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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-25544
Miravant Medical Technologies
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 77-0222872
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
336 Bollay Drive, Santa Barbara, California 93117
- --------------------------------------------------------------------------------
(Address of principal executive offices, including zip code)
(805) 685-9880
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at November 10, 2003
----- -----------------------------
Common Stock, $.01 par value 25,767,166
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page
Item 1. Condensed Consolidated Financial Statements
Condensed consolidated balance sheets as of September 30, 2003 and
December 31, 2002........................................................ 3
Condensed consolidated statements of operations for the three and
nine months ended September 30, 2003 and 2002............................. 4
Condensed consolidated statement of stockholders' equity (deficit)
for the nine months ended September 30, 2003.............................. 5
Condensed consolidated statements of cash flows for the nine
months ended September 30, 2003 and 2002.................................. 6
Notes to condensed consolidated financial statements....................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................... 14
Item 3. Qualitative and Quantitative Disclosures About Market Risk................. 44
Item 4. Controls and Procedures.................................................... 44
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.................................. 44
Item 6. Exhibits and Reports on Form 8-K........................................... 45
Signatures................................................................. 46
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MIRAVANT MEDICAL TECHNOLOGIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
Assets 2003 2002
------------------ -------------------
Current assets: (Unaudited)
Cash and cash equivalents............................................... $ 1,608,000 $ 723,000
Prepaid expenses and other current assets............................... 370,000 531,000
------------------ -------------------
Total current assets....................................................... 1,978,000 1,254,000
Property, plant and equipment:
Vehicles................................................................ 28,000 28,000
Furniture and fixtures.................................................. 1,398,000 1,389,000
Equipment............................................................... 5,524,000 5,531,000
Leasehold improvements.................................................. 2,721,000 3,495,000
------------------ -------------------
9,671,000 10,443,000
Accumulated depreciation................................................ (9,386,000) (9,837,000)
------------------ -------------------
285,000 606,000
Investments in affiliates.................................................. 1,789,000 393,000
Deferred financing costs................................................... 5,146,000 379,000
Patents, net............................................................... 759,000 978,000
Other assets............................................................... 195,000 159,000
------------------ -------------------
Total assets............................................................... $ 10,152,000 $ 3,769,000
================== ===================
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable........................................................ $ 1,643,000 $ 1,361,000
Accrued payroll and expenses............................................ 499,000 628,000
Short-term debt......................................................... -- 5,238,000
------------------ -------------------
Total current liabilities.................................................. 2,142,000 7,227,000
Long-term liabilities:
Convertible debt........................................................ 11,657,000 1,003,000
Long-term debt.......................................................... -- 5,555,000
Sublease security deposits.............................................. 37,000 94,000
------------------ -------------------
Total long-term liabilities................................................ 11,694,000 6,652,000
Stockholders' equity (deficit):
Common stock, 50,000,000 shares authorized; 25,521,430 and 24,225,089 shares
issued and outstanding at September 30, 2003 and December 31, 2002,
respectively.......................................................... 191,004,000 180,255,000
Notes receivable from officers.......................................... (586,000) (570,000)
Deferred compensation and interest...................................... (73,000) (266,000)
Accumulated other comprehensive income.................................. 1,397,000 --
Accumulated deficit..................................................... (195,426,000) (189,529,000)
------------------ -------------------
Total stockholders' equity (deficit)....................................... (3,684,000) (10,110,000)
------------------ -------------------
Total liabilities and stockholders' equity (deficit)....................... $ 10,152,000 $ 3,769,000
================== ===================
See accompanying notes.
MIRAVANT MEDICAL TECHNOLOGIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended September 30, Nine months ended September 30,
2003 2002 2003 2002
----------------- ----------------- ---------------- ----------------
Revenues:
License-contract research and development......... $ -- $ -- $ -- $ 20,000
Bulk active pharmaceutical ingredient sales....... -- -- -- 479,000
----------------- ----------------- ---------------- ----------------
Total revenues...................................... -- -- -- 499,000
Costs and expenses:
Cost of goods sold................................ -- -- -- 479,000
Research and development.......................... 2,342,000 2,114,000 6,075,000 7,338,000
Selling, general and administrative............... 1,281,000 1,797,000 4,232,000 4,483,000
----------------- ----------------- ---------------- ----------------
Total costs and expenses............................ 3,623,000 3,911,000 10,307,000 12,300,000
Loss from operations................................ (3,623,000) (3,911,000) (10,307,000) (12,300,000)
Interest and other income (expense):
Gain on settlement of debt....................... 9,085,000 -- 9,085,000 --
Interest and other income........................ 20,000 29,000 58,000 147,000
Interest expense................................. (4,305,000) (1,000) (4,673,000) (282,000)
Gain (loss) on sale of property, plant and
equipment....................................... -- 10,000 (60,000) 10,000
----------------- ----------------- ---------------- ----------------
Total net interest and other income (expense)....... 4,800,000 38,000 4,410,000 (125,000)
----------------- ----------------- ---------------- ----------------
Net income (loss)................................... $ 1,177,000 $ (3,873,000) $ (5,897,000) $ (11,926,000)
================= ================= ================ ================
Net income (loss) per share - basic................. $ 0.05 $ (0.19) $ (0.24) $ (0.61)
================= ================= ================ ================
Net income (loss) per share - diluted............... $ 0.01 $ (0.19) $ (0.24) $ (0.61)
================= ================= ================ ================
Shares used in computing basic net income (loss)
per share........................................ 24,719,298 20,580,224 24,418,845 19,450,691
================= ================= ================ ================
Shares used in computing diluted net income (loss)
per share........................................ 35,937,631 20,580,224 24,418,845 19,450,691
================= ================= ================ ================
See accompanying notes.
MIRAVANT MEDICAL TECHNOLOGIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited)
Notes Accumulated
receivable Deferred other
Common Stock from compensation comprehensive Accumulated
Shares Amount officers and interest income deficit Total
------------ -------------- ------------- --------------- -------------- -------------- -------------
Balance at December 31, 2002..24,225,089 $ 180,255,000 $ (570,000) $ (266,000) $ -- $(189,529,000) $(10,110,000)
Comprehensive loss:
Net loss.................... -- -- -- -- -- (5,897,000) (5,897,000)
Net change in accumulated
other comprehensive loss.... -- -- -- -- 1,397,000 -- 1,397,000
-------------
Total comprehensive loss..... (4,500,000)
Issuance of stock awards,
option exercises, restricted
stock and ESOP contribution. 906,341 439,000 -- -- -- -- 439,000
Beneficial conversion value.. -- 4,982,000 -- -- -- -- 4,982,000
Issuance of stock to Pharmacia
and related stock and warrant
valuation.................... 390,000 537,000 -- -- -- -- 537,000
Deferred compensation and
deferred interest related
to warrants granted......... -- 4,791,000 -- (118,000) -- -- 4,673,000
Non-cash interest on officer
notes....................... -- -- (47,000) -- -- -- (47,000)
Repayments on officer notes,
net of reserve reduction for
officer notes............... -- -- 31,000 -- -- -- 31,000
Amortization of deferred
compensation................ -- -- -- 311,000 -- -- 311,000
------------ --------------- ------------- --------------- -------------- --------------- -------------
Balance at September 30, 2003.25,521,430 $ 191,004,000 $ (586,000) $ (73,000) $ 1,397,000 $ (195,426,000) $ (3,684,000)
============ =============== ============= =============== ============== =============== =============
See accompanying notes.
MIRAVANT MEDICAL TECHNOLOGIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended September 30,
Operating activities: 2003 2002
------------------- ----------------------
Net loss.......................................................... $ (5,897,000) $ (11,926,000)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization.................................. 455,000 709,000
Amortization of deferred compensation.......................... 311,000 324,000
(Gain) loss on sale of equipment............................... 60,000 (10,000)
Reserve and write-off of patents............................... 267,000 --
Stock awards, restricted stock and ESOP contribution........... 442,000 30,000
Gain on settlement of short-term debt.......................... (9,085,000) --
Non-cash interest and amortization of deferred
financing costs on long-term debt............................ 4,648,000 316,000
Provision for employee and officer loans, net of non-cash
interest on officer loans (17,000) 883,000
Changes in operating assets and liabilities:
Accounts receivable......................................... -- 5,030,000
Prepaid expenses, inventories and other assets.............. 126,000 110,000
Accounts payable and accrued payroll........................ 95,000 (1,703,000)
------------------- ----------------------
Net cash used in operating activities............................. (8,595,000) (6,237,000)
Investing activities:
Purchases of marketable securities ............................... -- (46,951,000)
Proceeds from sales of marketable securities ..................... -- 51,605,000
Purchases of patents.............................................. (123,000) (228,000)
Purchases of property, plant and equipment........................ (119,000) 65,000
------------------- ----------------------
Net cash (used in) provided by investing activities............... (242,000) 4,491,000
Financing activities:
Proceeds from promissory notes, net............................... 10,952,000 2,427,000
Payment on short-term debt........................................ (1,230,000) --
Advances of note to officer....................................... -- (155,000)
------------------- ----------------------
Net cash provided by financing activities......................... 9,722,000 2,272,000
Net decrease in cash and cash equivalents......................... 885,000 526,000
Cash and cash equivalents at beginning of period.................. 723,000 1,458,000
------------------- ------------------------
Cash and cash equivalents at end of period........................ $ 1,608,000 $ 1,984,000
=================== ======================
Supplemental disclosures:
Cash paid for:
State taxes..................................................... $ 3,000 $ 3,000
=================== ======================
Interest ....................................................... $ 250,000 $ 1,000
=================== ======================
See accompanying notes.
MIRAVANT MEDICAL TECHNOLOGIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The information contained herein has been prepared in accordance with Rule
10-01 of Regulation S-X. The information at September 30, 2003 and for the
three and nine month periods ended September 30, 2003 and 2002, is
unaudited. In the opinion of management, the information reflects all
adjustments necessary to make the results of operations for the interim
periods a fair statement of such operations. All such adjustments are of a
normal recurring nature. Interim results are not necessarily indicative of
results for a full year. For a presentation including all disclosures
required by accounting principles generally accepted in the United States,
these condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements for the year
ended December 31, 2002 included in the Miravant Medical Technologies
Annual Report on Form 10-K filed with the Securities and Exchange
Commission.
The accompanying condensed 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. The
Company's independent auditors, Ernst & Young LLP, have indicated in their
report accompanying the December 31, 2002 consolidated financial statements
that, based on generally accepted auditing standards, the Company's
viability as a going concern is in question. Through September 30, 2003,
the Company had an accumulated deficit of $195.4 million and expects 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 a New Drug
Application, or NDA, and related follow-up expenses, the funding of
preclinical studies, clinical trials and regulatory activities and the
costs of manufacturing and administrative activities. The Company also
expects these operating losses to fluctuate relative to its ability to fund
the research and development programs as well as the operating expenses of
the Company.
The Company is continuing its scaled back efforts in research and
development and the preclinical studies and clinical trials of its
products. These efforts, along with the cost of preparing an NDA for SnET2,
obtaining requisite regulatory approval, and commencing
pre-commercialization activities prior to receiving regulatory approval,
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 the Company's cost
structure. In August 2003, the Company entered into a Convertible Debt and
Warrant Purchase Agreement, or the 2003 Debt Agreement, with a group of
private accredited investors, who are referred to in this report as the
Investors, pursuant to which the Company issued securities to the Investors
in exchange for gross proceeds of $6.0 million. Under the 2003 Debt
Agreement, the debt can be converted, at the Investors' option, at $1.00
per share into the Company's Common Stock and is due August 2006 if not
converted earlier or paid early under the prepayment or default provisions.
In addition, in December 2002, the Company entered into a $12.0 million
Convertible Debt and Warrant Agreement, or 2002 Debt Agreement, with a
group of private accredited investors, who are referred to in this report
as the 2002 Lenders. The 2002 Debt Agreement, as amended, provides the
Company the ability to borrow up to $1.0 million per month through June
2004, not to exceed $12.0 million. The monthly borrowing request can be
limited if certain requirements are not met or are not satisfactory to the
2002 Lenders. As of November 10, 2003, the Company had borrowed $6.3
million under the 2002 Debt Agreement. Executive management believes the
Company can raise additional funding to support operations through
corporate collaborations or partnerships, through the sale of certain of
the Company's investments, licensing of SnET2 or new products and
additional equity or debt financings prior to December 31, 2003. If
additional funding is not available when required, the Company's executive
management believes that as long as the Company receives the remaining $5.7
million available to the Company under the 2002 Debt Agreement and the
Company's debt is not accelerated, then the Company has the ability to
conserve cash required for operations through June 30, 2004 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. However, there can be no
assurance that the Company will receive the remaining $5.7 million under
the 2002 Debt Agreement, if certain requirements are not met or are not
satisfactory to the 2002 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.
The preparation of condensed 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 condensed consolidated financial statements and
the accompanying notes. Actual results may differ from those estimates and
such differences may be material to the condensed consolidated financial
statements.
2. Comprehensive Loss
For the nine months ended September 30, 2003 and 2002, comprehensive loss
amounted to approximately $4.5 million and $12.2 million, respectively. The
difference between net loss and comprehensive loss relates to the change in
the unrealized loss or gain the Company recorded for its available-for-sale
securities on its investment in Xillix Technologies Corp.
3. Per Share Data
Basic income (loss) per common share is computed by dividing the net income
(loss) by the weighted average shares outstanding during the period.
Diluted earnings (loss) per share reflect the potential dilution that would
occur if securities or other contracts to issue common stock were exercised
or converted to common stock. The following table sets forth the
computation of basic and diluted net income (loss) per share for the three
and nine month periods ended September 30, 2003 and 2002:
Three months ended Nine months ended
September 30, September 30,
2003 2002 2003 2002
---------------- -------------------- ------------------ -----------------
Numerator:
Net income (loss)......................... $ 1,177,000 $ (3,873,000) $ (5,897,000) $ (11,926,000)
Interest expense on convertible debt.... 341,000 -- -- --
Accelerated amortization on
beneficial conversion value........... (1,022,000) -- -- --
---------------- ----------------- ------------------ ------------------
Numerator for diluted net income
(loss) per share....................... $ 496,000 $ (3,873,000) $ (5,897,000) $ (11,926,000)
Denominator:
Denominator for basic net income (loss)
per share-weighted average shares...... 24,719,298 20,580,224 24,418,845 19,450,691
Dilutive potential common shares from
employee stock options and stock
awards................................. 786,976 -- -- --
Dilutive potential common shares from
warrants............................... 1,708,357 -- -- --
Dilutive potential common shares from
conversion of convertible debt........ 8,723,000 -- -- --
---------------- ----------------- ------------------ ------------------
Denominator for diluted net income (loss)
per share-weighted average shares and
assumed conversions.................... 35,937,631 20,580,224 24,418,845 19,450,691
---------------- ----------------- ------------------ ------------------
Basic net income (loss) per share $ 0.05 $ (0.19) $ (0.24) $ (0.61)
================ ================= ================== ==================
Diluted net income (loss) per share $ 0.01 $ (0.19) $ (0.24) $ (0.61)
================ ================= ================== ==================
Since the effect of the assumed exercise of common stock options and other
convertible securities was anti-dilutive, for the three months ended
September 30, 2002 and for the nine months ended September 30, 2003 and
2002, basic and diluted loss per share as presented on the condensed
consolidated statements of operations are the same.
4. Pharmacia Debt Settlement
In August 2003, the Company entered into a Termination and Release
Agreement with Pharmacia AB, a wholly owned subsidiary of Pfizer, Inc., or
Pharmacia, that provides, among other things, for the settlement of the
$10.6 million debt owed by the Company to Pharmacia and the release of the
related security collateral, in exchange for a $1.0 million cash payment,
390,000 shares of the Company's Common Stock and the adjustment of the
exercise price of Pharmacia's outstanding warrants to purchase shares of
the Company's Common Stock. Additionally, the Company has extended the
expiration date of the warrants to December 31, 2005. As a result, as of
the date of this report, Pharmacia has warrants to purchase an aggregate of
360,000 shares of the Company's Common Stock at an exercise price of $1.00
per share. The Company recorded a net gain on settlement of debt in the
condensed consolidated statements of operations as part of interest and
other income/(expense) as follows:
Outstanding debt as of August 28, 2003.............................. $ 10,622,000
Less: Fair market value of 390,000 shares
(Issued at $0.99 per share, or fair market value,
on August 28, 2003)....................................... (386,000)
Repriced warrant valuation (using a Black-Scholes value
of $0.42 per share for the purchase of 360,000 shares at
$1.00 per share)........................................... (151,000)
Cash payment to Pharmacia.................................. (1,000,000)
-------------
Net gain on settlement of debt......... $ 9,085,000
===============
In October 2003, the Company registered 750,000 shares of Common Stock for
the benefit of Pharmacia, including 360,000 shares underlying the warrants.
The Company paid the $1.0 million cash payment to Pharmacia from the
proceeds from the 2003 Debt Agreement as described below.
5. Convertible Debt Agreements
2003 Convertible Debt Agreement
In August 2003, the Company entered into a Convertible Debt and Warrant
Purchase Agreement, or the 2003 Debt Agreement, pursuant to which the
Company issued securities to the Investors in exchange for gross proceeds
of $6.0 million. Under the 2003 Debt Agreement, the debt can be converted,
at the Investors' option after registration of the underlying stock, at
$1.00 per share into the Company's Common Stock. The Company issued
separate convertible promissory notes, which are referred to as the 2003
Notes, to each Investor and the 2003 Notes earn interest at 8% per annum
and are due August 28, 2006, unless converted earlier or paid early under
the prepayment or default provisions. The interest on each 2003 Note is due
quarterly beginning October 1, 2003 and can be paid in cash or in-kind at
the Company's option. Under certain circumstances each 2003 Note can be
prepayment by the Company prior to the maturity date or prior to
conversion. The 2003 Notes also have certain default provisions which can
cause the 2003 Notes to become accelerated and due immediately upon notice
by the Investors. One of these provisions requires that our NDA for SnET2
is filed by December 31, 2003. From the proceeds of the 2003 Debt
Agreement, the Company repaid $250,000 in a short-term bridge loan and $1.0
million to retire the Pharmacia debt, as described above. In addition, the
Company made its first quarterly interest payment due on October 1, 2003 in
cash in the amount of $44,000.
In connection with the 2003 Notes, the Company also issued to the Investors
warrants to purchase an aggregate of 4,500,000 shares of the Company's
Common Stock. Each Investor received two warrants. The first warrant is for
the purchase of one-half (1/2) of a share of the Company's Common Stock for
every $1.00 of principal under the 2003 Debt Agreement. The second warrant
is for the purchase of one-quarter (1/4) of a share of the Company's Common
Stock for every $1.00 of principal under the 2003 Debt Agreement. The
exercise price of each warrant is $1.00 per share and the warrants will
terminate on August 28, 2008, unless previously exercised. The Company can
force the exercise of the one-quarter (1/4) share warrant under certain
circumstances.
In October 2003, the Company registered the 4,500,000 shares of Common
Stock underlying the convertible promissory notes, the 3,375,000 shares of
Common Stock underlying the warrants and the 480,000 shares of Common Stock
that may be used for payment of quarterly interest payments. The remaining
conversion shares and warrants shares are expected to be registered at some
time in the future.
The warrants issued related to the 2003 Debt Agreement were valued using a
Black-Scholes valuation. The value of these warrants were determined to be
$2.8 million which were recorded as deferred financing costs and are being
amortized over the term of the underlying convertible promissory notes,
which is three years. For the period ended September 30, 2003, the Company
recorded amortization expense of $77,000 related to the deferred financing
costs associated with the warrant valuation, which is included in interest
expense in the condensed consolidated statement of operations.
Additionally, under the Emerging Issues Task Force, or EITF, No. 98-5, the
Company was required to determine the beneficial conversion value for the
2003 Notes and related warrants issued. The beneficial conversion value
represents the difference between the fair value of the Company's 2003
Notes as of the date of issuance and the intrinsic value, which is the
value of the 2003 Notes as converted and value of the detachable warrants
issued, as described above. If the intrinsic value of the 2003 Notes
exceeds the fair value of the 2003 Notes, then a beneficial conversion
value is determined to have been received by the securityholders. Any
beneficial conversion value determined is recorded as equity and a
reduction to the convertible debt outstanding, which is subsequently
amortized to interest expense. The beneficial conversion value was
calculated as follows:
Intrinsic value of the 2003 Notes converted to Common Stock at
$1.00 per share............................................................ $ 6,000,000
Detachable warrant valuation (using a Black-Scholes value of
$0.616 per share for the purchase of 4,500,000 shares at $1.00 per share).. 2,772,000
----------
Intrinsic value of the 2003 Notes and detachable warrants.................... 8,772,000
Less stated value of the 2003 Notes.......................................... (6,000,000)
-----------
Beneficial conversion value.............. $ 2,772,000
===========
The beneficial conversion value is amortized over the period from the date
of note issuance to the period of first available note conversion. Since
approximately 75% of the conversion shares of the 2003 Notes can be
converted into registered Common Stock, the Company fully amortized $2.1
million of the beneficial conversion value as of September 30, 2003. The
remaining 25% of the conversion shares of the 2003 Notes are currently not
registered and are expected to be registered no later than June 2004. As
such, the remaining $693,000 of the beneficial conversion value is being
amortized over 10 months, for the period from September 2003 through June
2004, or $69,000 per month. Therefore, for the period ended September 30,
2003 the Company recorded total amortization expense of $2.1 million
related to the beneficial conversion value of the 2003 Notes, which is
included in interest expense in the condensed consolidated statement of
operations.
In connection with the execution of the 2003 Debt Agreement, certain of the
2002 Lenders, to whom the Company issued notes under the 2002 Debt
Agreement, agreed to subordinate their debt security position to that of
the new Investors. In exchange for the subordinated security position, the
2002 Lenders received additional warrants to purchase an aggregate of
1,575,000 shares of the Company's Common Stock at an exercise price of
$1.00 per share, and these additional warrants will terminate on August 28,
2008, unless previously exercised. Additionally, under the anti-dilution
provision of the 2002 Debt Agreement, the conversion price of the five
notes issued thereunder to the 2002 Lenders during the period February 2003
through July 2003 was reduced to $1.00 and the exercise price of the
related warrants issued to the 2002 Lenders during the same period was
reduced to $1.00 per share. The Company determined the value of these
additional warrants to be $970,000, using a Black-Scholes valuation, and is
amortizing these deferred financing costs over the term of the underlying
convertible promissory notes, or December 31, 2008. For the period ended
September 30, 2003, the Company recorded amortization expense of $15,000
related to the deferred financing costs of these additional warrants, which
is included in interest expense in the condensed consolidated statement of
operations.
In addition, since additional warrants were issued to the 2002 Lenders, the
conversion price of the 2002 Notes was lowered to $1.00 and the exercise
price of the existing warrants related to the 2002 Notes was also lowered
to $1.00 per share, there was a beneficial conversion value for the 2002
Debt Agreement, measured upon the closing of the 2003 Debt Agreement. The
beneficial conversion value was calculated as follows:
Intrinsic value of the 2002 Notes converted to Common Stock at
$1.00 per share............................................................ $ 6,300,000
Detachable warrant valuation (using a Black-Scholes value of
$0.616 per share for the purchase of 1,575,000 shares at $1.00 per share
plus the net book value of the existing repriced warrants for the
purchase of 1,750,000 shares)............................................. 2,210,000
----------
Intrinsic value of the 2002 Notes and detachable warrants.................... 8,510,000
Less stated value of the 2002 Notes.......................................... (6,300,000)
-----------
Beneficial conversion value.............. $ 2,210,000
===========
The beneficial conversion value is amortized over the period from the date
of note issuance to the period of first available note conversion. Since
approximately 80% of the conversion shares of the 2002 Notes can be
converted into registered Common Stock, the Company fully amortized $1.8
million of the beneficial conversion value as of September 30, 2003. The
remaining 20% of the conversion shares of the 2002 Notes are currently not
registered and are expected to be registered no later than June 2004. As
such, the remaining $442,000 of the beneficial conversion value is being
amortized over 10 months, or the period from September 2003 through June
2004, or $44,000 per month. Therefore, for the period ended September 30,
2003 the Company recorded total amortization expense of $1.8 million
related to the beneficial conversion value of the 2002 Notes, which is
included in interest expense in the condensed consolidated statement of
operations.
December 2002 Convertible Debt Agreement
In December 2002, the Company entered into the 2002 Debt Agreement with the
2002 Lenders. The 2002 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 under the 2002 Debt Agreement is
$12.0 million with the last available borrowing in June 2004, as amended.
The Company has borrowed $6.3 million through September 30, 2003 which is
convertible into 6,361,856 shares of the Company's Common Stock, as
adjusted. The 2002 Lenders' obligation to fund each borrowing request is
subject to material conditions described in the 2002 Debt Agreement, as
amended. In addition, the 2002 Lenders may terminate its obligations under
the 2002 Debt Agreement if: (i) Miravant has not filed an NDA by March 31,
2004, (ii) such filing has been rejected by the U.S. Food and Drug
Administration, or FDA, or (iii) Miravant, in the reasonable judgment of
the 2002 Lenders, is not meeting its business objectives.
In connection with the 2002 Debt Agreement, the 2002 Lenders withhold from
each borrowing a 3% drawdown fee and the Company issues to the 2002 Lenders
a warrant to purchase three-quarter (3/4) of a share of the Company's
Common Stock for every $1.00 borrowed, as amended. The exercise price of
each warrant will be equal to the average of the closing prices of
Miravant's Common Stock for the ten (10) trading days preceding the date of
the borrowing, as amended. In addition, upon execution of the 2002 Debt
Agreement the Company issued to the 2002 Lenders a warrant to purchase
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 to the 2002
Lenders certain registration rights in connection with this transaction, of
which 4,799,530 shares underlying the convertible promissory notes and
1,750,000 shares underlying the warrants have been registered.
For the months of December 2002 and January 2003, the Company received
borrowings totaling $2.0 million and issued related notes with a conversion
price of $0.97. For the months of February through July, the Company
received borrowings totaling $4.3 million and issued related notes with a
conversion price of $1.00, as adjusted. The Company also issued six
warrants for the purchase of 250,000 shares per warrant with an exercise
price of $1.00, as adjusted, and one warrant for the purchase of 75,000
with an exercise price of $1.00, as adjusted. As of September 30, 2003, the
Company has borrowed a total of $6.3 million which is convertible into
6,361,856 shares of the Company's Common Stock, as adjusted, and has
accrued interest of $335,000 which is also convertible. For the nine months
ended September 30, 2003, the Company has recorded amortization expense of
$127,000 related to the deferred financing costs for these warrant from
2002 Debt Agreements, which is included in interest expense in the
condensed consolidated statement of operations.
6. Stock-Based Compensation
Statement of Financial Accounting Standard, 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. 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.
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:
Three months ended September 30, Nine months ended September 30,
2003 2002 2003 2002
----------------- ------------------- ---------------- -------------------
Net income (loss) as reported $ 1,177,000 $ (3,873,000) $ (5,897,000) $ (11,926,000)
Stock-based employee stock option cost included
in reported net loss -- 134,000 -- 269,000
Pro forma stock-based employee compensation
cost under SFAS No. 123 (183,000) (687,000) (627,000) (2,165,000)
----------------- ------------------- ---------------- -------------------
Pro forma net income (loss) - basic $ 994,000 $ (4,426,000) $ (6,524,000) $ (13,822,000)
----------------- ------------------- ---------------- -------------------
Interest expense on convertible debt 341,000 -- -- --
Accelerated amortization on beneficial
conversion value (1,022,000) -- -- --
----------------- ------------------- ---------------- -------------------
Pro forma net income (loss) - diluted $ 496,000 $ (4,426,000) $ (6,524,000) $ (13,822,000)
----------------- ------------------- ---------------- -------------------
As reported:
Net income (loss) per share - basic $ 0.05 $ (0.19) $ (0.24) $ (0.61)
================= =================== ================ ===================
Net income (loss) per share - diluted $ 0.01 $ (0.19) $ (0.24) $ (0.61)
================= =================== ================ ===================
Pro forma:
Net income (loss) per share - basic $ 0.04 $ (0.21) $ (0.27) $ (0.71)
================= =================== ================ ===================
Net income (loss) per share - diluted $ 0.01 $ (0.21) $ (0.27) $ (0.71)
================= =================== ================ ===================
7. New Accounting Pronouncements
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity."
This Statement establishes standards for classifying and measuring as
liabilities certain financial instruments that embody obligations of the
issuer and have characteristics of liabilities and equity. SFAS No. 150 is
effective for all financial instruments created or modified after May 31,
2003, and otherwise effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of SFAS No. 150 did not have a
material impact on the Company's consolidated results of operations or
consolidated financial position.
8. Reclassifications
Certain reclassifications have been made to the 2002 condensed consolidated
financial statements to conform to the current period presentation.
9. Subsequent Events
Extension of 2002 Debt Agreement
In November 2003, the Company amended certain terms of the 2002 Debt
Agreement as follows:
* Extended the term of the available borrowings to June 2004;
* Adjusted the warrant shares to be received for each future
borrowing to three-quarter (3/4) share per $1.00 of principal
borrowed;
* Adjusted the conversion price of notes to be issued for each
future borrowing and the exercise price of the related warrants
to be equal to the average of the closing prices of Miravant's
Common Stock for the ten (10) trading days preceding the date of
the borrowing;
* Extended the date to file the NDA to March 31, 2004; and
* Provide to the 2002 Lenders the right to receive the same
accommodations as may be provided in the future to the Investors
of the 2003 Debt Agreement.
The remaining terms of the 2002 Debt Agreement remained unchanged.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This section of the Quarterly Report on Form 10-Q 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 which are based on our current
beliefs, expectations and assumptions and are subject to a number of risks and
uncertainties, including but not limited to statements regarding our general
beliefs concerning the efficacy and potential benefits of photodynamic therapy;
our ability to raise funds to continue operations; the timing and our ability to
complete 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 continue to receive the $1.0 million
monthly borrowings through June 2004, not to exceed $12.0 million, under the
December 2002 Convertible Debt Agreement, as amended, or the 2002 Debt
Agreement; our ability to meet the covenants of the August 2003 Convertible Debt
and Warrant Purchase Agreement, or the 2003 Debt Agreement; our ability to
resolve any issues or 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 but not limited to: failure to obtain additional funding timely, if at
all; we may be unable to continue borrowing under the 2002 Debt Agreement if we
fail to meet certain requirements or if these requirements are not met to the
satisfaction of the 2002 Lenders; we are likely to default on our 2003 Debt
Agreement if we fail to meet the covenants or obtain waivers where necessary;
unanticipated complexity or difficulty preparing and completing the NDA filing
for SnET2; 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, 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 see "Risk Factors."
The following discussion should be read in conjunction with the Condensed
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(R) PDT,
our proprietary technologies for photodynamic therapy. We have been unprofitable
since our founding and have incurred a cumulative net loss of approximately
$195.4 million as of September 30, 2003. 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 a New Drug
Application, or 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 our research and development
programs as well as our operating expenses.
We are continuing our scaled back efforts in research and development and
the preclinical studies and clinical trials of our products. These efforts,
along with the cost of preparing an NDA for SnET2, obtaining requisite
regulatory approval, and commencing pre-commercialization activities prior to
receiving regulatory approval, 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 August 2003, we entered into a Convertible Debt
and Warrant Purchase Agreement, or the 2003 Debt Agreement, with a group of
private accredited investors, who are referred to in this report as the
Investors, pursuant to which we issued securities to the Investors in exchange
for gross proceeds of $6.0 million. Under the 2003 Debt Agreement, the debt can
be converted, at the Investors' option, at $1.00 per share into our Common Stock
and is due August 2006 if not converted earlier or paid early under the
prepayment or default provisions. In addition, in December 2002, we entered into
a $12.0 million Convertible Debt and Warrant Agreement, or 2002 Debt Agreement,
with a group of private accredited investors, who are referred to in this report
as the 2002 Lenders. The 2002 Debt Agreement, as amended, provides us the
ability to borrow up to $1.0 million per month through June 2004, not to exceed
$12.0 million. The monthly borrowing request can be limited if certain
requirements are not met or are not satisfactory to the 2002 Lenders. As of
November 10, 2003 we had borrowed $6.3 million under the 2002 Debt Agreement.
Executive management believes we can raise additional funding to support
operations through corporate collaborations or partnerships, through the sale of
certain of our investments, licensing of SnET2 or new products and additional
equity or debt financings prior to December 31, 2003. If additional funding is
not available when required, executive management believes that as long as we
receive the remaining $5.7 million available to us under the 2002 Debt Agreement
and our debt does not go into default and become immediately due, then we have
the ability to conserve cash required for operations through June 30, 2004 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. However, there can be
no assurance that we will receive the remaining $5.7 million under the 2002 Debt
Agreement, if certain requirements are not met or are not satisfactory to the
2002 Lenders and there is no guarantee that we will be successful in obtaining
additional financing or that financing will be available on favorable terms.
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 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 or revenues 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 SnET2 expected to be filed in the first quarter
of 2004, our ability to re-license SnET2 and establish new collaborative
partnerships in ophthalmology and cardiovascular disease 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. Based on the above
mentioned factors, among others, we anticipate our operating activities will
require significant expenditures and result in substantial, and possibly
increasing, operating losses for the next few years.
In August 2003, we entered into the 2003 Debt Agreement, pursuant to which
we issued securities to the Investors in exchange for gross proceeds of $6.0
million. Under the 2003 Debt Agreement, the debt can be converted, at the
Investors' option after the registration of the underlying stock, at $1.00 per
share into our Common Stock. We issued separate convertible promissory notes,
which are referred to as the 2003 Notes, to each Investor and the 2003 Notes
earn interest at 8% per annum and are due August 28, 2006, unless converted
earlier or paid early under the prepayment or default provisions. The interest
on each 2003 Note is due quarterly beginning October 1, 2003 and can be paid in
cash or in-kind at our option. Under certain circumstances each 2003 Note can be
prepaid by us prior to the maturity date or prior to conversion. The 2003 Notes
also have certain default provisions which can cause the 2003 Notes to become
accelerated and due immediately upon notice by the Investors. One of these
provisions requires that our NDA for SnET2 is filed by December 31, 2003. We do
not expect that the NDA will be filed by December 31, 2003, and therefore may
need to obtain a waiver from the Investors in order to avoid an event of default
under the 2003 Debt Agreement if the notes are not converted or prepaid before
the default notice is received. If we do not obtain the waiver prior to December
31, 2003, it is likely we will be in default and the Investors may accelerate
the 2003 Notes and give us notice that the 2003 Notes are immediately due. If
the 2003 Notes are declared to be due prior to their scheduled maturity date, it
is unlikely we will be able to repay these notes and it may force us to
significantly reduce or cease operations or negotiate unfavorable terms for
repayment.
In connection with the 2003 Debt Agreement, we also issued to the Investors
warrants to purchase an aggregate of 4,500,000 shares of our Common Stock. Each
Investor received two warrants. The first warrant is for the purchase of
one-half (1/2) of a share of our Common Stock for every $1.00 principal amount
of debt under the 2003 Debt Agreement. The second warrant is for the purchase of
one-quarter (1/4) of a share of our Common Stock for every $1.00 principal
amount of debt under the 2003 Debt Agreement. The exercise price of each warrant
is $1.00 per share and the warrants will terminate on August 28, 2008, unless
previously exercised. We can force the exercise of the one-quarter share warrant
under certain circumstances. In accordance with the registration rights related
to the 2003 Debt Agreement, in October 2003 we registered, as required, certain
shares underlying the convertible promissory notes and the shares underlying the
warrants for certain note holders.
In connection with the execution of the 2003 Debt Agreement, certain of the
2002 Lenders, to whom we issued notes to under our 2002 Debt Agreement, as
described below, agreed to subordinate their debt security position to that of
the new Investors. In exchange for the subordinated security position, the 2002
Lenders received additional warrants to purchase an aggregate of 1,575,000
shares of our Common Stock at an exercise price of $1.00 per share, and these
additional warrants will terminate on August 28, 2008, unless previously
exercised. Additionally, under the anti-dilution provision of the 2002 Debt
Agreement, the conversion price of the five notes issued thereunder to the 2002
Lenders during the period February 2003 through July 2003 was reduced to $1.00
and the exercise price of the related warrants issued to the 2002 Lenders during
the same period was reduced to $1.00 per share.
In December 2002, we entered into the 2002 Debt Agreement with the 2002
Lenders. The 2002 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 under the 2002 Debt Agreement is $12.0 million with the
last available borrowing in June 2004, as amended. The 2002 Lenders' obligation
to fund each borrowing request is subject to material conditions described in
the 2002 Debt Agreement, as amended. In addition, the 2002 Lenders may terminate
its obligations under the 2002 Debt Agreement if: (i) Miravant has not filed an
NDA by March 31, 2004, (ii) such filing has been rejected by the U.S. Food and
Drug Administration, or FDA, or (iii) Miravant, in the reasonable judgment of
the 2002 Lenders, is not meeting its business objectives.
In connection with the 2003 Debt Agreement, we entered into a Termination
and Release Agreement with Pharmacia AB, a wholly owned subsidiary of Pfizer,
Inc., or Pharmacia, that provides, among other things, for the settlement of the
$10.6 million debt owed by us to Pharmacia and the release of the related
security collateral, in exchange for a $1.0 million cash payment, 390,000 shares
of our Common Stock and the adjustment of the exercise price of Pharmacia's
outstanding warrants to purchase shares of our Common Stock. Additionally, we
extended the expiration date of the warrants to December 31, 2005. As a result,
as of the date of this report, Pharmacia has warrants to purchase an aggregate
of 360,000 shares of our Common Stock at an exercise price of $1.00 per share.
The $1.0 million cash payment to Pharmacia was made from the proceeds from the
2003 Debt Agreement.
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 rights to SnET2 as well as the related data and
assets from the 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. We are currently
in the process of preparing the NDA filing and expect to have it completed and
filed by the first quarter of 2004. In addition, we are currently seeking a new
collaborative partner for PhotoPoint PDT in ophthalmology.
We were delisted by Nasdaq on July 11, 2002 and our Common Stock began
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. Our management
continues to review our ability to regain our listing status with Nasdaq,
however, there are no assurances we will be able to raise the additional capital
needed or to increase the current trading price of our Common Stock or meet the
other requirements to allow us to be relisted on 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 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 we obtain 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 has been expanded
to include additional patients. 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 with new photoselective drugs
for cardiovascular diseases, in particular for the prevention and treatment of
vulnerable plaque and restenosis. Vulnerable plaque, or VP, is an unstable,
rupture-prone inflammation 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, our corporate
activities, financial considerations, and other factors, we may prepare an
Investigational New Drug application, or IND, in cardiovascular disease for
MV0633 or existing photoselective drugs. The timing of the IND is dependent on
numerous factors including preclinical results, available funding and personnel.
We are currently pursuing various potential strategic partners in the field of
cardiovascular disease. There are no guarantees that potential strategic
partners will enter into a license agreement or provide us with any potential
funding to advance our research and development programs.
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.
Depending on the results of our discussions with potential corporate partners in
this area, as well as financial considerations 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 PhotoPoint PDT to
destroy abnormal blood vessels in tumors. We are pursuing this tumor research
with some of our photoselective drugs and also investigating combination
therapies using PhotoPoint PDT with other types of compounds.
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" is forward-looking in nature and 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 our 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 Q1 2004
New drug compounds Research studies Completed
Dermatology Psoriasis (MV9411) Phase II 2004
Cardiovascular VP and Restenosis (MV0633
disease and other 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 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 elect or be able to further
develop PhotoPoint PDT procedures in ophthalmology, cardiovascular disease,
dermatology, oncology or in any other indications.
Results of Operations
Revenues. For the three months ended September 30, 2003 and September 30,
2002, we had no revenues. For the nine months ended September 30, 2003, we had
no revenues compared to $499,000 for the nine months ended September 30, 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. In 2002, we recorded revenue of $479,000 related
to the newly manufactured bulk API inventory. There were no bulk API sales for
the nine months ended September 30, 2003 and there will be no future bulk API
sales under this agreement as it has been terminated.
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 $20,000 for the nine months ended September 30,
2002 to no reimbursement income for the nine months ended September 30, 2003.
The decrease in license income is specifically related to the termination of the
Pharmacia relationship. Reimbursements received during the nine months ended
September 30, 2002 were primarily for costs incurred to complete preclinical
studies for AMD.
We will receive no further reimbursements from Pharmacia related to any of
our ongoing preclinical studies and clinical trials. We expect that any future
revenue will likely be related to new collaborative agreements, and royalties or
revenues from drug and device sales upon regulatory approval and subsequent
commercial sales, if any.
Cost of API Sales. 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 nine months ended September 30, 2002.
The amounts recorded as cost of API sales represent the costs incurred for only
the newly manufactured bulk API in first quarter 2002. No cost of API sales were
incurred for the three and nine months ended September 30, 2003 and no further
cost of API sales are expected until regulatory approval is received and
commercial sales commence.
Research and Development. Research and development costs are expensed as
incurred. Research and development expenses are comprised of direct and indirect
costs. Direct costs consist of preclinical studies, clinical trials and related
clinical drug and device development and manufacturing costs, drug formulation
expenses, 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
increased to $2.3 million for the three months ended September 30, 2003 from
$2.1 million for the same period in 2002. Our research and development expenses
decreased to $6.1 million for the nine months ended September 30, 2003 from $7.3
million for the same period in 2002. The slight increase for the three month
period ended September 30, 2003 compared to the prior period related directly to
an increase in the ongoing cost of the preparation of the NDA for SnET2. The
overall decrease in research and development expenses for the nine month period
ended September 30, 2003 compared to the prior period is specifically related to
the overall reduction of our research and development activities in 2003 to
focus on the NDA preparation and due to the reduction in our indirect costs due
to employee attrition and facility downsizing. Our research and development
expenses, net of license reimbursement, were $2.3 million for the three months
ended September 30, 2003 and $2.1 million for the same period in 2002. Our
research and development expenses, net of license reimbursement, were $6.1
million for the nine months ended September 30, 2003 and $7.3 million for the
same period in 2002. Research and development expenses for the three and nine
months ended September 30, 2002 and 2003 related primarily to payroll, payroll
taxes, employee benefits and allocated operating costs. Additionally, we
incurred research and development expenses for:
* Costs incurred to prepare the NDA for AMD;
* Work associated with the development of new devices, delivery systems,
drug compounds and formulations for the dermatology and cardiovascular
programs; and
* Preclinical studies and clinical trial costs for our Phase II
dermatology program.
As previously disclosed, we have four research and development programs
which we have focused our 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 research and
development costs for specific programs represent the direct costs incurred. The
direct research and development costs by program are as follows:
Three months ended September 30, Nine months ended September 30,
-------------------------------- ---------------------------------------- --------------------------------------
Program 2003 2002 2003 2002
-------------------------------- ---------------- -------------------- ---------------- ------------------
Direct costs:
Ophthalmology.............. $ 507,000 $ 61,000 $ 1,063,000 $ 195,000
Dermatology................ 34,000 33,000 236,000 291,000
Cardiovascular disease..... 6,000 188,000 266,000 1,025,000
Oncology................... -- 17,000 15,000 39,000
---------------- -------------------- ---------------- ------------------
Total direct costs.............. $ 547,000 $ 299,000 $ 1,580,000 $ 1,550,000
Indirect costs ................. 1,795,000 1,815,000 4,495,000 5,788,000
---------------- -------------------- ---------------- ------------------
Total research and development
costs........................... $ 2,342,000 $ 2,114,000 $ 6,075,000 $ 7,338,000
================ ==================== ================ ==================
Ophthalmology. For the nine months ended September 30, 2003 our direct
ophthalmology program costs have increased to $1.1 million from $195,000 for the
nine months ended September 30, 2002. For the three months ended September 30,
2003 our direct ophthalmology program costs have increased to $507,000 from
$61,000 for the three months ended September 30, 2002. Costs incurred for the
ophthalmology program over the last few years 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, drug and device development and manufacturing costs and preparation
costs for the NDA. The costs incurred and the increase for the three and nine
month periods ended September 30, 2003 are specifically related to the
preparation of the NDA filing for SnET2 in AMD compared to minimal ophthalmology
activities for the same period in 2002.
Dermatology. For the nine months ended September 30, 2003 our direct
dermatology program costs decreased to $236,000 from $291,000 for the nine
months ended September 30, 2002. For the three months ended September 30, 2003
our direct dermatology program costs have slightly increased to $34,000 from
$33,000 for the same period in 2002. Costs incurred in the dermatology program
include expenses for drug development and drug formulation, internal and
external preclinical study costs, and Phase II clinical trial expenses. The
increase for the three months ended September 30, 2003 as compared to 2002 is
due to the ongoing cost of the cost of the Phase II clinical trial.
Cardiovascular Disease. For the nine months ended September 30, 2003 our
direct cardiovascular disease program costs decreased to $266,000 from
$1,025,000 for same period in 2002. For the three months ended September 30,
2003 our direct cardiovascular disease program costs have decreased to $6,000
from $188,000 for the same period in 2002. Our cardiovascular disease program
costs include expenses for the development of new drug compounds and light
delivery devices, drug formulation costs, drug and device manufacturing expenses
and internal and external preclinical study costs. The decrease from 2002 to
2003 is related to the reduction in expenditures utilized to progress the
program until some funding is available. In 2002 the costs incurred related to
ongoing preclinical studies, as well as the development and manufacturing
activities for drugs and devices used in the preclinical studies and in
preparation for future clinical trials.
Oncology. For the nine months ended September 30, 2003 our direct oncology
program costs have decreased to $15,000 from $39,000 for the same period in
2002. For the three months ended September 30, 2003, there were no direct
oncology program costs incurred compared to $17,000 for the same period in 2002.
Our oncology program costs have primarily consisted of costs for internal and
external preclinical studies and expenses for the early development of new drug
compounds. The decrease in oncology program costs from 2002 to 2003 is related
to our decision to focus on discovery and research programs for use of
PhotoPoint PDT in oncology, rather than focus on development programs.
Indirect Costs. For the nine months ended September 30, 2003 our indirect
costs have decreased to $4.5 million from $5.8 million for the same period in
2002. For the three months ended September 30, 2003 our indirect costs have
remained consistent at $1.8 million compared to the same period in 2002.
Generally, the decrease from 2002 to 2003 was attributed to a reduction in our
program activities, as well as a continued reduction in labor costs due to the
reduction in employees. The decrease was also related to the sublease of one of
our buildings, which reduced facility and overhead costs.
We expect that future research and development expenses may fluctuate
depending on available funds, continued expenses incurred in our preparation of
the NDA for SnET2, our costs for preclinical studies and clinical trials in our
ophthalmology, dermatology, cardiovascular, oncology and other programs, costs
associated with the purchase of raw materials and supplies for the production of
devices and drug for use in preclinical studies and clinical trials, results
obtained from our ongoing preclinical studies and clinical trials and the
expansion of our research and development programs, which includes the increased
hiring of personnel, the continued expansion of existing or the commencement of
new preclinical studies and clinical trials and the development of new drug
compounds and formulations.
Selling, General and Administrative. Our selling, general and
administrative expenses for the nine months ended September 30, 2003 slightly
decreased to $4.2 million from $4.5 million for the nine months ended September
30, 2002. For the three months ended September 30, 2003 our selling, general and
administrative expenses decreased to $1.3 million compared to $1.8 million for
the same period in 2002. Selling, general and administrative expenses for the
three and nine months ended September 30, 2002 and 2003 related primarily to
payroll related expenses, operating costs such as rent, utilities, professional
services and insurance costs and non-cash expenses such as stock compensation
and depreciation. In the three and nine months ended September 30, 2003, the
employee and overhead related expenses decreased compared to 2002 due to the
decrease in the number of administrative employees and a decrease in facility
related costs from the reduction in facilities. These decreases were primarily
offset by an increase in insurance and stock compensation costs.
We expect future selling, general and administrative expenses to remain
consistent with prior periods although they may fluctuate depending on available
funds, and the need to perform our own marketing and sales activities, the
support required for research and development activities, the costs associated
with potential financing and partnering activities, continuing corporate
development and professional services, facility and overhead costs, compensation
expense associated with stock bonuses, stock options and warrants granted to
consultants and expenses for general corporate matters.
Gain on Settlement of Debt. For the three and nine month periods ended
September 30, 2003, we recorded a gain of $9.1 million for the settlement of our
debt to Pharmacia. There was no gain recorded in the comparable 2002 periods. In
connection with the 2003 Debt Agreement, we entered into a Termination and
Release Agreement with Pharmacia, that provided, among other things, for the
settlement of the $10.6 million debt owed by us to Pharmacia and the release of
the related security collateral, in exchange for a $1.0 million cash payment,
390,000 shares of our Common Stock, with a fair market value on the date of
issuance of $386,000 and the adjustment of the exercise price of Pharmacia's
outstanding warrants to purchase shares of our Common Stock, valued at $151,000.
Under Financial Accounting Standards Board Statement, or FASB, No. 145, we
recorded a net gain of $9.1 million, which was determined as follows: the $10.6
million debt was reduced by the $1.0 million cash payment, the fair market value
of the issued Common Stock of $386,000 and the Black-Scholes value of the
repriced warrants of $151,000, resulting in a net $9.1 million gain.
Interest and Other Income. Interest and other income decreased to $58,000
for the nine months ended September 30, 2003 from $147,000 for the nine months
ended September 30, 2002. For the three months ended September 30, 2003 interest
and other income decreased to $20,000 from $29,000 for the same period in 2002.
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.
Interest Expense. Interest expense increased to $4.7 million for the nine
months ended September 30, 2003 from $282,000 for the same period in 2002. For
the three months ended September 30, 2003 interest expense increased to $4.3
million from $1,000 for the same period in 2002. The increase for the three and
nine months ended September 30, 2003 directly relate to the amortization of the
beneficial conversion value recorded, which was approximately $3.9 million, for
the 2003 and 2002 Debt Agreements. Under the Emerging Issues Task Force, or
EITF, No. 98-5, we were required to determine the beneficial conversion value
for the 2003 Debt Agreement and the 2002 Debt Agreement. The beneficial
conversion value represents the difference between the fair value of our Common
Stock on the date of the conversion and the intrinsic value, which is the value
of the 2003 Notes on as converted and the detachable warrant issued. The
amortization of the beneficial conversion value based on the first available
conversion dates for the 2003 Debt Agreement and the 2002 Debt Agreement were
approximately $2.1 million and $1.8 million, respectively. These amounts were
recorded to interest expense for the period ended September 30, 2003. The
remaining increase in interest expense for the three and nine month periods
ended September 30, 2003 compared to the same period in 2002 related to an
increase in interest expense from borrowings under the 2002 Debt Agreement and
the related amortization of deferred financing costs associated with the 2002
and 2003 Debt Agreements. The level of interest expense in future periods is
expected to increase as monthly borrowings on the promissory notes are
continued, deferred financing costs associated with the 2002 and 2003 Debt
Agreements continue to amortize over the term of the related borrowings and the
remaining portion of the beneficial conversion value for the 2002 and 2003 Debt
Agreements are expensed over the next ten months.
Liquidity and Capital Resources
Since inception through September 30, 2003, we have accumulated a deficit
of approximately $195.4 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 September 30, 2003, we have
received proceeds from the sale of equity securities, convertible notes and
credit arrangements of approximately $237.8 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 September 30, 2003, our condensed 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 December 31, 2002 consolidated financial statements that, based
on generally accepted auditing standards, our viability as a going concern is in
question.
In August 2003, we entered into the 2003 Debt Agreement, pursuant to which
we issued securities to the Investors in exchange for gross proceeds of $6.0
million. Under the 2003 Debt Agreement, the debt can be converted, at the
Investors' option, at $1.00 per share into our Common Stock. We have issued
separate convertible promissory notes to each Investor and the 2003 Notes earn
interest at 8% per annum and are due August 28, 2006, unless converted earlier
or paid early under the prepayment or default provisions. The interest on each
2003 Note is due quarterly beginning October 1, 2003 and can be paid in cash or
in-kind at our option. Under certain circumstances each 2003 Note can be prepaid
by us prior to the maturity date or prior to conversion. The 2003 Notes also
have certain default provisions which can cause the 2003 Notes to become
accelerated and due immediately upon notice by the Investors. One of the
provisions requires that our NDA for SnET2 is filed by December 31, 2003. We do
not expect that the NDA will be filed by December 31, 2003, and therefore may
need to obtain a waiver from the Investors in order to avoid an event of default
under the 2003 Debt Agreement if the notes are note converted or prepaid before
the default notice is received. If we do not obtain the waiver prior to December
31, 2003, it is likely we will be in default and the Investors may accelerate
the 2003 Notes and give us notice that the 2003 Notes are immediately due. If
the 2003 Notes are declared to be due prior to their scheduled maturity date, it
is unlikely we will be able to repay these notes and it may force us to
significantly reduce or cease operations or negotiate unfavorable terms for
repayment. From these proceeds, we paid $1.0 million to Pharmacia to settle our
debt with them, as described above, we repaid an investor a short-term bridge
loan amounting to $250,000 and paid significant overdue operating expenses.
In connection with the execution of the 2003 Debt Agreement, certain of the
2002 Lenders, to whom we issued notes to under our 2002 Debt Agreement, as
described below, agreed to subordinate their debt security position to that of
the new Investors. In exchange for the subordinated security position, the 2002
Lenders received additional warrants to purchase an aggregate of 1,575,000
shares of our Common Stock at an exercise price of $1.00 per share, and these
additional warrants will terminate on August 28, 2008, unless previously
exercised. Additionally, under the anti-dilution provision of the 2002 Debt
Agreement, the conversion price of the five notes issued thereunder to the 2002
Lenders during the period February 2003 through July 2003 was reduced to $1.00
and the exercise price of the related warrants issued to the 2002 Lenders during
the same period was reduced to $1.00 per share.
In December 2002, we entered into the 2002 Debt Agreement. The 2002 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
under the 2002 Debt Agreement is $12.0 million with the last available borrowing
in June 2004, as amended. The 2002 Lenders' obligation to fund each borrowing
request is subject to material conditions described in the 2002 Debt Agreement,
as amended. In addition, the 2002 Lenders may terminate its obligations under
the 2002 Debt Agreement if: (i) Miravant has not filed an NDA by March 31, 2004,
(ii) such filing has been rejected by the U.S. Food and Drug Administration, or
FDA, or (iii) Miravant, in the reasonable judgment of the 2002 Lenders, is not
meeting its business objectives.
Additionally, not all the shares underlying notes and warrants related to
the 2002 Debt Agreement and 2003 Debt Agreement are registered, thus we will
need to obtain approval by our stockholders' to increase the number of
authorized shares of our Common Stock sufficiently, either through a special
meeting or in conjunction with our annual stockholders' meeting.
In connection with the 2003 Debt Agreement, we entered into a Termination
and Release Agreement with Pharmacia, that provides, among other things, for the
settlement of the $10.6 million debt owed by us to Pharmacia and the release of
the related security collateral, in exchange for a $1.0 million cash payment,
390,000 shares of our Common Stock and the adjustment of the of the exercise
price of Pharmacia's outstanding warrants to purchase shares of our Common
Stock. Additionally, we extended the expiration date of the warrants to December
31, 2005. As a result, as of the date of this report, Pharmacia holds warrants
to purchase an aggregate of 360,000 shares of our Common Stock at an exercise
price of $1.00 per share. The $1.0 million cash payment to Pharmacia was made
from the proceeds from the 2003 Debt Agreement.
In November 2003, we initiated the process to liquidate our investment in
Xillix Technologies Corp., or Xillix. We own approximately 2.7 million shares of
Xillix. Currently the value of these shares is approximately $1.5 million. There
is no guarantee we will be able to liquidate this investment in Xillix on a
timely basis, if at all, and if and when we do liquidate this investment there
is no guarantee the current value of these shares will reflect the funds we may
obtain upon the sale.
Statement of Cash Flows
Net cash required for operations for the nine months ended September 30,
2003 and 2002 was $8.6 million and $6.2 million, respectively. For the nine
months ended September 30, 2003, the net cash used for operations was increased
due to the settlement of our debt with Pharmacia offset by non-cash charges
related to interest and amortization of deferred financing costs. The net cash
required for operations in 2002 is primarily related to the release of the $5.1
million contained in the inventory and equipment escrow accounts which was
offset by an overall decrease in accounts payable and accrued wages. For the
nine months ended September 30, 2003, the net cash used for operations was
increased due to a decrease in prepaid and other assets and an increase in
accounts payable and accrued wages, patent reserves and write-offs and stock
awards and restricted stock issued.
For the nine months ended September 30, 2003 net cash used in investing
activities was $242,000 and for the nine months ended September 30, 2002, net
cash provided by investing activities was $4.5 million, respectively. The net
cash provided by financing activities for the nine months ended September 30,
2002 was primarily related to the proceeds from the net sales and purchases of
marketable securities. For the nine months ended September 30, 2003, net cash
used in investing activities consisted of the purchases of patents, property,
plant and equipment.
For the nine months ended September 30, 2003 net cash provided by financing
activities was $9.7 million and for the nine months ended September 30, 2002,
net cash provided by financing activities was $2.3 million. The net cash
provided by financing activities in 2002 related to net proceeds of $2.5 million
from the private placement of Common Stock partially offset by loans provided to
executive officers of the Company. The net cash provided by financing activities
for the nine months ended September 30, 2003 was primarily related to the net
proceeds of $5.1 million from the borrowings received under the 2002 Debt
Agreement, the net proceeds of $5.8 million received under the 2003 Debt
Agreement and a short-term bridge loan of $250,000. These borrowings were offset
by a payment to Pharmacia of $1.0 million for the settlement of their debt as
well as a $250,000 payment of interest due to Pharmacia paid earlier in 2003,
and repayment of a short-term bridge loan of $250,000.
Lease Obligations and Long-Term Debt
Contractual Obligations Payments Due by Period
- ------------------------------------------------------------------------------------------------------------------
Less than 1 2004-2007 2004-2009
year 1 - 3 years 4 - 5 years After 5 years Total
--------------- ---------------- --------------- -------------- ---------------
Debt(1)....................... $ -- $ 6,000,000 $ 6,300,000 $ -- $ 12,300,000
Building Leases(2)............ 428,000 83,000 -- -- 511,000
--------------- ---------------- --------------- -------------- ---------------
Total Contractual Cash
Obligations................... $ 428,000 $ 6,083,000 $ 6,000,000 $ -- $ 12,811,000
=============== ================ =============== ============== ===============
(1) $6.3 million of this debt represents the borrowings under the 2002
Debt Agreement, which has a due date of December 31, 2008 and $6.0
million of this debt represents the borrowings under the 2003
Agreement, which has a due date of August 28, 2006.
(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. One of the leases, expires during fourth
quarter 2003, while another lease has gone month-to-month beginning in
September 2003.
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 continue our efforts to reduce our use of cash, while
continuing to advance programs;
* Our ability to continue to borrow under the 2002 Debt Agreement;
* Our ability to meet our obligations under the 2002 Debt Agreement and
the 2003 Debt Agreement and not be required to repay the debt early;
* The viability of SnET2 for future use;
* The costs and time involved in preparing an NDA filing for SnET2;
* Our ability to obtain regulatory approval for our NDA when, and if,
filed;
* Our ability to establish additional collaborations and/or license
SnET2;
* The cost of performing pre-commercialization activities;
* 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 September 30, 2003, our condensed consolidated financial statements
have been prepared assuming we will continue as a going concern. We are
continuing our scaled back efforts in research and development and the
preclinical studies and clinical trials of our products. These efforts, along
with the cost of preparing an NDA for SnET2, obtaining requisite regulatory
approval, and commencing pre-commercialization activities prior to receiving
regulatory approval, 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 August 2003, we entered into the 2003 Debt Agreement, pursuant to
which we issued securities to the Investors in exchange for gross proceeds of
$6.0 million. Under the 2003 Debt Agreement, the debt can be converted, at the
Investors' option, at $1.00 per share into our Common Stock and is due August
2006 if not converted earlier or paid early under the prepayment or default
provisions. In addition, in December 2002, we entered into the 2002 Debt
Agreement with the 2002 Lenders. The 2002 Debt Agreement, as amended, provides
us the ability to borrow up to $1.0 million per month through June 2004, not to
exceed $12.0 million. The monthly borrowing request can be limited if certain
requirements are not met or are not satisfactory to the 2002 Lenders. As of
November 10, 2003 we had borrowed $6.3 million under the 2002 Debt Agreement.
Executive management believes we can raise additional funding to support
operations through corporate collaborations or partnerships, through the sale of
certain of our investments, licensing of SnET2 or new products and additional
equity or debt financings prior to December 31, 2003. If additional funding is
not available, executive management believes that as long as we receive the
remaining $5.7 million available to us under the 2002 Debt Agreement and our
debt does not go into default and become immediately due, then we have the
ability to conserve cash required for operations through June 30, 2004 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. However, there can be
no assurance that we will receive the remaining $5.7 million under the 2002 Debt
Agreement, if certain requirements are not met or are not satisfactory to the
2002 Lenders and there is no guarantee that we will be successful in obtaining
additional financing or that financing will be available on favorable terms.
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 2004;
* The outcome from the 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 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; and
* 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 small trading volume.
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 December 31, 2002 consolidated financial
statements that, based on generally accepted auditing standards, our viability
as a going concern is in question.
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 JUNE 30, 2004. IF WE
FAIL TO OBTAIN ADDITIONAL FUNDING OR MEET THE REQUIREMENTS OF OUR 2002 DEBT
AGREEMENT OR OUR 2003 DEBT AGREEMENT WE COULD BE FORCED TO SIGNIFICANTLY SCALE
BACK OR CEASE OPERATIONS.
We are continuing our scaled back efforts in research and development and
the preclinical studies and clinical trials of our products. These efforts,
along with the cost of preparing an NDA for SnET2, obtaining requisite
regulatory approval, and commencing pre-commercialization activities prior to
receiving regulatory approval, 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 August 2003, we entered into a Convertible Debt
and Warrant Purchase Agreement, or the 2003 Debt Agreement, with a group of
private accredited investors, who are referred to in this report as the
Investors, pursuant to which we issued securities to the Investors in exchange
for gross proceeds of $6.0 million. Under the 2003 Debt Agreement, the debt can
be converted, at the Investors' option, at $1.00 per share into our Common Stock
and is due August 2006 if not converted earlier or paid early under the
prepayment or default provisions. In addition, in December 2002, we entered into
a $12.0 million Convertible Debt and Warrant Agreement, or 2002 Debt Agreement,
with a group of private accredited investors, who are referred to in this report
as the 2002 Lenders. The 2002 Debt Agreement, as amended, provides us the
ability to borrow up to $1.0 million per month through June 2004, not to exceed
$12.0 million. The monthly borrowing request can be limited if certain
requirements are not met or are not satisfactory to the 2002 Lenders. As of
November 10, 2003 we had borrowed $6.3 million under the 2002 Debt Agreement.
Executive management believes we can raise additional funding to support
operations through corporate collaborations or partnerships, through the sale of
certain of our investments, licensing of SnET2 or new products and additional
equity or debt financings prior to December 31, 2003. If additional funding is
not available, executive management believes that as long as we receive the
remaining $5.7 million available to us under the 2002 Debt Agreement and our
debt does not go into default and become immediately due, then we have the
ability to conserve cash required for operations through June 30, 2004 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. However, there can be
no assurance that we will receive the remaining $5.7 million under the 2002 Debt
Agreement, if certain requirements are not met or are not satisfactory to the
2002 Lenders and there is no guarantee that we will be successful in obtaining
additional financing or that financing will be available on favorable terms. Our
independent auditors, Ernst & Young LLP, have indicated in their report
accompanying our December 31, 2002 consolidated financial statements that, based
on generally accepted auditing standards, our viability as a going concern is in
question.
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.
We will need additional resources in the near term to complete the NDA
filing for SnET2, to develop our products and to continue our operations. If we
do not receive additional funding, beyond our current funding agreements or if
we are not able to borrow under our current funding arrangements prior to June
2004, 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 continue our efforts to reduce our use of cash, while
continuing to advance programs;
* Our ability to continue to borrow under the 2002 Debt Agreement;
* Our ability to meet our obligations under the 2002 Debt Agreement and
the 2003 Debt Agreement and not be required to repay the debt early;
* The viability of SnET2 for future use;
* The costs and time involved in preparing an NDA filing for SnET2;
* Our ability to obtain regulatory approval for our NDA when, and if,
filed;
* Our ability to establish additional collaborations and/or license
SnET2;
* The cost of performing pre-commercialization activities;
* 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.
OUR ABILITY TO CONTINUE TO BORROW THE REMAINING $5.7 MILLION THROUGH JUNE 2004
UNDER THE 2002 DEBT AGREEMENT, AS AMENDED, IS CONTINGENT ON US MEETING CERTAIN
OBLIGATIONS. IF THESE OBLIGATIONS ARE NOT MET OR ARE NOT SATISFACTORY TO THE
2002 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 the 2002 Debt Agreement. The 2002 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 $6.3 million under
this agreement through September 30, 2003. The maximum aggregate loan amount is
$12.0 million with the last available borrowing in June 2004, as amended. The
2002 Lenders' obligation to fund each borrowing request is subject to material
conditions described in the 2002 Debt Agreement, as amended. In addition, the
2002 Lenders may terminate its obligations under the 2002 Debt Agreement if: (i)
Miravant has not filed an NDA by March 31 2004, (ii) such filing has been
rejected by the FDA or (iii) Miravant, in the reasonable judgment of the 2002
Lenders, is not meeting its business objectives. There is no guarantee we will
receive the remaining $5.7 million under this agreement, and if we are unable to
borrow the remaining $5.7 million as planned we may be forced to significantly
reduce or cease operations.
OUR ABILITY TO MEET OUR OBLIGATIONS UNDER THE 2003 DEBT AGREEMENT OR OBTAIN
WAIVERS WHEN NECESSARY IN ORDER NOT TO DEFAULT ON THE 2003 NOTES FROM OUR 2003
DEBT AGREEMENT MAY BE LIMITED. IF THESE OBLIGATIONS ARE NOT MET OR WAIVED AS
NECESSARY, WE WILL LIKELY BE IN DEFAULT UNDER THE 2003 DEBT AGREEMENT AND THE
2003 NOTES MAY BECOME DUE IMMEDIATELY UPON NOTICE FROM THE INVESTORS. IF THE
2003 NOTES BECOME DUE BEFORE THEIR SCHEDULED DUE DATE, WE MAY BE UNABLE TO REPAY
THE 2003 NOTES AND THIS MAY FORCE US TO SIGNIFICANTLY REDUCE OR CEASE
OPERATIONS.
Under the 2003 Debt Agreement, we are required to file our NDA by December
31, 2003 or the Investors may accelerate the 2003 Notes and give us notice that
the 2003 Notes are immediately due. We do not expect that the NDA will be filed
by December 31, 2003, and therefore may need to obtain a waiver from the
Investors in order to avoid an event of default under the 2003 Debt Agreement if
the notes are not converted or prepaid before the default notice is received. If
we do not obtain the waiver prior to December 31, 2003, it is likely we will be
in default and the Investors may accelerate the due date of the 2003 Notes and
give us notice that the 2003 Notes are immediately due. If the 2003 Notes are
declared to be due prior to their scheduled maturity date, it is unlikely we
will be able to repay these notes and it may force us to significantly reduce or
cease operations or negotiate unfavorable terms for repayment.
WE ARE HIGHLY LEVERAGED, OUR RECENT DEBT AGREEMENTS HAVE FURTHER DILUTED OUR
EXISTING STOCKHOLDERS AND OUR DEBT SERVICE REQUIREMENTS MAKE US VULNERABLE TO
ECONOMIC DOWNTURN AND IMPOSE RESTRICTIONS ON OUR OPERATIONS.
The stated face value of our convertible debt outstanding was approximately
$12.3 million as of September 30, 2003. There is no certainty that our cash
balance and our financing arrangements will be sufficient to finance our
operating requirements, and our indebtedness may restrict our ability to obtain
additional financing in the future. The issuance of additional warrants to
purchase Common Stock and the repricing of existing warrants in connection the
2003 Debt Agreement and related negotiations with existing debtors has resulted
in the issuance of significant amounts of securities which has a dilutive effect
on our existing stockholders. Also, we are highly leveraged, which may place us
at a competitive disadvantage and makes us more susceptible to downturns in our
business in the event our cash balances are not sufficient to cover our debt
service requirements. In addition, the 2003 Debt Agreement and the 2002 Debt
Agreement contain covenants that impose some operating and financial
restrictions on us. These covenants could adversely affect our ability to
conduct operations to raise additional financing or to engage in other business
activities that may be in our interest. In addition, if we cannot achieve the
financial results necessary to maintain compliance with these covenants, we
could be declared in default under one or both of these agreements, which could
cause us to significantly reduce or cease our operations.
If the notes issued under the 2003 Debt Agreement and 2002 Debt Agreement
are converted into Common Stock, there will be a dilutive effect on our existing
stockholders. Additionally, not all the shares underlying notes and warrants
related to the 2002 Debt Agreement and 2003 Debt Agreement are registered, we
will need to obtain approval by our stockholders' to increase the number of
authorized shares of our Common Stock sufficiently, either through a special
meeting or in conjunction with our annual stockholders' meeting. There is no
guarantee we will able to do this timely if 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 THE
FIRST QUARTER OF 2004 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 OUR PLANNED NDA 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 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. We are
currently in the process of preparing the NDA filing and expect to have it
completed and filed in the first quarter of 2004. 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
in a timely manner 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 the FDA does not accept our filing, 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 that 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, increases our on-going funding
requirements and harms 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 delisted by Nasdaq on July 11, 2002 and our Common Stock began
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.
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 a portion of our stock options outstanding, as
of the date of this report, 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. In addition, 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.
THE OVERALL CURRENT MARKET ENVIRONMENT AND OUR OTC BULLETIN BOARD(R), OR OTCBB,
LISTING STATUS WILL MAKE OBTAINING ADDITIONAL FUNDING DIFFICULT.
Our ability to obtain additional funding, beyond our current funding
agreements, by June 30, 2004 to operate our business may be impeded by a number
of factors including:
* 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 additional funding to further our
programs and to complete our planned NDA filing for SnET2 by first quarter 2004,
and investors may be reluctant to invest in our equity securities. 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.
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;
* 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 rights to SnET2 as well as the
related data and assets from the 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. We
are currently in the process of preparing the NDA filing and expect to have it
completed and filed in the first quarter 2004. 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
September 30, 2003, had an accumulated deficit of approximately $195.4 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 until we have established a collaborative
partnering agreement, receive regulatory approval and commence commercial sales.
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 September 30, 2003, our Common Stock
price, per Nasdaq and OTCBB closing prices, has ranged from a high of $9.90 to a
low of $0.40.
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 under the 2002 Debt Agreement;
* Our ability not to default on our obligations under the 2002 Debt
Agreement and the 2003 Debt Agreement;
* Announcements concerning Miravant or our collaborators, competitors or
industry;
* Our ability to successfully establish new collaborations and/or
license SnET2 or our other new products;
* 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;
* Litigation, such as from stockholder lawsuits or patent infringement;
and
* Governmental regulations, rules and orders, or developments concerning
safety of our products.
In addition, the stock market generally 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 our stockholders' ability to sell their
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.
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 used in our products;
* 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 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 has been
reconstructed in our existing operating facility. The manufacturing facility at
the new location is operational, pending required regulatory approvals by the
State of California and federal regulatory agencies, and is currently producing
compatibility and stability batches.
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 cardiovascular 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 entail significant inherent, industry-wide risks of
allegations of product liability. The use of our products in clinical trials and
the sale of our products may expose us to liability claims. These claims could
be made directly by patients or consumers, or by companies, institutions or
others using or selling our products. The following are some of the risks
related to liability and recall:
* 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.
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.
OUR PREFERRED STOCKHOLDER RIGHTS PLAN MAKES EFFECTING A CHANGE OF CONTROL OF
MIRAVANT MORE 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. We also waived the provisions of the
Rights Plan with respect to the securities issued to the Investors pursuant to
the 2003 Debt Agreement, including the shares of Common Stock issuable upon
conversion or exercise of such securities and any other securities that may in
the future be issued to the Investors pursuant to their participation rights
under the 2003 Debt Agreement with respect to future financings by the Company.
In the event that we are involved in a merger or other similar transaction where
we are 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 of stockholders 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 European Medical Device Directive
effective 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, or Axcan, 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) 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 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risk disclosures involve 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 we are not subject to significant
interest rate risk related to these investments.
The convertible notes issued under the 2002 and 2003 Debt Agreements have
fixed interest rates of 9.4% and 8%, respectively, which is payable quarterly in
cash or in Common Stock. The principal amounts of the 2002 and 2003 Notes will
be due August 28, 2008 and August 28, 2006, respectively, and these notes can be
converted to Common Stock at the option of the holder. As of September 30, 2003
the carrying value of the 2002 and 2003 Notes was approximately $11.7 million
and the carrying value of the 2002 and 2003 Notes approximates fair value based
on the proximity of the issue dates to September 30, 2003.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures. Our management evaluated,
with the participation of our Chief Executive Officer and our Chief Financial
Officer, the effectiveness of our disclosure controls and procedures as of the
end of the period covered by this Quarterly Report on Form 10-Q. Based on this
evaluation, our Chief Executive Officer and our Chief Financial Officer have
concluded that 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 Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission
rules and forms.
Changes in internal control over financial reporting. There was no change
in our internal control over financial reporting that occurred during the period
covered by this Quarterly Report on Form 10-Q that has materially affected, or
is reasonably likely to materially affect, our internal control over financial
reporting.
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds
Under the 2002 Debt Agreement, for the month of January 2003, the Company
received $1.0 million in borrowings and issued a related note with a conversion
price of $0.97. For the months of February through July, the Company received
borrowings totaling $4.3 million and issued related notes with a conversion
price of $1.00, as amended. The Company also issued six warrants for the
purchase of 250,000 shares per warrant with an exercise price of $1.00 and one
warrant for the purchase of 75,000 with an exercise price of $1.00, as amended.
As of September 30, 2003, the Company has borrowed a total of $6.3 million which
is convertible into Common Stock at an average price per share of $0.99 and has
accrued interest of $335,000 which is also convertible. The Company has also
issued warrants to purchase a total of 1,825,000 shares of Common Stock at an
average exercise price of $0.94.
Under the 2003 Debt Agreement, the Company issued securities to the
Investors in exchange for gross proceeds of $6.0 million. Under the 2003 Debt
Agreement, the debt can be converted, at the Investors' option, at $1.00 per
share into the Company's Common Stock. The Company issued separate convertible
promissory notes to each Investor and the 2003 Notes will earn interest at 8%
per annum and be due August 28, 2006, unless converted earlier or paid early
under the prepayment or default provisions. The interest on each 2003 Note is
due quarterly beginning October 1, 2003 and can be paid in cash or in-kind at
the Company's option. In connection with the 2003 Notes, the Company also issued
to the Investors warrants to purchase an aggregate of 4,500,000 shares of the
Company's Common Stock. Each Investor received two warrants. The first warrant
is for the purchase of one-half (1/2) of a share of the Company's Common Stock
for every $1.00 of principal under the 2003 Debt Agreement. The second warrant
is for the purchase of one-quarter (1/4) of a share of the Company's Common
Stock for every $1.00 of principal under the 2003 Debt Agreement. The exercise
price of each warrant is $1.00 per share and the warrants terminate on August
28, 2008, unless previously exercised. The Company can force the exercise of the
one-quarter (1/4) share warrant under certain circumstances.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Incorporating
Exhibit Reference
Number Description (if applicable)
- ------ ----------- ---------------
4.1 Form of Convertible Promissory Note between the Registrant and the [A][4.1]
Purchaser dated August 28, 2003.
4.2 Form of 50% Warrant between the Registrant and the Purchaser dated August [A] [4.2]
28, 2003.
4.3 Form of 25% Warrant between the Registrant and the Purchaser dated August [A] [4.3]
28, 2003.
4.4 Registration Rights Agreement dated August 28, 2003 between the Registrant [A] [4.4]
and the Purchaser.
10.1 Convertible Debt and Warrant Purchase Agreement dated December 19, 2002 [B] [10.1]
between the Registrant and the Purchasers.
10.2 Convertible Debt and Warrant Purchase Agreement dated August 28, 2003 [A] [10.1]
between the Registrant and the Purchaser.
10.3 Subordination Agreement dated August 28, 2003 between the Registrant and [A] [10.2]
the Purchaser.
10.4 Termination and Release Agreement dated August 13, 2003 between the [A] [10.3]
Registrant and Pharmacia, AB.
10.5 Side Letter Agreement dated August 28, 2003 between the Registrant and the [A] [10.4]
Purchaser.
31.1 Certification of Chief Executive Officer pursuant to Rules 13a-14 and
15d-14 under the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Rules 13a-14 and
15d-14 under the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
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 Form 8-K dated August 28, 2003 (File No.
0-25544).
[B] 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).
(b) Reports on Form 8-K.
On September 2, 2003, we filed a Form 8-K to report that we entered into a
$6.0 million Convertible Debt and Warrant Purchase Agreement. In addition,
we entered into a Termination and Release Agreement with Pharmacia, A.B. to
settle our $10.6 million debt with them.
On September 8, 2003, we filed a Form 8-K dated August 28, 2003 to report
the closing of the $6.0 million Convertible Debt and Warrant Purchase
Agreement and the Termination and Release Agreement with Pharmacia, A.B.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
Miravant Medical Technologies
Date: November 14, 2003 By: /s/ John M. Philpott
-----------------------
John M. Philpott
Chief Financial Officer
(on behalf of the Company and as
Principal Financial Officer and
Principal Accounting Officer)