consolidated Statements of Operations for the
years ended December 31, 2002, 2001 and 2000 63
Consolidated Statements of Stockholders'
Equity (Deficit) for the years ended December 31,
2002, 2001 and 2000 64
Consolidated Statements of Cash Flows for the
years ended December 31, 2002, 2001 and 2000 65
Notes to Consolidated Financial Statements 66
(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 87 to 90
(c) Reports on Form 8-K:
On December 19, 2002, Miravant Medical Technologies
announced that it entered into a Convertible Debt and
Warrant Purchase Agreement, or Debt Agreement, with a
group of private accredited investors, or the
Lenders. The $12.0 million Debt Agreement allows the
Company to borrow up to $1.0 million per month, with
any unused monthly borrowings to be carried forward.
The maximum aggregate loan amount is $12.0 million
with the last available borrowing in November 2003.
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]
4.17 Form of Common Stock Purchase Warrant between the Registrant and Purchasers. [BB] [10.3]
4.18 Form of Note Warrant between the Registrant and the Purchaser. [CC] [10.4]
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.**
10.59 Contract Modification and Termination Agreement dated March 5, 2002 between the [AA] [10.1]
Registrant and Pharmacia Corporation.
10.60 Securities Purchase Agreement dated August 28, 2002 between the Registrant and the [BB] [10.1]
Purchasers.
10.61 Registration Rights Agreement dated August 28, 2002 between the Registrant and the [BB] [10.2]
Purchasers.
10.62 Common Stock Warrant Purchase Certificate dated August 28, 2002 between the Registrant [BB] [10.3]
and the Purchasers.
10.63 Convertible Debt and Warrant Purchase Agreement dated December 19, 2002 between the [CC] [10.1]
Registrant and the Purchaser.
10.64 Registration Rights Agreement dated December 19, 2002 between the Registrant and the [CC] [10.2]
Purchaser.
10.65 Form of Convertible Promissory Note between the Registrant and the Purchaser. [CC] [10.3]
10.66 Form of Note Warrant between the Registrant and the Purchaser. [CC] [10.4]
10.67 Loan Origination Warrant dated December 20, 2002 between the Registrant and the [CC] [10.5]
Purchaser.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Auditors.
99.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18
u.s.c. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley act of 2002.
- -------------------------------------------
[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).
[AA] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 8-K dated March 11, 2002 (File No.
0-25544).
[BB] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 8-K dated September 3, 2002 (File
No. 0-25544).
[CC] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 8-K dated December 19, 2002 (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 28, 2003
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 28, 2003
- ------------------------------------ and Chief Executive Officer,
Gary S. Kledzik, Ph.D. (Principal Executive Officer)
/S/ David E. Mai Director and President March 28, 2003
- ------------------------------------
David E. Mai
/S/ John M. Philpott Chief Financial Officer and Treasurer March 28, 2003
- ------------------------------------ (Principal Financial Officer and
John M. Philpott Principal Accounting Officer)
/S/ Larry S. Barels Director March 28, 2003
- ------------------------------------
Larry S. Barels
/S/ Charles T. Foscue Director March 28, 2003
- ------------------------------------
Charles T. Foscue