UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND SPECIAL REPORTS
PURSUANT TO SECTIONS 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File Number: 0-25544
---------------
Miravant Medical Technologies
(Exact name of Registrant as specified in its charter)
Miravant Medical Technologies
(Exact name of Registrant as specified in its charter)
Delaware 77-0222872
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
336 Bollay Drive, Santa Barbara, California 93117
(Address of principal executive offices, including zip code)
(805) 685-9880
(Registrant's telephone number, including area code)
Securities Registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section
12(g) of the Act:
Common Stock, $0.01 Par Value
Common Share Purchase Rights
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes [ ]. No [X].
The approximate aggregate market value of voting stock held by
non-affiliates as of June 30, 2003 based upon the last sale price of the Common
Stock of $1.12 per share, as reported on the OTC Bulletin Board(R), was
approximately $29,522,861. For purposes of this calculation only, the registrant
has assumed that its directors and executive officers, and any person, who has
filed a Schedule 13D or 13G, is an affiliate.
The number of shares of Common Stock outstanding as of March 15, 2004 was
29,801,765.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document are incorporated by reference into Part
III of this Form 10-K: the Proxy Statement for the Registrant's 2004 Annual
Meeting of Stockholders scheduled to be held on June 24, 2004. A copy of the
proxy statement may be obtained, when available, upon written request to the
Corporate Secretary, Miravant Medical Technologies, 336 Bollay Drive, Santa
Barbara, CA 93117.
MIRAVANT MEDICAL TECHNOLOGIES
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
TABLE OF CONTENTS
PART I
Item 1. Business ...........................................................................................4
Item 2. Properties .........................................................................................22
Item 3. Legal Proceedings...................................................................................22
Item 4. Submission of Matters to a Vote of Security-Holders.................................................22
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholders Matters..............................23
Item 6. Selected Consolidated Financial Data................................................................25
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...............26
Item 7A. Qualitative and Quantitative Disclosures About Market Risk..........................................57
Item 8. Financial Statements and Supplementary Data.........................................................57
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure................82
Item 9A Controls and Procedures.............................................................................82
PART III
Item 10. Directors and Executive Officers of the Registrant .................................................83
Item 11. Executive Compensation..............................................................................83
Item 12. Security Ownership of Certain Beneficial Owners and Management......................................83
Item 13. Certain Relationships and Related Transactions......................................................83
Item 14. Principal Accountant Fees and Services..............................................................83
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.....................................84
Signatures..........................................................................................88
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements, which
involve known and unknown risks and uncertainties. These statements relate to
our future plans, objectives, expectations and intentions. These statements may
be identified by the use of words such as "may," "will," "should," "potential,"
"expects," "anticipates," "intends," "plans," "believes" and similar
expressions. These statements 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
submit our planned New Drug Application, or NDA, 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 remaining $5.7
million available at $1.0 million monthly through June 2004, under the December
2002 Convertible Debt Agreement, as amended, or the 2002 Debt Agreement; our
ability to meet the covenants of the August 2003 Unsecured Convertible Debt and
Warrant Purchase Agreement, or the 2003 Debt Agreement; our ability to meet the
covenants of the February Unsecured Convertible Debt Purchase Agreement, or the
February 2004 Debt Agreement; our ability to resolve any issues or contingencies
associated with our NDA after it is submitted 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 laser 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 in a timely manner, if at all; our ability 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;
our failure to meet or obtain waivers from the covenants in our 2003 Debt
Agreement and/or our February 2004 Debt Agreement which could lead to a default
under those agreements; 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 declining to collaborate with us due
to our financial condition or other reasons beyond our control; the failure of
our existing light production and delivery technology to prove to be applicable
or appropriate for future studies; our failure to obtain the necessary funding
to further our research and development activities; and unanticipated changes by
the government in its past practices by exercising its rights contrary to our
expectations. For a more complete description of the risks that may impact our
business, see "Risk Factors", included in Item 7, for a discussion of certain
risks, including those relating to our ability to obtain additional funding, our
ability to establish new strategic collaborations, our operating losses, risks
related to our industry and other forward-looking statements.
ITEM 1. BUSINESS
General
We are a pharmaceutical research and development company specializing in
photodynamic therapy, or PDT, a treatment modality based on drugs that respond
to light. When activated by light, these drugs induce a photochemical reaction
in the presence of oxygen that can be used to locally destroy diseased cells and
abnormal blood vessels. We have branded our novel version of PDT technology with
the trademark PhotoPoint(R). Our drugs and devices are in various stages of
development and have not yet been evaluated by the FDA for regulatory approval.
Our most advanced drug, PhotoPoint SnET2, has completed Phase III clinical
trials for the treatment of wet age-related macular degeneration, or AMD, and we
are preparing to submit a New Drug Application, or NDA, for its marketing
approval.
We believe that PhotoPoint PDT is a platform technology that has the
potential to provide safe and effective treatments for a number of diseases
including those in ophthalmology, dermatology, cardiovascular disease and
oncology. Our current objective is to develop our PhotoPoint technology for
disease indications with large potential market opportunities and/or unmet
medical needs. Our strategy is to develop PhotoPoint PDT as a primary therapy
and, where appropriate, as a combination therapy with other treatments such as
surgery or drug therapy to achieve efficacious clinical results.
We believe that commercial success will depend upon safety and efficacy
outcomes, regulatory approvals, competition, third-party reimbursements and
other factors such as the manufacturing, marketing, sales and distribution of
our products. At this time, the scope of our business is research and
development with limited manufacturing capabilities. For large-scale
manufacturing, marketing, sales and distribution activities, we may elect to use
outside contractors and/or develop these capabilities internally, or seek
strategic collaborations with pharmaceutical and medical device partners in
certain therapeutic areas.
We were incorporated in Delaware in 1989 and, effective September 15, 1997,
changed our name from PDT, Inc. to Miravant Medical Technologies. Our executive
offices and the offices of our three subsidiaries, Miravant Pharmaceuticals,
Inc., Miravant Systems, Inc. and Miravant Cardiovascular, Inc., are located at
336 Bollay Drive, Santa Barbara, California 93117. Our telephone number is (805)
685-9880. Unless otherwise indicated, all references to us also include our
subsidiaries.
The following is a summary of our recent significant events:
* In December 2002, as amended in 2003, we entered into a Convertible
Debt and Warrant Purchase Agreement, or the 2002 Debt Agreement, with
a group of private accredited investors, or 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 is $12.0 million with the last available
borrowing in June 30, 2004. The debt is due December 31, 2008 and
earns interest of 9.4% per year. The interest is payable monthly and
can be accrued, paid in cash or paid in the form of Common Stock. The
2002 Lenders may terminate their obligations under the 2002 Debt
Agreement if: (1) Miravant has not submitted a New Drug Application,
or NDA, by March 31, 2004, (2) such filing has been rejected by the
U.S. Food and Drug Administration, or FDA, or (3) Miravant, in the
reasonable judgment of the 2002 Lenders, is not meeting its business
objectives. As of March 15, 2004, we had borrowed $6.3 million under
the 2002 Debt Agreement and there was $5.7 million remaining available
to us under the 2002 Debt Agreement, subject to certain material
conditions described in the 2002 Debt Agreement. As of March 15, 2004,
we have issued warrants to purchase 3,150,000 shares of our Common
Stock with an exercise price of $1.00 and upon the execution of the
2002 Debt Agreement, we issued an origination warrant to purchase
250,000 shares of our Common Stock, with an exercise price of $0.50
per share. Warrants for the purchase of 1,575,000 shares will
terminate on August 28, 2008 and warrants for the purchase of 1,825,00
shares will terminate on December 31, 2008, unless previously
exercised;
* In January 2003, we announced our intention to submit our first NDA
for marketing approval of PhotoPoint SnET2, a new drug for the
treatment of wet age-related macular degeneration, or AMD. Our
decision came after we completed our analyses of the Phase III AMD
clinical data for two independent trials completed in December 2001
and after holding discussions with our regulatory consultants and the
ophthalmic division of the FDA. Our analyses showed positive results
in a significant number of PhotoPoint SnET2 treated patients versus
placebo control patients in the "per protocol" population. The per
protocol population consists of those patients who received the
exposure to the SnET2 treatment regimen pre-specified in the clinical
study protocol, comprising a smaller number of patients than the total
study population. We are currently in the process of preparing the NDA
and expect to have it completed and submitted on or about March 31,
2004;
* Previously, in January 2002, Pharmacia Corporation, or Pharmacia,
after a top-line review of the Phase III AMD clinical data, determined
that the clinical data results indicated that SnET2 did not meet the
primary efficacy endpoint in the study population, as defined by the
clinical trial protocol, and that they would not be filing an NDA with
the FDA as contemplated by our agreements with Pharmacia. In March
2002, we regained the license rights to SnET2 as well as the related
data and assets from the Phase III AMD clinical trials from Pharmacia.
Additionally, in March 2002 we terminated our license collaboration
with Pharmacia;
* In August 2003, we entered into an Unsecured Convertible Debenture and
Warrant Purchase Agreement, or the 2003 Debt Agreement, with certain
private accredited investors, or the 2003 Lenders. Under the 2003 Debt
Agreement we borrowed $6.0 million, with interest accruing at 8% per
year and due and payable quarterly, with the first interest payment
due on October 1, 2003. The principal amount matures on August 28,
2006. At our option and subject to certain restrictions, we may make
interest payments in cash or in shares of Common Stock. Upon the
occurrence of certain events of default, the holders of the
convertible debentures may require that they be repaid prior to
maturity. Some of the events of default include if we fail to pay
amounts due under the debentures or to otherwise perform any material
covenant in the 2003 Debt Agreement or other related documents, if we
fail to submit our PhotoPoint SnET2 NDA to the FDA on or before
December 31, 2003, which was extended to March 31, 2004, or the
rejection of our NDA submission by the FDA, or the occurrence of
certain insolvency-related events. In connection with the 2003 Debt
Agreement, we issued warrants to each 2003 Lender to purchase a total
of 4,750,000 shares of our Common Stock each with an expiration date
of August 28, 2008 and an exercise price of $1.00 per share. As of
March 15, 2004, $2.5 million of the notes have been converted into
2,500,000 shares of Common Stock and warrants covering 1,425,000
shares of Common Stock have been exercised;
* In addition, when we entered into the 2003 Debt Agreement, we also
entered into a Termination and Release Agreement with Pharmacia AB, a
wholly owned subsidiary of Pfizer, Inc., or Pharmacia, for the
retirement of $10.6 million of debt owed by us to Pharmacia and the
release of the related security collateral, in exchange for a payment
of $1.0 million in cash, 390,000 shares of our Common Stock, and an
adjustment of the exercise price of Pharmacia's outstanding warrants
to purchase 360,000 shares of our Common Stock to $1.00 from an
average exercise price of $15.77, and an extension of the expiration
date of those warrants to December 31, 2005 from expiration dates
ranging from May 2004 to May 2005;
* In December 2003, we sold our investment in Xillix Technologies Corp.
We owned approximately 2.7 million shares of Xillix and we received
net proceeds of approximately $1.6 million; and
* In February 2004, we entered into an Unsecured Convertible Debenture
Purchase Agreement, or the February 2004 Debt Agreement, with certain
private accredited investors, or the February 2004 Lenders. Under the
February 2004 Debt Agreement we issued $2.0 million worth of
convertible debentures maturing on February 5, 2008 with interest
accruing at 8% per year, due and payable quarterly, with the first
interest payment due on April 1, 2004. At our option and subject to
certain restrictions, we may make interest payments in cash or in
shares of our Common Stock, or the interest can be added to the
outstanding principal of the note. Each convertible debenture issued
pursuant to the February 2004 Debt Agreement is convertible at the
holder's option into shares of our Common Stock at $2.00 per share. We
are obligated to file a registration statement with the Securities and
Exchange Commission, or SEC, covering the resale of the shares of
Common Stock underlying these convertible debentures no later than
April 30, 2004. Upon the occurrence of certain events of default, the
holders of the convertible debentures may require that they be repaid
prior to maturity. These events of default include our failure to pay
amounts due under the debentures or to otherwise perform any material
covenant in the February 2004 Debt Agreement or other related
documents.
Based on our ability to successfully obtain additional funding, our ability
to obtain new collaborative partners, our ability to license and pursue
development and commercialization of SnET2 for AMD or other disease indications,
our ability to reduce operating costs as needed, our ability to regain our
listing status on Nasdaq and various other economic and development factors,
such as the cost of the programs, reimbursement and the available alternative
therapies, we may or may not be able to or elect to further develop PhotoPoint
PDT procedures in ophthalmology, cardiovascular disease, dermatology, oncology
or in any other indications. If we are unable to secure additional funding, or
if our lenders terminate our existing funding prior to June 30, 2004, we may be
unable to continue as a going concern.
Background
Photodynamic therapy, or PDT, is a treatment modality based on
light-activated, or photoselective drugs to locally treat diseased cells and
abnormal blood vessels. The drug and light procedures involve three components:
photoselective drugs, light producing devices and light delivery devices.
We are developing a family of medical procedures trademarked PhotoPoint
that are based on proprietary, synthetic photoselective drugs. These drugs have
the ability to transform light energy into chemical energy in a manner similar
to that of chlorophyll in green plants. When administered to the body, either
systemically by intraveneous injection or locally at the treatment site, our
PhotoPoint drugs are designed to preferentially accumulate in rapidly
reproducing, or hyperproliferating, cells and blood vessels based on the
metabolic characteristics of these tissues. Since a number of disease conditions
involve tissue and/or cellular hyperproliferation, we believe that PhotoPoint
PDT has a number of potential applications. Certain examples are abnormal blood
vessels at the back of the eye associated with macular degeneration; plaque
psoriasis that causes excessive proliferation of the epidermis; cardiovascular
diseases caused by the narrowing of coronary arteries; and the rapid growth of
cells and new blood vessels in cancer tumors.
Our photoselective drugs are inactive until exposed to a specific
wavelength and dose of visible light. The wavelength corresponds to the color of
the light, and the light dose represents the number of photons, or light energy
delivered to the target tissue over time. We have designed our drugs to respond
to various light wavelengths depending on the desired depth of light penetration
into the target tissue. When light is delivered to the treatment site and the
drug and light interact, a photochemical reaction occurs in which molecular
oxygen is consumed to produce reactive oxygen intermediates that can lead to
cell death. We can control the treatment response by varying the respective drug
and light doses and the relative timing of their administration. The result is a
localized, light-selective response that can potentially destroy diseased cells
and abnormal blood vessels with minimal damage to surrounding normal tissues and
vessels.
Low-power, non-thermal visible light is used to activate PhotoPoint drugs.
The light is generated by diode lasers or, for certain applications, by
non-coherent light sources. The light is typically delivered from the light
source to the patient via fiber optic delivery devices that produce uniform
patterns of light for different disease applications. The fiber optic devices
may be designed to focus light on body surfaces such as skin or to channel into
the body via catheters for internal applications. Additional methods of light
delivery include the slit lamp adapter used with our ophthalmic device
co-developed with Iridex.
Industry
As early as 1900, scientists observed that certain compounds localized in
tissues elicited a response to light, a response that came to be known as
photodynamic therapy. Since the mid-1970s, various treatment applications of PDT
have been investigated and approved for use in humans. PDT continues to be
studied by a variety of companies, physicians and researchers around the world
to treat a broad range of disease indications. Early industry development was
hindered by issues such as drug manufacturing and purity, the use of costly and
inefficient lasers and the lack of integrated drug and device development. Since
our founding, we have endeavored to address these issues in our PhotoPoint
development programs. In the last few years, the industry has significantly
advanced and achieved regulatory approvals for several PDT drugs in the United
States and abroad.
Business Strategy
Our current objective is to develop our PhotoPoint technology for disease
indications with large potential market opportunities and/or unmet medical
needs. Our strategy is to develop PhotoPoint PDT as a primary therapy and, where
appropriate, as a combination therapy with other treatments such as surgery or
drug therapy to achieve efficacious clinical results.
We believe that commercial success will depend upon safety and efficacy
outcomes, regulatory approvals, competition, third-party reimbursements and
other factors such as the manufacturing, marketing, sales and distribution of
our products. At this time, the scope of our business is research and
development with limited manufacturing capabilities. For large-scale
manufacturing, marketing, sales and distribution activities, we may elect to use
outside contractors and/or develop these capabilities internally, or seek
strategic collaborations with pharmaceutical and medical device partners in
certain therapeutic areas.
Technology and Products
Our drugs, light producing and light delivery devices have been developed
in-house and with outside collaborators and have been used in various clinical
and preclinical investigations.
Drug Technology. We own and hold exclusive license rights under certain
United States and foreign patents to several classes of synthetic,
photoselective compounds, subject to certain governmental rights, as described
under the heading Patents and Proprietary Technology. From these broad classes
we have synthesized several hundred unique photoselective compounds, which have
been characterized and screened in biological testing systems. The development
status of our key drug candidates is as follows:
* SnET2: Phase III completed, NDA submission in preparation - wet
age-related macular degeneration.
* MV9411: Phase II - plaque psoriasis.
* MV0633: Advanced preclinical - atherosclerosis, atherosclerotic
vulnerable plaque and prevention of restenosis.
* MV2101: Advanced preclincal - vascular access graft disease in
hemodialysis patients.
* MV6401: Preclinical - solid tumors (treatment of cells &
neovasculature).
Our ongoing commitment to the various programs depends upon a number of
factors, including the results of investigational studies, regulatory approvals,
financial resources, strategic business considerations, the competitive
marketing environment and potential return on investment.
Light Producing Devices. Our PhotoPoint procedures are designed to use
reliable and affordable light producing devices. Our light technologies include
software-controlled diode lasers, light emitting diode, or LED, arrays, and
non-coherent light sources. Either internally or with outside collaborators, we
have developed a variety of devices producing various wavelengths of light for
use in our investigational studies. We are collaborating with Iridex
Corporation, or Iridex, on the development of light producing devices for
PhotoPoint PDT in ophthalmology. Iridex co-developed with us and, pending
regulatory approval, will manufacture, the diode laser used in our AMD clinical
trials.
Light Delivery Devices. We have developed various configurations of fiber
optic devices to deliver uniform light to target tissues, for example, our
proprietary guidewire-compatible endovascular light catheter that is being
tested in preclinical studies for the treatment of cardiovascular disease.
Targeted Diseases and Clinical Trials
We believe that our PhotoPoint PDT technology has potential utility in a
number of disease indications. We have established certain development programs
based upon technical, regulatory, clinical, manufacturing and market
considerations. Our ongoing commitment to the various programs depends upon such
factors as adequate funding, corporate partner support, the results of
investigational studies, governmental regulatory communications, competitive
factors, potential return on investment, various other feasibility or economic
considerations as well as our overall business strategy.
Ophthalmology
We believe that PhotoPoint PDT has the potential to treat a variety of
ophthalmic disorders, including conditions associated with neovascularization
such as AMD and diabetic retinopathy. Ocular neovascularization is a condition
in which new blood vessels grow abnormally on or beneath the surface of the
retina or other parts of the eye. We have investigated PhotoPoint PDT as a
potential treatment to selectively destroy such abnormal blood vessels, and we
have completed Phase I/II and Phase III human clinical trials of PhotoPoint
SnET2 as a treatment for wet AMD.
AMD is the leading cause of blindness in Americans over age fifty. Patients
with AMD experience distortion or loss of central vision as the disease
progresses. In advanced, or wet, AMD new blood vessels develop beneath the
retina, which leak fluid and blood that can lead to retinal lifting, scarring
and irreversible loss of central vision. Wet AMD lesions are comprised of
neovascular membranes known as "classic" and "occult" components. Some lesions
are classified as pure occult, some as pure classic and others as a combination
of classic and occult components. It is estimated that 50% of wet AMD lesions
have some presence of a classic component.
In December 2001, we completed two Phase III ophthalmology clinical trials
for the treatment of wet AMD lesions with any presence of a classic component.
The primary efficacy endpoint of the clinical studies was the percent of
patients with stabilized vision, specifically, the proportion of patients losing
less than 15 letters from baseline on a standard ETDRS eye chart. In January
2002, our ophthalmology corporate partner, Pharmacia, reviewed the top-line
Phase III AMD clinical data and determined that SnET2 did not to meet the
primary efficacy endpoint in the study population, as defined by the clinical
trial protocol. Pharmacia notified us that it would not pursue an NDA submission
for SnET2. In March 2002, we regained the license rights to SnET2 from Pharmacia
as well as the related data and assets from the Phase III AMD clinical trials.
In addition, we terminated our license collaboration with Pharmacia, and have
the opportunity to seek a new collaborative partner for PhotoPoint PDT in
ophthalmology in the future.
During 2002, we completed a comprehensive analyses of the Phase III AMD
clinical data and held certain discussions with regulatory consultants and the
ophthalmic division of the FDA. Based on our review of the data from two
independent Phase III studies, we believe PhotoPoint SnET2 reduced the risk of
vision loss in drug-treated patients versus placebo patients. Additionally,
based on secondary efficacy analyses, relative to placebo, we believe SnET2
prevented severe vision loss and impacted the physiologic characteristics of
treated lesions by reducing leakage and fluid accumulation. Based on
retrospective analyses, we believe SnET2 demonstrated a positive treatment
response versus placebo across all compositions of wet AMD lesions, regardless
of the percentage of classic or occult components. Additionally, we believe the
SnET2 treatments were well tolerated in the study population, with a low overall
incidence of treatment-related adverse events. The most common side effect was
skin photosensitivity, or sun sensitivity, which was reported in less than 5% of
SnET2 administrations, and was predominantly mild in nature, transient in
duration and required no special treatment. Based on discussions with our
clinical investigators, we believe the photosensitivity to be a manageable side
effect that typically produces mild erythema, or redness, of the skin. In
addition, there were extremely few reports of either back pain on infusion or
acute post-treatment vision loss (less than 0.2% in both treated and placebo
patients), which have been previously reported with competitive PDT technology.
Based on our analysis of the Phase III AMD clinical data, in January 2003,
we announced our intention to submit an NDA for PhotoPoint SnET2 as a treatment
for wet AMD, specifically wet AMD lesions with any classic component, with or
without an occult component. We expect to submit the NDA on or about March 31,
2004, seeking marketing approval based on clinical results in the "per protocol"
study population. The per protocol population consists of those patients who
received the exposure to the SnET2 treatment regimen pre-specified in the
clinical study protocol, comprising a smaller number of patients than the total
study population. Although there is precedent for FDA approval of drugs based on
subgroup populations, including Visudyne(R), the currently approved competitive
PDT product for wet AMD, we cannot assure you that the FDA will grant approval
for SnET2 based on our per protocol group of patients.
If the FDA grants marketing approval based on our planned NDA submission,
we believe that the potential market for SnET2 is greater than that of
Visudyne(R) as currently approved. Visudyne(R) is approved for treatment of
lesions with predominantly classic component only, which represents
approximately 60% of the classic wet AMD market or 30% of the total wet AMD
market. We are seeking approval of SnET2 for the treatment of lesions with any
classic component, with or without an occult component, which represents 100% of
the classic wet AMD market or approximately 50% of the total wet AMD market.
A small group of patients with pure occult, no classic component, lesions
were also enrolled in the Phase III AMD clinical study. Our analyses of the
treated lesions showed, we believe, a clear beneficial trend relative to
placebo, although the result is not statistically significant due to the small
numbers of patients in the clinical trials. Given adequate financial resources
and regulatory clearances, we intend to conduct a confirmatory clinical trial in
patients with pure occult lesions, which is a large unmet medical need estimated
to be 50% of the total wet AMD market.
We have also conducted preclinical studies for the treatment of other
ophthalmic diseases such as corneal neovascularization, glaucoma and diabetic
retinopathy. Besides the planned use of SnET2 alone or in combination with other
therapies, we have identified certain next-generation drug compounds for
potential use in various eye diseases. These programs are in early stages of
development and will not likely advance until we obtain additional funding
and/or a collaborative partner in ophthalmology.
Cardiovascular Disease
We are investigating the use of PhotoPoint PDT for the treatment of
cardiovascular diseases, in particular for the treatment of atherosclerosis and
atherosclerotic vulnerable plaque, and the prevention and treatment of
restenosis. Atherosclerosis is a common condition involving complex
lipid-derived plaques within arteries that can lead to obstructive artery
disease. Clinicians have become aware that certain inflamed plaques within
artery walls are highly unstable and vulnerable to rupture. Vulnerable plaque
has been estimated to cause up to 80% of fatal heart attacks. Preclinical
studies with PhotoPoint PDT indicate that certain photoselective drugs may be
preferentially retained in hyperproliferating cells in artery walls and
lipid-rich components of arterial plaques. In preclinical studies we believe we
have demonstrated that PhotoPoint PDT has the potential to remove problematic
inflammatory cells and induce positive mechanisms of healing and repair that are
consistent with true plaque stabilization.
Restenosis is the re-narrowing of an artery that commonly occurs after
balloon angioplasty for obstructive artery disease. We believe data from
preclinical studies suggest that PhotoPoint PDT may aid in the prevention and
treatment of restenosis by inhibiting the aggressive overgrowth of cells that
cause re-narrowing, or restenosis, of arteries.
We are in the process of formulating our lead cardiovascular drug
candidate, MV0633, for clinical investigational use. 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 another existing photoselective drug.
The timing of the IND is dependent on numerous factors including preclinical
results, available funding and personnel. We are currently pursuing potential
strategic partners in the field of cardiovascular disease. There are no
guarantees that a strategic partner 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
vascular access graft disease. Synthetic arteriovenous, or AV, grafts are placed
in patients with End Stage Renal Disease to provide access for hemodialysis.
While these grafts are critical to the health of the patient, their functional
lifetime is limited due to stenosis, or narrowing, caused by cell overgrowth in
the vein. We have held discussions with the FDA about initiating a Phase II
clinical trial. We are currently pursuing potential strategic partners in this
field to help fund these clinical studies. Pending the results of our
preclinical studies as well as financial considerations, corporate
collaborations and other factors, we may decide to file an IND for the
commencement of clinical trials in this field.
Dermatology
We believe that PhotoPoint PDT may be potentially useful to treat a number
of dermatological, or skin, disorders. One of these is plaque psoriasis, a
chronic skin condition involving abnormal proliferation of the epidermis that
causes inflamed and scaly skin plaques. We are investigating PhotoPoint drug
MV9411 in a topical gel formulation for this disease indication. In July 2001,
we successfully completed a Phase I dermatology clinical trial of MV9411, and in
January 2002, commenced a Phase II dose-escalation clinical trial for the
treatment of psoriatic plaques. We expect the Phase II clinical trial to be
closed out in 2004. Analysis of the clinical results and other factors such as
available funding and personnel will determine the continuation of this program.
Oncology
Cancer is a large group of diseases characterized by uncontrolled growth
and spread of tumor cells with the associated growth of new blood vessels, or
neovascularization. In our oncology research program, we have ongoing
preclinical studies in solid tumors to target tumor cells and tumor
neovasculature. The focus of our preclinical research is to evaluate the utility
of PhotoPoint PDT as a stand-alone treatment or as a combination therapy with
experimental or conventional therapies. Currently, our research efforts focus on
the use of PhotoPoint PDT in treating cancers such as those of the brain,
breast, lung and prostate. We are investigating our novel PhotoPoint drug
compound MV6401 for oncology applications. In addition, we have an existing
oncology IND for SnET2, under which we may choose to submit protocols for
clinical trials in the future.
Definitive Collaborative Agreements
Pharmacia Corporation
In August 2003 when we entered into the 2003 Debt Agreement, we also
entered into a Termination and Release Agreement with Pharmacia AB, a wholly
owned subsidiary of Pfizer, Inc., or Pharmacia, for the retirement of $10.6
million of debt owed by us to Pharmacia and the release of the related security
collateral, in exchange for a payment of $1.0 million in cash, 390,000 shares of
our Common Stock, and an adjustment of the exercise price of Pharmacia's
outstanding warrants to purchase 360,000 shares of our Common Stock to $1.00
from an average exercise price of $15.77, and an extension of the expiration
date of those warrants to December 31, 2005 from expiration dates ranging from
May 2004 to May 2005. The Termination and Release Agreement supercedes all
previous agreements.
In the past, we had entered into a number of agreements with Pharmacia to
fund our operations and develop and market SnET2. In March 2002, we entered into
a Contract Modification and Termination Agreement with Pharmacia under which we
regained all of the rights and related data and assets to our lead drug
candidate, SnET2, and we restructured our outstanding debt to Pharmacia. Under
the terms of the Contract Modification and Termination Agreement, various
agreements and side letters between Miravant and Pharmacia have been terminated,
most of which related to SnET2 license agreements and related drug and device
supply agreements, the Manufacturing Facility Asset Purchase Agreement and
various supporting agreements. We also modified our 2001 Credit Agreement with
Pharmacia.
The termination of the various agreements provided that all ownership of
the rights, data and assets related to SnET2 and the Phase III AMD clinical
trials for the treatment of AMD revert back to us. The rights transferred back
to us include the ophthalmology IND and the related filings, data and reports
and the ability to license the rights to SnET2. The assets include the lasers
utilized in the Phase III AMD clinical trials, the bulk API manufacturing
equipment, all of the bulk API inventory sold to Pharmacia in 2001 and 2002 and
the finished dose formulation, or FDF, inventory. In addition, we reassumed the
lease obligations and related property taxes for our bulk API manufacturing
facility. The lease agreement expires in March 2006 and currently has a base
rent of approximately $26,000 per month. In January 2003, we sublet this
facility through December 2005.
Iridex Corporation
In May 1996, we entered into a co-development and distribution agreement
with Iridex, a leading provider of semiconductor-based laser systems to treat
eye diseases. The agreement provides, among other things, the following:
* We have the exclusive right to co-develop, with Iridex, light
producing devices for use in photodynamic therapy in the field of
ophthalmology;
* We will conduct clinical trials and make regulatory submissions with
respect to all co-developed devices and Iridex will manufacture all
devices for these trials, with costs shared as set forth in the
agreement; and
* Iridex will have an exclusive, worldwide license to make, distribute
and sell all co-developed devices, on which it will pay us royalties.
The agreement remains in effect, subject to earlier termination in certain
circumstances, until ten years after the date of the first FDA approval of any
co-developed device for commercial sale, subject to certain renewal rights. The
light producing device used in AMD clinical trials was co-developed with Iris
Medical Instruments Inc., a subsidiary of Iridex, under this agreement, and any
commercialization of this device is governed in part by this agreement.
The University of Toledo, The Medical College of Ohio and St. Vincent Medical
Center
In July 1989, we entered into a License Agreement with the University of
Toledo, the Medical College of Ohio and St. Vincent Medical Center, of Toledo,
Ohio, collectively referred to as Toledo. This agreement provides us with
exclusive, worldwide rights:
* To make, use, sell, license or sublicense certain photoselective
compounds, including SnET2 covered by certain Toledo patents and
patent applications, or not covered by Toledo patents or patent
applications but owned or licensed to Toledo and which Toledo has the
right to sublicense;
* To make, use, sell, license or sublicense certain of the compounds for
which we have provided Toledo with financial support; and
* To make, use or sell any invention claimed in Toledo patents or
applications and any composition, method or device related to
compounds conceived or developed by Toledo under research funded by
Miravant.
The agreement further provides that we pay Toledo royalties on the revenues
we receive from the sales or sublicenses of product covered by this agreement.
To date, no royalties have been paid or accrued since no drug or related product
has been sold. Under the agreement, we are required to satisfy certain
development and commercialization objectives once an NDA has received approval.
This agreement terminates upon the expiration or non-renewal of the last patent
which may issue under this agreement, currently 2013. By the terms of the
agreement, the license extends upon issuance of any new Toledo patents. We do
not have contractual indemnification rights against Toledo under the agreement.
Some of the research relating to the compounds covered by this License
Agreement, including SnET2, has been or is being funded in part by certain
governmental grants under which the United States Government has or will have
certain rights in the technology developed, including the right under certain
circumstances to a non-exclusive license or to require us to grant an exclusive
license to a third party. For a description of governmental rights see "Patents
and Proprietary Technology".
Fresenius AG
We have a formulation and commercial supply agreement, or Formulation
Agreement, with Fresenius Kabi Nutrition AB, a subsidiary of Fresenius Kabi AG,
or Fresenius to develop an emulsion formulation suitable for intravenous
administration of SnET2 in a finished dose formulation, or FDF. This agreement
was originally with Pharmacia but was assigned to Fresenius effective November
30, 1998, as part of an Asset Transfer Agreement.
As part of the activities necessary under the Pharmacia Contract
Modification and Termination Agreement, we and Pharmacia entered into an
agreement whereby all of Pharmacia's rights and obligations under their Contract
Manufacturing Agreement were assigned to us. By operation of Fresenius' consent
to the assignment, the Formulation Agreement has been superceded by the terms of
the Contract Manufacturing Agreement. The material operating terms of this
agreement include the following:
* Fresenius remains our exclusive manufacturer and supplier of our
worldwide requirements for SnET2 FDF;
* Fresenius will not develop or supply drug formulations or services for
use in any photodynamic therapy applications for any other company;
and
* The agreement term is indefinite except that it may be terminated ten
years after the first commercial sale of SnET2 FDF.
Ramus Medical Technologies
In December 1996, our wholly owned subsidiary, Miravant Cardiovascular,
Inc., entered into a co-development agreement with Ramus Medical Technologies,
or Ramus, an innovator in the development of autologous tissue stent-grafts for
vascular bypass surgeries. Generally the agreement provides us with the
exclusive rights to co-develop our photodynamic therapy technology with Ramus'
proprietary technology in the development of autologous vascular grafts for
coronary arteries and other vessels. Ramus shall provide, at no cost to us,
products for use in preclinical studies and clinical trials with all other
preclinical and clinical costs to be paid by us. The agreement remains in effect
until the later of ten years after the date of the first FDA approval of any
co-developed device for commercial sale, or the life of any patent issued on a
co-developed device, subject to certain renewal rights. Currently, there are no
co-development activities and Ramus activities are at a minimum until they raise
funding to continue operations. We do provide various services to them on an as
needed basis, which have been insignificant to date, and we have deferred Ramus'
sublease rent payments until sometime in the future.
In conjunction with the co-development agreement, we purchased a $2.0
million equity interest in Ramus, and obtained an option to acquire the
remaining shares of Ramus. We declined to exercise this option and the option
period has now expired. Further, we have first refusal rights and pre-emptive
rights for any issuance of new securities, whether debt or equity, made by
Ramus. In April 1998, we entered into a $2.0 million revolving credit agreement
with Ramus. Between 1998 and 1999, Ramus borrowed the entire $2.0 million
available under the credit agreement. In March 2000, the loan term was extended
indefinitely. It was determined that it was probable that we would be unable to
collect the amounts due from Ramus under the contractual terms of the loan
agreement. Therefore, we have established a reserve for the entire outstanding
balance of the loan receivable at December 31, 2003 and 2002. We have held
discussions with Ramus to reorganize their outstanding debt or to convert their
entire debt, including accrued and unpaid interest, to Ramus equity.
Xillix Technologies Corp.
In June 1998, we purchased an equity interest in Xillix Technologies Corp.,
or Xillix. We received 2,691,904 shares of Xillix common stock in exchange for
$3.0 million in cash and 58,909 shares of Miravant Common Stock. In conjunction
with the investment, we also entered into an exclusive strategic alliance
agreement with Xillix to co-develop proprietary systems incorporating PhotoPoint
PDT and Xillix's fluorescence imaging technology for diagnosing and treating
early stage cancer and pre-malignant tissues. The co-development agreement was
terminated in November 2003. In December 2003, we sold our entire investment in
Xillix of approximately 2.7 million shares, which had an adjusted basis of
$393,000 and received net proceeds of approximately $1.6 million, resulting in a
net gain of $1.2 million.
Laserscope
In April 1992, we entered into a seven-year license and distribution
agreement with Laserscope, a surgical laser company. This agreement terminated
in April 1999 and Laserscope made a final royalty settlement with us in 2001.
Laserscope now holds a fully paid-up, non-exclusive license to use in its
products dye laser technology that we developed.
Research and Development Programs
Our research and development programs are committed to the discovery,
development and optimization of drugs and devices for PhotoPoint PDT. These
activities are conducted in-house in our pharmaceutical and engineering
laboratories or in extramural collaborations with academic or medical research
institutions or corporations. We have expended, and expect to continue to spend,
substantial funds on our research and development programs. We expended $7.6
million, $9.5 million and $13.5 million on research and development activities
during 2003, 2002 and 2001, respectively.
We have pursued and been awarded various government grants and contracts.
These grants have been sponsored by the National Institutes of Health and/or the
Small Business Innovative Research Administration, which supplement our research
efforts and facilitate new development.
Manufacturing
Our strategy is to generally retain manufacturing rights and maintain
limited manufacturing capabilities and, where appropriate due to financial and
operational constraints, to partner with leading contract manufacturing
organizations in the pharmaceutical and medical device sector for certain
manufacturing processes. We also have the limited ability to manufacture
small-scale quantities of light producing devices and light delivery devices at
this location and provide other production and testing activities to support
current clinical programs. However, we have limited capabilities, personnel and
experience in the manufacture of finished drug at commercial levels, nor light
producing and light delivery devices. We will require outside suppliers,
contracted or otherwise, for certain materials and services related to our
manufacturing activities, especially at large-scale levels. Although most of our
materials and components are available from various sources, we are dependent on
certain suppliers for key materials or services used in drug and device
development and production operations. One supplier is Fresenius, which
processes our SnET2 drug substance into a sterile injectable formulation and
packages it in vials for distribution. Another key supplier is Iridex, which
provided the light producing devices used in our AMD clinical trials and may be
used as a supplier for future investigational and commercial devices in
ophthalmology. We expect to continue to develop new drugs, new drug formulations
and light devices both in-house and using external suppliers, which may or may
not have similar dependencies.
Prior to supplying drugs or devices for commercial use, our manufacturing
facilities, as well as the Iridex and Fresenius manufacturing facilities, must
be inspected and approved by the FDA for Good Manufacturing Practices, or GMP,
compliance. Iridex and Fresenius are currently manufacturing products under the
GMP regulations, but our manufacturing facility has not yet been inspected by
the FDA for GMP compliance. Any drugs and devices manufactured by us or our
suppliers for prospective commercial use must be withheld from distribution
until FDA approvals are obtained, if at all. In addition, if we elect to
outsource manufacturing to other third-party manufacturers, these facilities
must satisfy FDA GMP requirements.
We were licensed by the State of California to manufacture bulk active
pharmaceutical ingredient, or API, at one of our Santa Barbara, California
facilities for clinical trial and other use. This particular manufacturing
facility was closed by us in 2002 and has been reconstructed and now operates in
our existing operating facility, which has not yet been inspected by the State
of California or the FDA. In the original manufacturing facility, we
manufactured bulk API for SnET2, the final process before formulation and
packaging. As previously discussed, we regained ownership of that bulk API
inventory as well as lasers from Pharmacia, which are not subject to expiration
dates, whereas the FDF received has expired. We have API inventory in quantities
that we believe will be adequate for an initial commercial launch of SnET2, if
and when we gain regulatory approval for the facility and for use of the API
inventory.
Marketing, Sales and Distribution
We are developing several plans for the marketing, sales and distribution
of PhotoPoint SnET2 for wet AMD. We may decide to license SnET2 or otherwise
partner with an established pharmaceutical company for commercialization of the
drug. If financially and logistically feasible, we may elect to retain all
rights to SnET2 and contract the marketing, sales and distribution to outside
independent contractors or develop certain internal capabilities. There are a
number of factors that will influence this decision, including partnering
opportunities, the terms and conditions, our potential return on investment,
financial resources and operational capabilities. In regard to the AMD light
device, we have granted to Iridex the worldwide license to market and sell all
co-developed light producing devices for use in PhotoPoint PDT in the field of
ophthalmology.
In regard to products in longer-term development, we will consider various
avenues for commercialization as appropriate in our strategic planning and
licensing discussions.
Customers and Backlog
Our drugs and devices are in various stages of development and have not yet
been evaluated by the FDA for regulatory approval. Thus, we currently have no
marketed drugs or devices and therefore no customers or backlog. We have derived
revenue in the past from the sale of API to our collaborative partner and have
received governmental research grants. We have also received limited royalty
income from Laserscope for the license of our dye laser technology.
Patents and Proprietary Technology
We pursue a policy of seeking patent protection for our technology both in
the United States and in selected countries abroad. We plan to prosecute, assert
and defend our patent rights when appropriate. We also rely upon trade secrets,
know-how, continuing technological innovations and licensing opportunities to
develop and maintain our competitive position. The following is a summary of our
current patents:
* Record owner of thirty-nine issued United States patents, primarily
device, expiring 2010 through 2021;
* Record owner of twelve issued foreign patents, expiring 2012 through
2019;
* Exclusive license rights under twenty issued United States patents,
primarily pharmaceutical, expiring 2006 through 2016;
* Exclusive license rights under seven issued foreign patents, expiring
2006 through 2017;
* Co-owner or licensee of three additional issued patents, expiring 2015
through 2017; and
* Holder of a number of United States and related foreign patent
applications filed and pending, relating to photoselective compounds,
light devices and methods.
We obtained many of our photoselective compound patent rights, including
rights to SnET2, through an exclusive license agreement with Toledo. Certain of
the foregoing patents and applications are subject to certain governmental
rights described below.
The patent positions of pharmaceutical and biotechnology companies,
including ours, can be uncertain and involve complex legal, scientific, and
factual questions. There can be no assurance that our patents or licensed
patents will afford legal protection against competitors or provide significant
proprietary protection or competitive advantage. In addition, our patents or
licensed patents could be held invalid or unenforceable by a court, or infringed
or circumvented by others, or others could obtain patents that we would need to
license or circumvent. Competitors or potential competitors may have filed
patent applications or received patents, and may obtain additional patents and
proprietary rights relating molecules, compounds, or processes competitive with
ours.
It is our general policy to require our employees, consultants, outside
scientific collaborators and sponsored researchers and other advisors to execute
confidentiality agreements upon the commencement of employment or consulting
relationships with us. These agreements provide that all confidential
information developed or made known to the individual during the course of our
relationship are to be kept confidential and not disclosed to third parties
except in specific limited circumstances. We also generally require signed
confidentiality or material transfer agreements from any company that is to
receive confidential data or proprietary compounds. In the case of employees and
consultants, the agreements generally provide that all inventions conceived by
the individual while rendering services to us, which relate to our business or
anticipated business, shall be assigned to us as our exclusive property.
Some of our research relating to certain pharmaceutical compounds covered
by the license agreement with Toledo, including SnET2, has been or is being
funded in part by Small Business Innovation Research Administration and/or
National Institutes of Health grants. As a result, the United States Government
has or will have certain rights in the inventions developed with the funding.
These rights include a non-exclusive, paid-up, worldwide license under these
inventions for any governmental purpose. In addition, the government has the
right to require us to grant an exclusive license under any of these inventions
to a third party if the government determines that:
* Adequate steps have not been taken to commercialize such inventions;
* Such action is necessary to meet public health or safety needs; or
* Such action is necessary to meet requirements for public use under
federal regulations.
Federal law requires that any exclusive licensor of an invention that was
partially funded by federal grants, which is the case with the subject matter of
certain patents issued in our name or licensed from Toledo, agree that it will
not grant exclusive rights to use or sell the invention in the United States
unless the grantee agrees that any products embodying the invention will be
manufactured substantially in the United States, although this requirement is
subject to a discretionary waiver by the government. It is not expected that the
government will exercise any of these rights or that the exercise of this right
would have a material impact on us.
Government Regulation
The research, development, manufacture, marketing and distribution of our
products are subject to regulation for safety and efficacy by numerous
governmental authorities in the United States and other countries. In the United
States, pharmaceutical products and medical devices are regulated by the FDA
through the Food, Drug and Cosmetic Act, known as the FDC Act. The FDC Act and
various other federal and state statutes control and otherwise affect the
development, approval, manufacture, testing, storage, records and distribution
of drugs and medical devices. We are subject to regulatory requirements
governing both drugs and devices. We expect to submit an NDA for the treatment
of AMD with SnET2 with the FDA on or about March 31, 2004 and the submission is
expected to receive fast track designation.
Drug Products. The FDA generally requires the following steps before a new
drug product may be marketed in the United States:
* Preclinical studies (laboratory and animal tests);
* The submission to the FDA of an application for an IND exemption,
which must become effective before human clinical trials may commence;
* Adequate and well-conducted clinical trials to establish safety and
efficacy of the drug for its intended use;
* The submission to the FDA of an NDA; and
* The review and approval of the NDA by the FDA before any commercial
sale or shipment of the drug.
In addition to obtaining FDA approval for each new drug product, each drug
manufacturing establishment must be registered with the FDA. Manufacturing
establishments, both domestic and foreign, are subject to inspections by or
under the authority of the FDA and by other federal, state or local agencies and
must comply with the FDA's current Good Manufacturing Practices, or GMP,
regulations. The FDA will not approve an NDA until a pre-approval inspection of
the manufacturing facilities confirms that the drug is produced in accordance
with current drug GMPs. In addition, drug manufacturing establishments in
California must also be licensed by the State of California and must comply with
manufacturing, environmental and other regulations promulgated and enforced by
the California Department of Health Services. We were licensed by the State of
California to manufacture bulk API at one of our Santa Barbara, California
facilities for clinical trial and other use. This particular manufacturing
facility was closed by us in 2002 and has been reconstructed and operates in our
existing operating facility, but has not yet been inspected by the State of
California or the FDA.
Preclinical studies include laboratory evaluation of product chemistry,
conducted under Good Laboratory Practices, or GLP, regulations, and animal
studies to assess the potential safety and efficacy of the drug and its
formulation. The results of the preclinical studies are submitted to the FDA as
part of the IND. Unless the FDA asks for additional information, additional
review time, or otherwise objects to the IND, the IND becomes effective thirty
days following its receipt by the FDA.
Clinical trials involve the administration of the investigational drug to
human subjects under FDA regulations and other guidance commonly known as Good
Clinical Practice, or GCP, requirements under the supervision of a qualified
physician. Clinical trials are conducted in accordance with protocols that
detail the objectives of the study, the parameters to be used to monitor safety
and the efficacy criteria to be evaluated. Each protocol is submitted to the FDA
as a part of the IND. Each clinical study must be conducted under the auspices
of an independent Institutional Review Board, or IRB. The IRB considers, among
other things, ethical factors, the safety of human subjects and the possible
liability of the testing institution.
Clinical trials are typically conducted in three sequential phases,
although the phases may overlap.
* Phase I represents the initial introduction of the drug to a small
group of humans to test for safety, identify adverse effects, dosage
tolerance, absorption, distribution, metabolism, excretion and
clinical pharmacology and, if possible, to gain early evidence of
effectiveness;
* Phase II involves studies in a limited sample of the intended patient
population to assess the efficacy of the drug for a specific
indication, to determine dose tolerance and optimal dose range and to
identify possible adverse effects and safety risks; and
* Once a compound is found to have some efficacy and to have an
acceptable safety profile in Phase II evaluations, Phase III clinical
trials are initiated for definitive clinical safety and efficacy
studies in a broader sample of the patient population at multiple
study sites. The results of the preclinical studies and clinical
trials are submitted to the FDA in the form of an NDA for marketing
approval.
Completing clinical trials and obtaining FDA approval for a new drug
product is a long process and is likely to take several years and require
expenditure of substantial resources. When an NDA application is submitted,
there can be no assurance that the FDA will approve the NDA. Even if initial FDA
approval is obtained, further studies may be required to gain approval for the
use of a product as a treatment for clinical indications other than those for
which the product was initially approved. Also, the FDA requires post-market
surveillance programs to monitor and report the drug's side effects. For certain
drugs, the FDA may also, concurrent with marketing approval, seek agreement from
the sponsor to conduct post-marketing, Phase IV, studies to obtain further
information about the drug's risks, benefits and optimal use. Results of this
monitoring and of Phase IV post-marketing studies may affect the further
marketing of the product.
Where appropriate, we may seek to obtain accelerated review and/or approval
of products and to use expanded access programs that may provide broader
accessibility and, if approved by the FDA, payment for an investigational drug
product. For instance, we requested and received fast track designation from the
FDA for the treatment of choroidal neovascularization associated with AMD. Under
the FDA Modernization Act of 1997, the FDA gives fast track designation to drugs
and devices that treat serious or life-threatening conditions that represent
unmet medical needs. The designation means that data can be submitted to the FDA
during the clinical trial process based on clinical or surrogate endpoints that
are likely to predict clinical benefit, and the FDA can expedite its regulatory
review. Other examples of such activities include pursuing programs such as
treatment IND or parallel track IND classifications which allow expanded
availability of an investigational treatment to patients not in the ongoing
clinical trials, and seeking physician or cross-referenced INDs which allow
individual physicians to use an investigational drug before marketing approval
and for an indication not covered by the ongoing clinical trials. However, there
can be no assurance that we will seek such avenues at any time, or that such
activities will be successful or result in accelerated review or approval of any
of our products.
Medical Device Products. Our medical device products are subject to
government regulation in the United States and foreign countries. In the United
States, we are subject to the rules and regulations established by the FDA
requiring that our medical device products are safe and efficacious and are
designed, tested, developed, manufactured and distributed in accordance with FDA
regulations.
Under the FDC Act, medical devices are classified into one of three classes
(i.e., class I, II, or III) on the basis of the controls necessary to reasonably
ensure their safety and effectiveness. Safety and effectiveness can reasonably
be assured for class I devices through general controls (e.g., labeling,
premarket notification and adherence to GMPs) and for class II devices through
the use of general and special controls (e.g., performance standards, postmarket
surveillance, patient registries and FDA guidelines). Generally, class III
devices are those which must receive premarket approval by the FDA to ensure
their safety and effectiveness (e.g., life-sustaining, life-supporting and
implantable devices, or new devices which have been found not to be
substantially equivalent to legally marketed devices).
Before a new device can be introduced to the market, the manufacturer
generally must obtain FDA clearance through either a 510(k) premarket
notification or a Premarket Approval Application, or PMA. A PMA requires the
completion of extensive clinical trials comparable to those required of new
drugs and typically requires several years before FDA approval, if any, is
obtained. A 510(k) clearance will be granted if the submitted data establish
that the proposed device is "substantially equivalent" to a legally marketed
class I or class II medical device, or to a class III medical device for which
the FDA has not called for PMAs. Devices used by other companies for
photodynamic therapy, which are similar to our devices, have been classified as
Class III, and have been evaluated in conjunction with an IND as a combination
drug-device product. Therefore it is likely that our products will also be
treated as a combination drug-device product.
Combination Drug-Device Products. Medical products containing a combination
of drugs, devices or biological products may be regulated as "combination
products." A combination product is generally defined as a product comprised of
components from two or more regulatory categories (drug/device, device/biologic,
drug/biologic, etc.) and in which the various components are required to achieve
the intended effect and are labeled accordingly. Each component of a combination
product is subject to the rules and regulations established by the FDA for that
component category, whether drug, biologic or device. Primary responsibility for
the regulation of a combination product depends on the FDA's determination of
the "primary mode of action" of the combination product, whether drug, biologic
or device.
In order to facilitate premarket review of combination products, the FDA
designates one of its centers to have primary jurisdiction for the premarket
review and regulation of both components, in most cases eliminating the need to
receive approvals from more than one center. The determination whether a product
is a combination product or two separate products is made by the FDA on a
case-by-case basis. Market approval authority for combination photodynamic
therapy drug/device products is vested in the FDA Center for Drug Evaluation and
Research, or CDER, which is required to consult with the FDA Center for Devices
and Radiological Health. As the lead agency, the CDER administers and enforces
the premarket requirements for both the drug and device components of the
combination product. The FDA has reserved the decision on whether to require
separate submissions for each component until the product is ready for premarket
approval. Although, to date, photodynamic therapy products have been categorized
by the FDA as combination drug-device products, the FDA may change that
categorization in the future, resulting in different submission and/or approval
requirements.
If separate applications for approval are required in the future for
PhotoPoint PDT devices, it may be necessary for us to submit a PMA or a 510(k)
to the FDA for our PhotoPoint PDT devices. Submission of a PMA would include the
same clinical trials submitted under the IND to show the safety and efficacy of
the device for its intended use in the combination product. A 510(k)
notification would include information and data to show that our device is
substantially equivalent to previously marketed devices. There can be no
assurance as to the exact form of the premarket approval submission required by
the FDA or post-marketing controls for our PhotoPoint PDT devices.
Post-Approval Compliance. Once a product is approved for marketing, we must
continue to comply with various FDA, and in some cases Federal Trade Commission,
requirements for design, safety, advertising, labeling, record keeping and
reporting of adverse experiences associated with the use of a product. The FDA
actively enforces regulations prohibiting marketing of products for non-approved
uses. Failure to comply with applicable regulatory requirements can result in,
among other things, fines, injunctions, civil penalties, failure of the
government to grant premarket clearance, premarket approval or export
certificates for devices or drugs, delays or suspensions or withdrawals of
approvals, seizures or recalls of products, operating restrictions and criminal
prosecutions. Changes in existing requirements or adoption of new requirements
could have a material adverse effect on our business, financial condition and
results of operations.
International. We are also subject to foreign regulatory requirements
governing testing, development, marketing, licensing, pricing and/or
distribution of drugs and devices in other countries. These regulations vary
from country to country. Beginning in 1995, a new regulatory system to approve
drug market registration applications was implemented in the EU. The system
provides for new centralized, decentralized and national (member state by member
state) registration procedures through which a company may obtain drug marketing
registrations. The centralized procedure allows for expedited review and
approval of biotechnology and high technology/innovative product marketing
applications by a central Committee for Proprietary Medicinal Products that is
binding on all member states in the EU. The decentralized procedure allows a
company to petition individual EU member states to review and recognize a market
application previously approved in one member state by the national route. Our
devices must also meet the new Medical Device Directive effective in Europe in
1998. The Directive requires that our manufacturing quality assurance systems
and compliance with technical essential requirements be certified with a CE Mark
authorized by a registered notified body of an EU member state prior to free
sale in the EU. Registration and approval of a photodynamic therapy product in
other countries, such as Japan, may include additional procedures and
requirements, preclinical studies and clinical trials, and may require the
assistance of native corporate partners.
Competition
The pharmaceutical and medical device industries are characterized by
extensive worldwide research and development efforts and rapid technological
change. Competition from other domestic and foreign pharmaceutical or medical
device companies and research and academic institutions in the areas of product
development, product and technology acquisition, manufacturing and marketing is
intense and is expected to increase. These competitors may succeed in obtaining
approval from the FDA or other regulatory agencies for their products more
rapidly than us. Competitors have also developed or are in the process of
developing technologies that are, or in the future may be, the basis for
competitive products.
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, the establishment of patent protection by our competitors could harm
our competitive position. 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 Pharm Inc., or Axcan, Eyetech Pharmacueticals
Inc., or Eyetech, and Pharmacyclics. QLT's drug Visudyne(R) 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. Eyetech is currently completing a Phase III clinical
trial in AMD and is expected to submit an NDA at the end of 2004 or beginning of
2005. We are aware of other drugs and devices under development by these and
other competitors in additional disease areas for which we are developing
PhotoPoint PDT. These competitors as well as others that we are not aware of,
may develop superior products or reach the market prior to PhotoPoint PDT and
render our products non-competitive or obsolete.
In the photodynamic therapy sector, we believe that a primary competitive
issue will be the performance characteristics of photoselective drugs, including
product efficacy and safety, as well as availability, price and patent position,
among other issues. As the photodynamic therapy industry evolves, we believe
that new and more sophisticated devices may be required and that the ability of
any group to develop advanced devices will be important to market position.
Corporate Offices
Our principal office is located at 336 Bollay Drive, Santa Barbara,
California, 93117. Our main telephone and fax numbers are (805) 685-9880 and
(805) 685-7981. We were incorporated in the state of Delaware in 1989.
Employees
As of March 15, 2004, we employed 56 individuals, approximately 22 of which
were engaged in research and development, 14 were engaged in manufacturing and
clinical activities and 20 in general and administrative activities. We believe
that our relationship with our employees is good and none of the employees are
represented by a labor union.
Our future success also depends on our continuing ability to attract,
train, retain or engage highly qualified scientific and technical personnel or
consultants. Competition for these personnel is intense, particularly in Santa
Barbara where we are headquartered. Due to the limited number of people
available with the necessary scientific and technical skills and our current
challenging financial situation, we can give no assurance that we can retain,
attract or engage key personnel or consultants in the future. We have not
experienced any work stoppages and consider our relations with our employees to
be good.
EXECUTIVE OFFICERS
The names, ages and certain additional information of the current
executive officers of the Company are as follows:
Name Age Position
Gary S. Kledzik, Ph.D. 54 Chairman of the Board and
Chief Executive Officer
David E. Mai 59 President of Miravant Medical
Technologies, Miravant Systems,
Inc., Miravant Pharmaceuticals,
Inc. and Director
John M. Philpott 43 Chief Financial Officer
and Treasurer
Gary S. Kledzik, Ph.D. is a founder of the Company and has served as a
director since its inception in June 1989. He served as President of the Company
from June 1989 to May 1996. He has been Chairman of the Board of Directors since
July 1991 and Chief Executive Officer since September 1992. Prior to joining the
Company, Dr. Kledzik was Vice President of the Glenn Foundation for Medical
Research. His previous experience includes serving as Research and General
Manager for an Ortho Diagnostic Systems, Inc. division of Johnson & Johnson and
Vice President of Immulok, Inc., a cancer and infectious disease biotechnology
company which he co-founded and which was acquired by Johnson & Johnson in 1983.
Dr. Kledzik holds a B.S. in Biology and a Ph.D. in Physiology from Michigan
State University.
David E. Mai has served as President of the Company since May 1996,
President of Miravant Cardiovascular, Inc. from September 1992 to June 2001,
President of Miravant Pharmaceuticals, Inc. since July 1996 and President of
Miravant Systems, Inc. since June 1997. Mr. Mai served as Vice President of
Corporate Development for the Company from March 1994 until May 1996. Mr. Mai
became associated with the Company in July 1990 as a consultant assisting with
technology and business development. He joined the Company in 1991, serving as
New Product Program Manager from February 1991 to July 1992 and as Clinical
Research Manager from July 1992 to September 1992. Prior to joining the Company,
Mr. Mai was Director of the Intravascular Ultrasound Division of Diasonics
Corporation from 1988 to 1989. Previously, Mr. Mai served as Director of
Strategic Marketing for Boston Scientific Corporation's Advanced Technologies
Division, Vice President of Stanco Medical and Sales Engineer with
Hewlett-Packard Medical Electronics. Mr. Mai holds a B.S. degree in Biology from
the University of Hawaii.
John M. Philpott has served as Chief Financial Officer since December 1995.
Since March 1995, Mr. Philpott had served as Controller. Prior to joining the
Company, Mr. Philpott was a Senior Manager with Ernst & Young LLP, which he
joined in 1986. Mr. Philpott is a Certified Public Accountant in the State of
California. He holds a B.S. degree in Accounting and Management Information
Systems from California State University, Northridge.
Where You Can Find More Information
We make our annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and all amendments to such reports filed pursuant
to Section 13(a) or 15(d) of the Exchange Act, available, free of charge, on or
through our Internet website located at www.miravant.com, as soon as reasonably
practicable after they are filed with or furnished to the SEC.
ITEM 2. PROPERTIES
We currently have a month-to-month lease in place for approximately 25,000
square feet of office, laboratory and manufacturing space in Santa Barbara,
California. This building currently houses all of our operations and employees.
We entered into this lease in August 1996. During the third quarter of 2003, we
reduced our occupancy in this building from approximately 40,000 square feet to
25,000 square feet. This lease provides for rent to be adjusted annually based
on increases in the consumer price index and the base rent is currently
approximately $33,000 per month. The leased property is located in a business
park. We have the ability to manufacture our active drug ingredient, our light
producing and light delivery devices and perform research and development of
drugs, light delivery and light producing devices from this facility. At this
time we will continue to lease month-to-month until we decide that our financial
position supports a longer-term commitment. In addition, we are aware that the
lessors can give us a 30-day notice at any time requiring us to vacate.
ITEM 3. LEGAL PROCEEDINGS
We are not currently party to any material litigation or proceeding and are
not aware of any material litigation or proceeding threatened against us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 2003.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
Our Common Stock is traded on the OTC Bulletin Board(R), or OTCBB, under
the symbol MRVT. The following table sets forth high and low bid prices per
share of Common Stock as reported on the Nasdaq National Market based on
published financial sources. The closing price of our Common Stock as reported
on the Nasdaq National Market under the symbol MRVT.OB on March 15, 2004 was
$3.25.
High Low
2003:
Fourth quarter............................................$ 1.35 $ 0.99
Third quarter............................................ 1.44 0.90
Second quarter............................................ 1.29 0.92
First quarter............................................. 1.57 0.71
2002:
Fourth quarter............................................$ 1.05 $ 0.40
Third quarter............................................ 0.99 0.19
Second quarter............................................ 1.68 0.50
First quarter............................................. 9.90 0.74
As of March 15, 2004 there were approximately 277 stockholders of record of
the Common Stock, which does not include "street accounts" of securities
brokers. Based on the number of proxies requested by brokers in connection with
our annual meeting of stockholders, we estimate that the total number of
stockholders of the Common Stock exceeds 6,000.
Dividend Policy
We have never paid dividends, cash or otherwise, on our capital stock and
do not anticipate paying any dividends in the foreseeable future. We currently
intend to retain future earnings, if any, to finance the growth and development
of our business.
Nasdaq Listing
We were notified by Nasdaq on July 11, 2002 that our Common Stock would be
delisted and begin trading on the OTCBB effective as of the opening of business
on July 12, 2002. The OTCBB is a regulated quotation service that displays
real-time quotes, last-sale prices and volume information in over-the-counter
equity securities. OTCBB securities are traded by a community of market makers
that enter quotes and trade reports. Our Common Stock trades under the ticker
symbol MRVT and can be viewed at www.otcbb.com. Management continues to review
our ability to regain our listing status with Nasdaq, however, there are no
guarantees we will be able to raise the additional capital needed or to increase
the current trading price of our Common Stock to allow us to meet the relisting
requirements for the Nasdaq National Market or the Nasdaq Small Cap Market on a
timely basis, if at all.
Recent Sales of Unregistered Securities - Fourth Quarter 2003
None
Equity Compensation Plan Information
The following table gives information about our Common Stock that may be
issued upon the exercise of options, warrants and rights under all of our
existing equity compensation plans as of December 31, 2003.
(a) (b) (c)
Number of Number of securities
securities to be remaining available for
issued upon Weighted average future issuance under
exercise of exercise price equity compensation
outstanding of outstanding plans (excluding
options, warrants options, securities reflected in
and rights warrants and column(a))
Plan Category rights
----------------------------------------- -------------------- ------------------ --------------------------
Equity compensation plans approved by
security holders(1)(2)................. 4,214,847 $ 3.06 3,092,772
-----------------------------------------
Equity compensation plans not approved
by security holders(3)................. 247,500 $ 8.59 --
----------------------------------------- -------------------- ------------------ --------------------------
Total.................................. 4,462,347 $ 3.37 3,092,772
----------------------------------------- -------------------- ------------------ --------------------------
(1) These plans include: The 2000 Stock Compensation Plan, or 2000 Plan,
the 1989 Plan, the 1992 Plan, the 1994 Plan and the 1996 Plan, or the
Prior Plans. The 2000 Plan has superceded the Prior Plans.
(2) As of December 31, 2003, of the 4,214,847 stock options issued, the
number of stock options issued from the Prior Plans was 954,137 shares
and the number of stock options issued from the 2000 Plan was
3,260,710 shares. The maximum amount of shares that could be awarded
under the 2000 Plan over its term is 8,000,000 shares, of which
3,260,710 stock options have been granted or issued and 1,646,518
shares for stock awards, restricted stock and/or consultant stock
options have been issued. The total shares issued from the 2000 Plan
was 4,847,228 shares, which leaves 3,092,772 remaining shares
available for future issuance.
(3) Over time warrants to purchase shares of our Common Stock have been
issued to various consultants for services which were not issued from
a stockholder approved equity compensation plan.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
In the table below, we provide you with summary historical financial data
of Miravant Medical Technologies. We have prepared this information using the
consolidated financial statements of Miravant for the five years ended December
31, 2003. The consolidated financial statements for the five fiscal years ended
December 31, 2003 have been audited by Ernst & Young LLP, independent auditors.
When you read this summary of historical financial data, it is important
that you read along with it the historical financial statements and related
notes in our annual and quarterly reports filed with the SEC, as well as the
section of our annual and quarterly reports titled "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Year Ended December 31,
----------------------------------------------------------------------------------
2003 2002 2001 2000 1999
--------------- --------------- --------------- --------------- ---------------
(in thousands, except share and per share data)
Statement of Operations Data:
Revenues ......................... $ -- $ 499 $ 4,683 $ 4,593 $ 14,577
Costs and expenses:
Cost of goods sold............. -- 479 934 -- --
Research and development....... 7,616 9,549 13,493 20,194 29,749
General and administrative..... 4,620 5,726 5,903 6,023 7,473
Loss in affiliate.............. -- -- -- -- --
--------------- --------------- --------------- --------------- ---------------
Total costs and expenses.......... 12,236 15,754 20,330 26,217 37,639
--------------- --------------- --------------- --------------- ---------------
Loss from operations.............. (12,236) (15,255) (15,647) (21,624) (23,062)
Interest and other income (expense)
Interest and other income...... 76 169 798 1,370 1,240
Interest expense............... (5,649) (286) (2,139) (2,254) (434)
Gain on sale of assets......... 62 10 586 -- --
Gain on sale of investment
in affiliate(1)............... 1,196 -- -- -- --
Gain on retirement of debt (2). 9,086 -- -- -- --
Non-cash loss in investment in
affiliate (1)................. -- (598) -- (3,485) --
--------------- --------------- --------------- --------------- ---------------
Total net interest and other
income (expense)............. 4,771 (705) (755) (4,369) 806
--------------- --------------- --------------- --------------- ---------------
Net loss.......................... $ (7,465) $ (15,960) $ (16,402) $ (25,993) $ (22,256)
=============== =============== =============== =============== ===============
Net loss per share (3) ........... $ (0.30) $ (0.78) $ (0.88) $ (1.42) $ (1.25)
=============== =============== =============== =============== ===============
Shares used in computing net
loss per share (3) ............ 24,703,543 20,581,214 18,647,071 18,294,525 17,768,670
=============== =============== =============== =============== ===============
December 31,
----------------------------------------------------------------------------------
2003 2002 2001 2000 1999
--------------- ---------------- ------------- -------------- ------------
(in thousands)
Balance Sheet Data:
Cash and marketable securities (4) $ 1,030 $ 723 $ 6,112 $ 20,835 $ 22,789
Working capital (deficit)......... (664) (5,953) 9,240 19,431 24,933
Total assets...................... 2,405 3,390 16,165 28,027 35,823
Long-term liabilities ............ 7,440 6,273 26,642 24,888 15,506
Accumulated deficit............... (196,994) (189,529) (173,569) (157,167) (131,174)
Total stockholders' equity
(deficit)......................... (7,027) (10,110) (13,798) (164) 15,597
(1) See Note 10 of Notes to Consolidated Financial Statements for
information regarding the gain on sale of investment in affiliate and
non-cash losses in investment in affiliate.
(2) See Note 2 of the Notes to Consolidated Financial Statements for
information regarding the gain on retirement of debt.
(3) See Note 1 of Notes to Consolidated Financial Statements for
information concerning the computation of net loss per share.
(4) See Notes 2 and 3 of Notes to Consolidated Financial Statements for
information concerning the changes in cash and marketable securities.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This section of the Annual Report on Form 10-K contains forward-looking
statements, which involve known and unknown risks and uncertainties. These
statements relate to our future plans, objectives, expectations and intentions.
These statements 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 submit our planned New Drug Application, or NDA, 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 remaining
$5.7 million available at $1.0 million monthly through June 2004, under the
December 2002 Convertible Debt Agreement, as amended, or the 2002 Debt
Agreement; our ability to meet the covenants of the August 2003 Unsecured
Convertible Debt and Warrant Purchase Agreement, or the 2003 Debt Agreement; our
ability to meet the covenants of the February Unsecured Convertible Debt
Purchase Agreement, or the February 2004 Debt Agreement; our ability to resolve
any issues or contingencies associated with our NDA after it is submitted 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 laser 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 in a timely manner, if at all; our
ability 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; our failure to meet or obtain waivers from the covenants in
our 2003 Debt Agreement and/or our February 2004 Debt Agreement which could lead
to a default under those agreements; 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 declining to collaborate
with us due to our financial condition or other reasons beyond our control; the
failure of our existing light production and delivery technology to prove to be
applicable or appropriate for future studies; our failure to obtain the
necessary funding to further our research and development activities; and
unanticipated changes by the government in its past practices by exercising its
rights contrary to our expectations. For a more complete description of the
risks that may impact our business, see "Risk Factors", included in Item 7, for
a discussion of certain risks, including those relating to our ability to obtain
additional funding, our ability to establish new strategic collaborations, our
operating losses, risks related to our industry and other forward-looking
statements.
The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto.
Overview
We are a pharmaceutical research and development company specializing in
photodynamic therapy, or PDT, a treatment modality based on drugs that respond
to light. When activated by light, these drugs induce a photochemical reaction
in the presence of oxygen that can be used to locally destroy diseased cells and
abnormal blood vessels. We have branded our novel version of PDT technology with
the trademark PhotoPoint(R). Our drugs and devices are in various stages of
development and have not yet been evaluated for regulatory approval. Our most
advanced drug, PhotoPoint SnET2, has completed Phase III clinical trials for the
treatment of wet age-related macular degeneration, or AMD, and we are preparing
to submit a New Drug Application, or NDA, for its marketing approval.
We have been unprofitable since our founding and have incurred a cumulative
net loss of approximately $197.0 million as of December 31, 2003. We expect to
continue to incur significant, and possibly increasing, operating losses over
the next few years, and we believe we will be required to obtain substantial
additional debt or equity financing to fund our operations during this time as
we seek to achieve a level of revenues sufficient to support our anticipated
cost structure. Our independent auditors, Ernst & Young LLP, have indicated in
their report accompanying our December 31, 2003 consolidated financial
statements that, based on generally accepted auditing standards, our viability
as a going concern is in question.
Although we continue to incur costs for research and development,
preclinical studies, clinical trials and general corporate activities, we have
continued to adhere to our cost restructuring program we implemented in 2002
which has helped 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 submission 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 the
timing of receiving regulatory approval, if at all, for SnET2 in AMD and our
ability to establish a collaboration, with a corporate partner or other sales
organization, to commercialize SnET2 once regulatory approval is received, if at
all. 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.
Our significant funding activities over the last eighteen months have
consisted of the following:
* A $2.0 million convertible debt financing completed in February 2004;
* Warrant exercises through March 15, 2004 providing proceeds of $1.4
million;
* The sale of our investment in an affiliate, Xillix Technologies Corp.,
or Xillix, in December 2003, providing net cash proceeds of $1.6
million;
* A $6.0 million convertible debt financing completed in August 2003;
* Settlement of our $10.0 million debt with Pharmacia AB, a wholly owned
subsidiary of Pfizer, Inc., or Pharmacia, that required a cash payment
of $1.0 million; and
* A $12.0 million convertible debt financing which provides for monthly
borrowings through June 2004 under which we have borrowed $6.3 million
through March 15, 2004.
We believe we can raise additional funding to support operations through
corporate collaborations or partnerships, through licensing of SnET2 or new
products and through public or private equity or debt financings prior to June
30, 2004. If additional funding is not available when required, we believe 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
December 31, 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.
Ongoing Operations
We have continued our scaled back efforts in research and development and
the preclinical studies and clinical trials of our products. Our primary efforts
in 2003 have been in preparing a submission of an NDA for marketing approval in
AMD for SnET2. We expect over the next year or so, our likely activities and
costs to consist of the following:
* Continuation of work related to our NDA, once submitted and accepted
for filing by the U.S. Food and Drug Administration, or FDA;
* Commencement of pre-commercialization activities such as pre-marketing
and possible drug and device manufacturing prior to receiving
regulatory approval;
* Increasing our development activities for our cardiovascular program;
and
* Review and follow-up of our Phase II dermatology clinical trial.
The extent of each of these activities will depend on the available funding
and resources. Additionally, once requisite regulatory approval has been
obtained for SnET2, if at all, substantial additional funding 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 ophthalmology, our primary focus during 2003 through March 31, 2004, has
been the preparation of our NDA for submission for marketing approval of
PhotoPoint SnET2, a new drug for the treatment of AMD. In January 2003, we
announced our plans to move forward with preparing our first NDA submission of
SnET2, for the treatment of AMD. Our decision came after we completed our
analyses of the Phase III AMD clinical data, which we believed showed positive
results in a significant number of PhotoPoint SnET2 treated patients versus
placebo control patients, and after holding discussions with regulatory
consultants and the ophthalmic divsion of the FDA. Previously, in January 2002,
Pharmacia, after a top-line review 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 preparing an NDA with the FDA. In
March 2002, we regained the license rights to SnET2 as well as the related data
and assets from the Phase III AMD clinical trials from Pharmacia. Additionally,
in March 2002 we terminated our license collaboration with Pharmacia. We expect
to submit the NDA on or about March 31, 2004, seeking marketing approval based
on clinical results in the "per protocol" study population. The per protocol
population consists of those patients who received the exposure to the SnET2
treatment regimen pre-specified in the clinical study protocol, comprising a
smaller number of patients than the total study population. Although there is
precedent for FDA approval of drugs based on subgroup populations, including
Visudyne(R), the currently approved competitive PDT product for wet AMD, we
cannot assure you that the FDA will grant approval for SnET2 based on our per
protocol group of patients. 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 additional funding, and/or 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 expected to be closed out in 2004 with
analysis of the clinical trial results. Our continuation of the dermatology
development program will depend on the results of the clinical trials and other
factors such as available funding and personnel.
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. 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
vascular access graft disease. Synthetic arteriovenous, or AV, grafts are placed
in patients with End Stage Renal Disease to provide access for hemodialysis.
While these grafts are critical to the health of the patient, their functional
lifetime is limited due to stenosis, or narrowing, caused by cell overgrowth in
the vein. We are currently pursuing potential strategic partners in this field.
Pending the results of our preclinical studies as well as financial
considerations, corporate collaborations and other factors, we may decide to
file an IND for the commencement of clinical trials in this field.
In our oncology research program, we have ongoing preclinical studies in
solid tumors to target tumor cells and tumor neovasculature. The focus of our
preclinical research is to evaluate the utility of PhotoPoint PDT as a
stand-alone treatment or as a combination therapy with experimental or
conventional therapies. Currently, our research efforts focus on the use of
PhotoPoint PDT in treating cancers such as those of the brain, breast, lung and
prostate. We have an existing oncology IND for SnET2, under which we may choose
to submit protocols for clinical trials in the future. We are investigating our
novel compound MV6401 for oncology applications.
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) Preparation of a
Submission of 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 (MV2101) Preclinical studies **
Oncology Tumor research Research studies **
(MV6401)
** 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
complete our submission of 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.
Critical Accounting Policies
Research and Development Expenses. Research and development costs are
expensed as incurred. Research and development expenses are comprised of the
following types of costs incurred in performing research and development
activities: salaries and benefits, allocated overhead and occupancy costs,
preclinical study costs, clinical trial and related clinical drug and device
manufacturing costs, contract services and other outside services and consulting
costs. The acquisition of technology rights for research and development
projects and the value of equipment or drug products for specific research and
development projects, with no or low likelihood of alternative future use, are
also included in research and development expenses.
Stock-Based Compensation. Statement of Financial Accounting Standards, or
SFAS, No. 123, "Accounting for Stock-Based Compensation," encourages, but does
not require, companies to record compensation expense for stock-based employee
compensation plans at fair value. We have chosen to continue to account for
stock-based compensation using the intrinsic value method prescribed by
Accounting Principles Board Opinion, or APB, Opinion No. 25 and related
interpretations, including Financial Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation," in accounting for our stock
option plans.
We also have granted and continue to grant warrants and options to various
consultants of ours. These warrants and options are generally in lieu of cash
compensation and, as such, deferred compensation is recorded related to these
grants. Deferred compensation for warrants and options granted to non-employees
has been determined in accordance with SFAS No. 123 and Emerging Issues Task
Force, or EITF, 96-18 as the fair value of the consideration received or the
fair value of the equity instruments issued, whichever is more reliably
measured. Deferred compensation is amortized over the consulting or vesting
period.
Recent Accounting Pronouncements
In January 2003, the Financial Accounting Standards Board, or FASB, issued
Financial Interpretation No. 46, or FIN 46, "Consolidation of Variable Interest
Entities, an interpretation of APB No. 51", which was amended in December 2003.
FIN 46 as amended requires that if a company holds a controlling financial
interest in a variable interest entity, or VIE, the assets and liabilities and
results of the VIE's activities should be consolidated in the entity's
consolidated financial statements. We do not expect FIN 46 to have a material
impact on our results of operations or financial position.
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 how an issuer classifies and measures in its
statement of financial position certain financial instruments with
characteristics of both liabilities and equity. SFAS No. 150 requires that an
issuer classify a financial instrument that is within the scope of SFAS No. 150
as a liability, or an asset in some circumstances, because that financial
instrument embodies an obligation of the issuer. SFAS No. 150 is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim periods beginning after June
15, 2003. The adoption of SFAS No. 150 did not have a material impact on our
consolidated results of operations or financial position.
Results of Operations
The following table provides a summary of our revenues for the years ended
December 31, 2003, 2002 and 2001:
---------------------------------------------------------------------------------------------------------------------------
Consolidated Revenues 2003 2002 2001
---------------------------------------------------------------------------------------------------------------------------
License - contract research and development................... $ -- $ 20,000 $ 302,000
Bulk active pharmaceutical ingredient sales................... -- 479,000 4,306,000
Royalties..................................................... -- -- 75,000
---------------------------------------------------------------------------------------------------------------------------
Total revenues................................................ $ -- $ 499,000 $ 4,683,000
---------------------------------------------------------------------------------------------------------------------------
Our historical revenues primarily reflect income earned from licensing
agreements, grants awarded, royalties from device product sales, milestone
payments and non-commercial drug sales to Pharmacia. Any other future potential
new revenues such as sales from the sale of drug and device products, license
income from new collaborative agreements, revenues from contracted services,
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 submitted on or about
March 31, 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.
Total Revenues. Our revenues have decreased significantly from $4.7 million
in 2001 to $499,000 in 2002 and no revenues in 2003. The fluctuations in
revenues are due to the following:
License Income. License income, which represents reimbursements of
out-of-pocket or direct costs incurred in preclinical studies and Phase III AMD
clinical trials, decreased from $302,000 in 2001 to $20,000 in 2002. The
decrease in license income is specifically related to the conclusion of the
Phase III AMD clinical trials in December 2001 and the completion of the
preclinical studies and our AMD clinical trial responsibilities. Reimbursements
received during 2001 and 2002 were primarily for costs incurred to complete
preclinical studies and clinical trial oversight for AMD. No further license
income will be received from Pharmacia as this agreement has been terminated.
Bulk Active Pharmaceutical Ingredient Sales. In May 2001, we entered into
an Asset Purchase Agreement with Pharmacia whereby they agreed to buy bulk API
inventory through March 2002. We recorded revenue related to bulk API sales of
$4.3 million for the year ended December 31, 2001 and $479,000 for the year
ended December 31, 2002. In January 2002, Pharmacia reimbursed us for all of our
remaining finished and in-process lots of bulk API for approximately $479,000.
As a part of the Contract Modification and Termination Agreement no further bulk
API was sold to Pharmacia after January 2002 under this agreement as it was
terminated in March 2002.
In January 2002, Pharmacia, after a top-line review 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 preparing a
submission of an NDA with the FDA. Subsequently, in March 2002, we entered into
a Contract Modification and Termination Agreement with Pharmacia whereby our
license agreement for SnET2 was terminated. We will receive no further
reimbursements from Pharmacia related to any of our ongoing preclinical studies
and clinical trials and Pharmacia will not make any more purchases of bulk API.
Royalty Income. We earned royalty income from a 1992 license agreement with
Laserscope, which provided royalties on the sale of our previously designed
device products. The royalties recorded in 2001 represent the final amounts due
under the Laserscope license agreement, which expired in April 1999 and no
further royalty income will be recorded under this agreement in the future. We
recorded income of $75,000 in 2001. There was not royalty income recognized in
2002 or 2003.
Cost of Goods Sold. In connection with the newly manufactured bulk API sold
under the terms of the Asset Purchase Agreement with Pharmacia, which was
terminated in March 2002, we recorded $479,000 and $934,000 in manufacturing
costs for the years ended December 31, 2002 and 2001, respectively. The amounts
recorded as cost of API sales represent the costs incurred for only the newly
manufactured bulk API in the first quarter 2002 and throughout fiscal 2001. No
cost of API sales were incurred for the year ended December 31, 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 costs incurred by outside providers and
consultants for preclinical studies, clinical trials and related clinical drug
and device development and manufacturing costs, drug formulation expenses, NDA
preparation services and other research and development expenditures. Indirect
costs consist of internally generated costs from salaries and benefits, overhead
and facility costs, and other support services. Our research and development
expenses decreased to $7.6 million for the year ended December 31, 2003 from
$9.5 million and $13.5 million for the same periods in 2002 and 2001,
respectively. The overall decrease in research and development expenses for the
year ended December 31, 2003 compared to the prior periods is related to the
overall reduction of our research and development activities in 2003 in order to
focus on the preparation of the submission of our NDA and also due to the
reduction in our indirect costs from employee attrition and facility downsizing.
Our research and development expenses, net of license reimbursement, were $7.6
million for the year ended December 31, 2003, $9.5 million for the year ended
December 31, 2002 and $13.2 million for the year ended December 31, 2001.
Research and development expenses for the year ended December 31, 2003, 2002 and
2001 related primarily to indirect costs such as payroll, payroll taxes,
employee benefits and allocated operating costs. Additionally, we incurred
research and development expenses for:
* Preparation for submission of an NDA for SnET2 in 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:
Program 2003 2002 2001
----------------------------------- ------------------ ------------------- -----------------
Direct costs:
Ophthalmology.............. $ 1,522,000 $ 239,000 $ 1,060,000
Dermatology................ 220,000 503,000 639,000
Cardiovascular disease..... 294,000 1,136,000 2,038,000
Oncology................... 15,000 45,000 126,000
------------------ ------------------- -----------------
Total direct costs.............. $ 2,051,000 $ 1,923,000 $ 3,863,000
Indirect costs ................. 5,565,000 7,626,000 9,630,000
------------------ ------------------- -----------------
Total research and development
costs........................... $ 7,616,000 $ 9,549,000 $ 13,493,000
================== =================== =================
Ophthalmology. In 2003, our direct ophthalmology program costs have
increased to $1.5 million from $239,000 in 2002 and from $1.1 million in 2001.
Costs incurred for the ophthalmology program over the last few years have
consisted of preparation costs for the NDA, 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. The costs incurred and the increase for
2003 are specifically related to the preparation for submission of our NDA for
SnET2 in AMD compared to minimal ophthalmology activities for the same period in
2002. Costs incurred in 2001 related to preclinical activities, manufacturing of
SnET2 and the purchase of laser devices.
Dermatology. Our direct dermatology program costs decreased to $220,000 in
2003 from $503,000 in 2002 and from $639,000 in 2001. Costs incurred in the
dermatology program include expenses for drug development and drug formulation,
internal and external preclinical study costs, and Phase I and Phase II clinical
trial expenses. The decrease from 2003 to 2002 was a result of decrease in
patient treatments in the Phase II clinical trial compared to 2002. The decrease
from 2002 to 2001 was due to 2002 consisting primarily of the cost of the Phase
II clinical trial, while 2001 consisted primarily of the cost for the Phase I
clinical trial as well as expenditures related to preclinical studies and device
and drug formulation development and manufacturing.
Cardiovascular Disease. Our direct cardiovascular disease program costs
decreased to $294,000 in 2003 from $1.1 million in 2002 and from $2.0 million in
2001. Our cardiovascular disease program costs include expenses for the
development of new drug compounds and light delivery devices, drug formulation
and manufacturing and internal and external preclinical study costs. The
decrease in expenditures from 2003 to 2002 and 2001 is related to a decrease in
the development and manufacturing activities for drug and devices used in the
preclinical studies and a reduction in the preclinical studies performed.
Oncology. Our direct oncology program costs have decreased to $15,000 in
2003 from $45,000 in 2002 and from $126,000 in 2001. Our oncology program costs
have primarily consisted of costs for a Phase I clinical trial for prostate
cancer, internal and external preclinical study costs and expenses for the
development of new drug compounds. The decrease in oncology program costs from
2003 to 2001 is related to our decision to suspend the further development of
the prostate cancer clinical trial and to focus on more discovery and research
programs for use of PhotoPoint PDT in oncology.
Indirect Costs. Our indirect costs have decreased to $5.6 million in 2003
from $7.6 million in 2002 and from $9.6 million in 2001. Generally, the decrease
from 2003 to 2002 and 2001 was attributed to a reduction in our responsibilities
in the AMD program, as well as a continued reduction in labor costs from
employee attrition and our downsizing of facilities and related overhead costs.
We expect future research and development expenses may fluctuate depending
on available funds from corporate partnering and financings, continued expenses
incurred in our NDA preparation and follow-up activities, the extent of
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.
General and administrative. Our general and administrative expenses
decreased to $4.6 million in 2003 from $5.7 million in 2002 and from $5.9
million in 2001. General and administrative expenses 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. For 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. The slight decrease from 2002 to 2001 was a result of a
small decrease in the number of administrative employees as well as a temporary
reduction in wages taken by all employees during the first quarter of 2002.
These decreases in 2002 were offset by employee and officer loan reserves of
$690,000 recorded in 2002.
We expect future 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 employee stock bonuses and stock options and warrants granted to
consultants and expenses for general corporate matters.
Interest and Other Income. Interest and other income decreased to $76,000
in 2003 from $169,000 in 2002 and from $798,000 in 2001. The overall decrease 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.
Interest and other income earned in 2003, 2002 and 2001 primarily represent
interest earned on cash and marketable security balances throughout the year as
well as interest on employee and executive loans. The level of future interest
and other income will primarily be subject to the level of cash balances we
maintain from period to period and the interest rates earned. However, we expect
our interest and other income to decrease in future periods unless additional
funding is obtained.
Interest Expense. Interest expense increased to $5.6 million in 2003 from
$286,000 in 2002 and from $2.1 million in 2001. The increase in 2003 compared to
2002, is directly related to the amortization of the beneficial conversion value
recorded in 2003, which was approximately $3.9 million, from the 2003 and 2002
Debt Agreements. Under the 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 first available conversion and
the intrinsic value, which is the value of the 2003 Notes on as converted
assumption and the value of 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 2003. The remaining increase in interest expense for 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
decrease from 2002 to 2001 was primarily related to the restructuring of the
Pharmacia loans in March 2002, which provided for interest for only two months
in 2002. In accordance with the SFAS No. 15 with the restructuring of the
Pharmacia debt in March 2002, we reduced our outstanding debt to the total
future cash payments of the debt, which included $792,000 designated as interest
and $10.0 million as principal. Also, with the restructuring of the debt, the
value of the warrants issued to Pharmacia, recorded as deferred financing costs,
was reduced to zero. 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, 2003 and February 2004 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 through June 2004.
Gain on Sale of Assets. The gain on sale of assets increased to $62,000 in
2003 from $10,000 in 2002 which was a decrease from the $586,000 recognized in
2001. The gain on sale of assets in 2003 and 2002 related to the gain on the
sale of equipment sold which was fully depreciated. In 2001, the gain on sale of
assets of $586,000 related to the gain on sale of bulk API manufacturing
equipment sold to Pharmacia.
Gain on Sale of Investment in Affiliate. In December 2003, we sold our
investment in Xillix Technologies Corp., or Xillix. We owned approximately 2.7
million shares of Xillix at an adjusted basis of $393,000 and received net
proceeds of approximately $1.6 million, resulting in a net gain of $1.2 million.
Gain on Retirement of Debt. In 2003, we recorded a gain of $9.1 million for
the settlement of our debt to Pharmacia. There was no gain on settlement on debt
recorded in 2002 and 2001. In connection with the our 2003 debt financing, we
entered into a Termination and Release Agreement with Pharmacia, that provided,
among other things, for the retirement 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. 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.
Non-cash Loss in Investment in Affiliate. During 2000 and again in 2002, we
determined that the decline in the value of our investment in Xillix was
other-than-temporary. Since we made the investment in June 1998, the value of
the Xillix common stock had decreased by approximately 70% through 2000 and
approximately an additional 20% through 2002 and had been at similar levels for
at least nine months prior to the write-down. In December 2000, we recognized a
loss write-down totaling $3.5 million and in December 2002 another $598,000 loss
write-down was recorded, to reduce our investment in Xillix to its estimated
current fair value based on quoted market prices as of December 31, 2002. As
mentioned above, we sold this investment in December 2003, which net a gain of
$1.2 million.
Income Taxes. As of December 31, 2003, we had net operating loss
carryforwards for federal tax purposes of $178.7 million, which expire in the
years 2004 to 2023. Research credit carryforwards aggregating $9.1 million are
available for federal and state tax purposes and expire in the years 2004 to
2023. We also had a state net operating loss carryforwards of $81.3 million
which expires in the years 2004 to 2008. Of the $81.3 million in state net
operating loss carryforwards, $52.2 million will expire during 2004 and 2005.
Under Section 382 of the Internal Revenue Code, the utilization of our tax net
operating losses may be limited based on changes in the percentage of ownership
in our Company.
Off-Balance-Sheet Arrangements and Other Contractual Obligations
Off-Balance-Sheet Arrangements. We have not entered into any transactions
with unconsolidated entities whereby we have financial guarantees, subordinated
retained interests, derivative instruments, or other contingent arrangements
that expose us to material continuing risks, contingent liabilities, or any
other obligation under a variable interest in an unconsolidated entity that
provides financing, liquidity, market risk, or credit risk support to us.
We do not believe inflation has had a material impact on our results of
operations.
Liquidity and Capital Resources
Since inception through December 31, 2003, we have accumulated a deficit of
approximately $197.0 million and expect to continue to incur substantial, and
possibly increasing, operating losses for the next few years. We have financed
our operations primarily through private placements of Common Stock and
Preferred Stock, private placements of convertible notes and short-term notes,
our initial public offering, a secondary public offering, Pharmacia's purchases
of Common Stock and credit arrangements. As of December 31, 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 December 31, 2003, our consolidated financial statements have been
prepared assuming we will continue as a going concern. Our independent auditors,
Ernst & Young LLP, have indicated in their report accompanying our December 31,
2003 consolidated financial statements that, based on generally accepted
auditing standards, our viability as a going concern is in question.
In February 2004, we entered into an Unsecured Convertible Debenture
Purchase Agreement, or the February 2004 Debt Agreement, with certain private
accredited investors, or the February 2004 Lenders. Under the February 2004 Debt
Agreement we issued $2.0 million worth of convertible debentures maturing on
February 5, 2008 with interest accruing at 8% per year, due and payable
quarterly, with the first interest payment due on April 1, 2004. At our option
and subject to certain restrictions, we may make interest payments in cash or in
shares of our Common Stock, or the interest can be added to the outstanding
principal of the note. Each convertible debenture issued pursuant to the
February 2004 Debt Agreement is convertible at the holder's option into shares
of our Common Stock at $2.00 per share. We are obligated to file a registration
statement with the SEC covering the resale of the shares of Common Stock
underlying these convertible debentures no later than April 30, 2004. Upon the
occurrence of certain events of default, the holders of the convertible
debentures may require that they be repaid prior to maturity. These events of
default include our failure to pay amounts due under the debentures or to
otherwise perform any material covenant in the February 2004 Debt Agreement or
other related documents.
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, or the 2003 Lenders, pursuant to which we issued securities to the
2003 Lenders in exchange for gross proceeds of $6.0 million. Under the 2003 Debt
Agreement, the debt can be converted, at the 2003 Lender's 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 2003 Lender 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 2003 Lenders. One of these provisions requires
that our NDA for SnET2 be submitted by March 31, 2004, as extended. We expect to
submit the NDA on or about March 31, 2004. If we are unable to submit the NDA by
that date we may be required to obtain a waiver from the existing 2003 Note
holders in order to avoid an event of default under the 2003 Debt Agreement. If
we do not obtain a waiver it is likely we will be in default and the 2003
Lenders 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 our 2003 Debt Agreement,
during the period of January through March 2004 certain of the 2003 Lenders
converted their Notes into shares of our Common Stock. As of March 15, 2004,
$2.5 million of the Notes have been converted into Common Stock.
In connection with the 2003 Debt Agreement, we also issued to the 2003
Lenders warrants to purchase an aggregate of 4,500,000 shares of our Common
Stock. Each Lender 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 addition, of the 4.5
million warrants issued, in fiscal 2004, 1,425,000 warrants have been exercised
through March 15, 2004, resulting in proceeds to Miravant of $1.4 million.
In December 2002, we entered into a $12.0 million Convertible Debt and
Warrant Agreement, or the 2002 Debt Agreement, with a group of private
accredited investors, or 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. As
of March 15, 2004 we have borrowed $6.3 million and therefore have $5.7 million
currently available to us. Additionally, in connection with each borrowing we
have issued warrants to purchase a total of 1,575,000 shares of our Common Stock
at an exercise price of $1.00 per share. We also issued an origination warrant
for the purchase of 250,000 shares at an exercise price of $0.50 per share. All
of these warrants issued expire on december 31, 2008. 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 submitted 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.
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 above, agreed to subordinate their debt security position to that of
the 2003 Lenders. 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. Additionally, not all the shares
underlying notes and warrants related to the 2002 Debt Agreement, the 2003 Debt
Agreement, and the February 2004 Debt Agreement are registered.
In connection with the 2003 Debt Agreement, we entered into a Termination
and Release Agreement with Pharmacia, that provides, among other things, for the
retirement 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 December 2003, we sold our investment in Xillix. We owned approximately
2.7 million shares of Xillix at an adjusted basis of $393,000 and received net
proceeds of approximately $1.6 million, resulting in a net gain of $1.2 million.
Statement of Cash Flows
For 2003, 2002 and 2001, we required cash for operations of $10.8 million,
$8.6 million and $15.2 million, respectively. The increase in net cash required
for operations from 2003 as compared to 2002 is directly related to collections
of accounts receivable in 2002 from the receipt of amounts due from Pharmacia
under an Asset Purchase Agreement entered into in fiscal 2001. The decrease in
net cash required for operations from 2002 to 2001 was due to a decrease in
inventories and the collection of accounts receivables from the payment of $4.1
million from the sale of bulk API inventory in 2001 as well as an overall
increase in operating costs in 2001. The decrease was offset by an increase in
accounts payable and accrued wages. The cash required for operations in 2001 was
related to the increase in inventories and accounts receivable from the
production and sale of our bulk API inventory to Pharmacia and the timing on the
collection of the payments from an escrow account for these sales which was
deferred into 2002.
For 2003, 2002 and 2001, net cash provided by investing activities was $1.3
million, $4.6 million and $14.8 million, respectively. The net cash provided by
investing activities in 2003 related to the receipt of cash from the sale of our
investment in Xillix and disposal of property, plant and equipment offset by the
purchases of patents and property, plant and equipment. The net cash provided by
investing activities in 2002 was related to the proceeds from the net sales of
marketable securities offset by the purchases of patents. The net cash provided
by investing activities in 2001 was related to the proceeds from the net sales
of marketable securities as well as proceeds from the sale of bulk API
manufacturing equipment to Pharmacia.
For 2003, 2002 and 2001, net cash provided by financing activities was $9.8
million, $3.3 million and $15,000, respectively. Cash provided by financing
activities in 2003 relates to the net proceeds received in 2003 from the debt
financings which was offset by the $1.0 million payment to Pharmacia related to
the retirement of their debt and an earlier payment of $170,000 for interest due
to Pharmacia. Cash provided by financing activities in 2002 related to the
funding received from the August 2002 sale of Common Stock of $2.4 million and
the first $1.0 million drawdown received under our 2002 Debt Agreement. Cash
provided by financing activities in 2001 was related to $315,000 provided by
warrant and option exercises which was offset by $300,000 in loans provided to
one of our executive officers.
Contractual Obligations
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 and Equipment
Leases(2)..... 58,000 187,000 3,000 -- 248,000
--------------- ----------------- -------------- --------------- --------------
Total Contractual
Cash Obligations....... $ 58,000 $ 6,187,000 $ 6,003,000 $ -- $ 12,548,000
=============== ================= ============== =============== ==============
(1) $6.0 million of this debt represents the borrowings under the 2003
Agreement, which has a due date of August 28, 2006 and $6.3 million of
this debt represents the borrowings under the 2002 Debt Agreement,
which has a due date of December 31, 2008.
(2) The amounts recorded for building and equipment leases consist of
leases on three buildings and various other office equipment and is
net of sublease revenue of $656,000 in 2004 and 2005. The lease of our
primary facility has gone month-to-month beginning in September 2003.
In addition, we are aware that the lessors can give us a 30-day notice
at any time requiring us to vacate.
We invested a total of $9.7 million in property, plant and equipment from
1996 through December 31, 2003. Based on available funds, we may continue to
purchase property and equipment in the future as we expand our preclinical,
clinical and research and development activities as well as the buildout and
expansion of laboratories and office space.
We will need substantial additional resources to develop our products. The
timing and magnitude of our future capital requirements will depend on many
factors, including:
* Our ability to establish additional collaborations and/or license
SnET2 or our other new products;
* 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, the
2003 Debt Agreement and the February 2004 Debt Agreement and not be
required to repay the debt early;
* The viability of SnET2 for future use;
* Our ability to obtain regulatory acceptance and subsequent approval
for our NDA when, and if, submitted;
* The cost of commencing pre-commercialization activities;
* Our ability to raise equity or debt financing or use stock awards for
employee and consultant compensation;
* Our ability to regain our listing status on Nasdaq;
* The pace of scientific progress and the magnitude of our research and
development programs;
* The scope and results of preclinical studies and clinical trials;
* The costs involved in preparing, filing, prosecuting, maintaining and
enforcing patent claims;
* The costs involved in any potential litigation;
* Competing technological and market developments; and
* Our dependence on others for development and commercialization of our
potential products.
As of December 31, 2003, our 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
a submission of an NDA for SnET2, obtaining requisite regulatory approval, and
commencing pre-commercialization and manufacturing 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.
We believe we can raise additional funding to support operations through
corporate collaborations or partnerships, through licensing of SnET2 or new
products and through public or private equity or debt financings prior to June
30, 2004. If additional funding is not available when required, we believe 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
December 31, 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 submit an NDA for SnET2 in 2004;
* The outcome from the FDA on 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; and
* Our ability to maintain, renegotiate, or terminate our existing
collaborative arrangements.
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, 2003 consolidated financial
statements that, based on generally accepted auditing standards, our viability
as a going concern is in question.
Related Party Transactions
In April 1998, we entered into a $2.0 million revolving credit agreement
with our affiliate, Ramus. Between 1998 and 1999, Ramus borrowed the entire $2.0
million available under the credit agreement. As of December 31, 2003, the
balance of the loan, including principal and accrued interest, was $2.7 million.
The loan, which was used to fund Ramus' clinical trials and operating costs. In
March 2000, the loan term was extended indefinitely. It was determined that it
was probable that we would be unable to collect the amounts due from Ramus under
the contractual terms of the loan agreement. Therefore, we established a reserve
for the entire outstanding balance of the loan receivable at December 31, 2003
and 2002 and no interest income is being accrued under the loan. We have held
discussions with Ramus to reorganize their outstanding debt or to convert their
entire debt, including accrued and unpaid interest, to Ramus equity.
In July 1996, a partner in a law firm used by us for outside legal counsel
was elected by the Board of Directors to serve as Secretary of Miravant. In
connection with general legal services provided by the law firm, we were billed
$150,000, $47,000 and $55,000 for the years ended December 31, 2003, 2002 and
2001, respectively. From 1996 through December 31, 2003, this individual's law
firm has received warrants to purchase a total of 156,250 shares of Common Stock
with an average exercise price of $9.56 for his services as acting in-house
legal counsel and Secretary of Miravant.
In August 2003, we received a short-term bridge loan of $250,000 from one
of our non-employee board members, who is currently no longer a board member. In
connection with the loan, we issued warrants to purchase 25,000 shares of our
Common Stock. This loan was immediately paid off in September 2003 with the
proceeds from the 2003 Debt Agreement.
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
WE HAVE A HISTORY OF SIGNIFICANT OPERATING LOSSES AND EXPECT TO CONTINUE TO HAVE
LOSSES IN THE FUTURE, WHICH MAY FLUCTUATE SIGNIFICANTLY AND WE MAY NEVER ACHIEVE
PROFITABILITY.
We have incurred significant losses since our inception in 1989 and, as of
December 31, 2003, had an accumulated deficit of approximately $197.0 million.
In each of the last three years, we have increased our borrowings through the
sale of various debt instruments in order to sustain our business operations. In
December 2002, we entered into a $12.0 million 2002 Convertible Debt and Warrant
Agreement, or the 2002 Debt Agreement, under which we have borrowed $6.3 million
at March 14, 2004. In August 2003, we entered into a $6.0 million Unsecured
Convertible Debenture and Warrant Purchase Agreement, or the 2003 Debt
Agreement, under which we have borrowed the full $6.0 million. Most recently, in
February 2004, we entered into a $2.0 million Unsecured Convertible Debenture
Agreement, or the February 2004 Debt Agreement, under which we have borrowed the
full $2.0 million. We expect to continue to incur significant, and possibly
increasing, operating losses over the next few years, and we believe we will be
required to obtain substantial additional debt or equity financing to fund our
operations during this time as we seek to achieve a level of revenues sufficient
to support our anticipated cost structure. Our independent auditors, Ernst &
Young LLP, have indicated in their report accompanying our December 31, 2003
consolidated financial statements that, based on generally accepted auditing
standards, our viability as a going concern is in question.
Although we continue to incur costs for research and development,
preclinical studies, clinical trials and general corporate activities, we have
continued to adhere to our cost restructuring program we implemented in 2002
which has helped 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 submission 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 the
timing of receiving regulatory approval, if at all, for SnET2 in AMD and our
ability to establish a collaboration, with a corporate partner or other sales
organization, to commercialize SnET2 once regulatory approval is received, if at
all. 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.
WE WILL BE UNABLE TO BORROW THE REMAINING $5.7 MILLION UNDER THE 2002 DEBT
AGREEMENT UNLESS WE MEET CERTAIN OBLIGATIONS TO THE SATISFACTION OF THE 2002
LENDERS. IF THESE OBLIGATIONS ARE NOT MET OR IF WE ARE UNABLE TO EXTEND THE
BORROWING DATE, WE WILL BE UNABLE TO BORROW THE FUNDS AS PLANNED, WHICH MAY
FORCE US TO SIGNIFICANTLY REDUCE OR CEASE OPERATIONS.
In December 2002, we entered into a 2002 Debt Agreement with the 2002
Lenders. The 2002 Debt Agreement allows us to borrow up to $1.0 million per
month up to a maximum aggregate of $12.0 million, with any unused monthly
borrowings to be carried forward. We have borrowed $6.3 million under this
agreement through March 15, 2004. The last available borrowing under the 2002
Debt Agreement has been extended to June 30, 2004. The 2002 Lenders' may
terminate their obligations under the 2002 Debt Agreement if:
* We have not submitted an NDA by March 31, 2004, as amended,
* Such filing has been rejected by the Food and Drug Administration, or
FDA; or
* We, in the reasonable judgment of the 2002 Lenders, are not meeting
our business objectives.
Accordingly, we cannot guarantee we will receive the remaining $5.7 million
under this agreement, and if we are unable to do so we may be forced to
significantly reduce or cease operations if we have no other means of financing
at that time.
EVEN IF WE ARE ABLE TO BORROW THE REMAINING $5.7 MILLION UNDER THE 2002 DEBT
AGREEMENT, WE WILL NEED ADDITIONAL FUNDS IN 2004 TO CONTINUE OUR OPERATIONS, AND
IF WE FAIL TO OBTAIN ADDITIONAL FUNDING, WE WOULD 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 the NDA for SnET2, obtaining requisite
regulatory approval, and commencing pre-commercialization and manufacturing
activities prior to receiving regulatory approval, has required and 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.
The timing and magnitude of our future capital requirements will depend on
many factors, including:
* Our ability to establish additional collaborations and/or license
SnET2 or our other new products;
* 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, the
2003 Debt Agreement and the February 2004 Debt Agreement and not be
required to repay the debt early;
* The viability of SnET2 for future use;
* Our ability to obtain regulatory acceptance and subsequent approval
for our NDA when, and if, submitted;
* The cost of commencing pre-commercialization activities;
* Our ability to raise equity or debt 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 believe that as long as the remaining $5.7 million remains available to
us under the 2002 Debt Agreement, we will have sufficient cash to fund
operations through December 31, 2004. If the $5.7 million is not available or
only a portion thereof is available, we believe we will be required to delay or
reduce in scope one or more of our research and development programs and to
adjust, defer or reduce salaries of employees and to reduce operating facilities
and overhead expenditures.
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. Our
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.
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 face amount of our debt outstanding was approximately $11.8 million as
of March 15, 2004. 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 in
connection with the 2002 and 2003 Debt Agreements 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
February 2004 Debt Agreement, the 2003 Debt Agreement and the 2002 Debt
Agreement contain certain standard covenants that may impose some operating and
financial restrictions on us.
These covenants may 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.
PREPARING AND SUBMITTING AN NDA FOR FILING REQUIRES SIGNIFICANT EXPENSES, THE
APPROPRIATE PERSONNEL AND ACCESS TO CONSULTANTS AND OTHER RESOURCES AS NEEDED.
WE HAVE REQUIRED SIGNIFICANT FUNDING AND PERSONNEL TO GET US THROUGH THIS
PROCESS AND WE PLAN TO COMPLETE OUR NDA SUBMISSION FOR SNET2 FOR THE TREATMENT
OF AMD ON OR ABOUT MARCH 31, 2004. IF WE ENCOUNTER ANY UNANTICIPATED PROBLEMS,
OUR PLANS TO SUBMIT AN NDA WITH THE FDA MAY BE DELAYED OR THE SUBMISSION MAY NOT
OCCUR AT ALL.
In January 2002, Pharmacia, after a top-line review 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 submitting 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 submission for SnET2 for the
treatment of AMD. We expect to submit the NDA on or about March 31, 2004,
seeking marketing approval based on clinical results in the "per protocol" study
population. The per protocol population consists of those patients who received
the exposure to the SnET2 treatment regimen pre-specified in the clinical study
protocol, comprising a smaller number of patients than the total study
population.
ONCE OUR NDA FOR SNET2 FOR THE TREATMENT OF AMD IS SUBMITTED AND ACCEPTED FOR
FILING BY THE FDA, IF ACCEPTED AT ALL, THERE CAN BE NO ASSURANCE THAT THE FDA
WILL APPROVE SNET2 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 CANNOT 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 submit our NDA for SnET2 for the treatment of AMD to the
FDA for filing, we cannot guarantee that the FDA will accept our submission for
filing. In the event that the FDA does not accept our NDA for fling, we may be
required to conduct additional clinical trials before resubmitting our NDA and
before the FDA may accept our NDA for substantive review. If this occurs, there
is likely to be a substantial delay in the approval process and it is less
likely that SnET2 will be approved. This delay would have an immediate material
adverse effect on our business and would likely further depress the price of our
stock.
Even if the FDA accepts our submission for filing, the FDA may not
ultimately approve our NDA for SnET2. This approval process may take a
significant amount of time and the FDA's approval, if any, may be contingent
upon satisfying additional requirements. For instance, the FDA may require
follow-up clinical or pre-clinical studies prior to final approval, which may be
costly and may cause a significant delay in the timing of receiving FDA
approval. If the FDA does approve this NDA, the approved label claims could be
for a limited market, resulting in smaller than expected markets and revenue.
Additionally, we received a fast-track designation on our clinical program in
1998 primarily due to the lack of an existing approved treatment for AMD.
Subsequently, there has been an approval by the FDA for the treatment of a
specific portion of the AMD disease, thus, there can be no guarantee that we
will be able to maintain our fast-track designation, and related benefits, from
the FDA, which may further delay the timing of a potential FDA approval. Any
delay in receiving FDA approval further limits our ability to begin market
commercialization and harms our on-going funding requirements and our business.
Additionally, we might be forced to substantially scale down our operations or
sell certain of our assets, and it is likely the price of our stock would
decline precipitously.
EVEN IF WE RECEIVE REGULATORY APPROVAL OF SNET2 FOR THE TREATMENT OF AMD, SNET2
MAY NOT BE COMMERCIALLY SUCCESSFUL.
Even if SnET2 receives regulatory approval, patients and physicians may not
readily accept it, which would result in lower than projected sales and
substantial harm to our business. Acceptance will be a function of SnET2 being
clinically useful and demonstrating superior therapeutic effect with an
acceptable side-effect profile, as compared to currently existing or future
treatments. In addition, even if SnET2 does achieve market acceptance, we may
not be able to maintain that market acceptance over time if new products are
introduced that are more favorably received than SnET2 or render SnET2 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 or
AMD 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 Pharm Inc., or Axcan, Eyetech Pharmacueticals
Inc., or Eyetech, and Pharmacyclics. QLT's drug Visudyne(R) 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. Eyetech is currently completing a Phase III clinical
trial in AMD and is expected to submit an NDA at the end of 2004 or the
beginning of 2005. We are aware of other drugs and devices under development by
these and other 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.
THE CURRENT TRADING PRICE OF OUR COMMON STOCK, OUR MARKET CAPITALIZATION AND THE
AMOUNT OF OUR STOCKHOLDERS' 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 Over-The-Counter 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, we cannot guarantee 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 ability to obtain additional funding, beyond our current
funding agreements, by December 31, 2004, is impeded by a number of factors
including that fact that our Common Stock is currently being traded on the OTCBB
and by current economic and political factors, all of which combine to make the
present market for raising capital relatively difficult and may prevent us from
obtaining additional financing as required in the near term on favorable terms
or at all.
OUR FINANCIAL CONDITION AND COST REDUCTION EFFORTS COULD RESULT IN DECREASED
EMPLOYEE MORALE AND LOSS OF EMPLOYEES AND CONSULTANTS WHO ARE 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 the volatility of our stock and the uncertainty of
our long-term prospects, our ability to use stock options and stock awards as
compensation may be limited. These measures, along with our financial condition,
may cause employees to question our long-term viability and increase our
turnover. These factors may also result in reduced productivity and a decrease
in employee morale causing our business to suffer. We do not have insurance
providing us with benefits in the event of the loss of key personnel. Our
consultants may be affiliated with or employed by others, and some have
consulting or other advisory arrangements with other entities that may conflict
or compete with their obligations to us.
IF WE ARE NOT ABLE TO MAINTAIN AND SUCCESSFULLY ESTABLISH NEW COLLABORATIVE AND
LICENSING ARRANGEMENTS WITH OTHERS, OUR BUSINESS WILL BE HARMED.
Our business model is based on establishing collaborative relationships
with other parties both to license compounds upon which our products and
technologies are based and to manufacture, market and sell our products. As a
development company we must have access to compounds and technologies to license
for further development. For example, we are party to a License Agreement with
the University of Toledo, the Medical College of Ohio and St. Vincent Medical
Center, of Toledo, Ohio, collectively referred to as Toledo, to license or
sublicense certain photoselective compounds, including SnET2. Similarly, we must
also establish relationships with suppliers and manufacturers to build our
medical devices and to manufacture our compounds. We have partnered with Iridex
for the manufacture of certain light sources and have entered into an agreement
with Fresenius for supply of the final dose formulation of SnET2. Due to the
expense of the drug approval process it is critical for us to have relationships
with established pharmaceutical companies to offset some of our development
costs in exchange for a combination of manufacturing, marketing and distribution
rights. We formerly had a significant relationship with Pharmacia for the
development of SnET2 for the treatment of AMD, which was terminated in March
2002. To further develop SnET2 for AMD or other indications it is essential that
we establish a new collaborative relationship with another party.
We are currently at various stages of discussions with various companies
regarding the establishment of new collaborations. If we are not successful in
establishing new collaborative partners for the potential development of SnET2
or our other molecules, we may not be able to pursue further development of such
drugs and/or may have to reduce or cease our current development programs, which
would materially harm our business. Even if we are successful in establishing
new collaborations, they are subject to numerous risks and uncertainties
including the following:
* Our ability to negotiate acceptable collaborative arrangements;
* 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; 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, and non of our products, including SnET2, have been approved for any
purpose by the FDA. 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 clinical trials.
In collaboration with Pharmacia, in December 2001, we completed two Phase
III ophthalmology clinical trials for the treatment of AMD with our lead
PhotoPoint drug candidate, SnET2. In January 2002, Pharmacia, after a top-line
review 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 submitting 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 our first NDA submission for SnET2 for
the treatment of AMD. We are currently in the process of preparing the NDA
submission for SnET2 in AMD and expect to have it completed and submitted on or
about March 31, 2004. We expect to submit the NDA on or about March 31, 2004,
seeking marketing approval based on clinical results in the "per protocol" study
population. The per protocol population consists of those patients who received
the exposure to the SnET2 treatment regimen pre-specified in the clinical study
protocol, comprising a smaller number of patients than the total study
population. 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 submit our NDA for SnET2 as a result
of funding or other constraints or if our submission is not accepted for filing
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.
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,
2003, the price of our Common Stock has been highly volatile. These fluctuations
create a greater risk of capital losses for our stockholders as compared to less
volatile stocks. From January 1, 2002 to March 15, 2004, our Common Stock price,
per Nasdaq and OTCBB closing prices, has ranged from a high of $9.90 to a low of
$0.25.
The market prices for our Common Stock, and the securities of emerging
pharmaceutical and medical device companies, have historically been highly
volatile and subject to extreme price fluctuations, which may reduce the market
price of the Common Stock. Extreme price fluctuations could be the result of the
following:
* Our ability to successfully submit an NDA filing for SnET2 in AMD and
for it to be accepted by the FDA;
* Our ability to have the NDA filing approved by the FDA for
commercialization;
* Our ability to continue to borrow under the 2002 Debt Agreement
through June 30, 2004;
* 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 submission, when,
and if, it is submitted;
* 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 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 ASSIST IN PREPARATION OF THE NDA AND TO CONDUCT
CLINICAL TRIALS ON OUR PRODUCTS, AND IF THESE RESOURCES FAIL, OUR ABILITY TO
COMPLETE THE NDA REVIEW PROCESS OR SUCCESSFULLY COMPLETE CLINICAL TRIALS WILL BE
ADVERSELY AFFECTED AND OUR BUSINESS WILL SUFFER.
To date, we have limited experience in conducting clinical trials. We have
relied on Parexel International, a large clinical research organization, or CRO,
as well as numerous other consultants, to assist in preparation of our NDA we
plan to submit with the FDA on or about March 31, 2004. Additionally, we relied
on Pharmacia, our former corporate partner, and Inveresk, Inc., formerly
ClinTrials Research, Inc., a CRO, to complete our Phase III AMD clinical trials
and we currently rely on a Parexel International for our Phase II dermatology
clinical trials. We may need to rely on Parexel International and other
consultants and third parties to complete the review of the NDA by the FDA. 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 completing the review process of the NDA,
and 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;
* 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 SUBMISSION 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 closed 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 has recently completed
production of 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, which we
currently have in inventory. We believe the quantities we 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.
OUR BUSINESS COULD SUFFER IF WE ARE UNSUCCESSFUL IN INTEGRATING BUSINESS
COMBINATIONS AND STRATEGIC ALLIANCES.
We may expand our operations and market presence by entering into business
combinations, joint ventures or other strategic alliances with other companies.
These transactions create risks, such as:
* The difficulty assimilating the operations, technology and personnel
of the combined companies;
* The disruption of our ongoing business, including loss of management
focus on existing businesses and other market developments;
* Problems retaining key technical and managerial personnel; expenses
associated with the amortization of goodwill and other purchased
intangible assets;
* Additional operating losses and expenses of acquired businesses;
* The impairment of relationships with existing employees, customers and
business partners; and
* Additional losses from any equity investments we might make.
We may not succeed in addressing these risks, and we may not be able to
make business combinations and strategic investments on terms that are
acceptable to us. In addition, any businesses we may acquire may incur operating
losses.
WE RELY ON THE AVAILABILITY OF CERTAIN UNPROTECTED INTELLECTUAL PROPERTY RIGHTS,
AND IF ACCESS TO SUCH RIGHTS BECOMES UNAVAILABLE, OUR BUSINESS COULD SUFFER.
Our trade secrets may become known or be independently discovered by
competitors. Furthermore, inventions or processes discovered by our employees
will not necessarily become our property and may remain the property of such
persons or others.
In addition, certain research activities relating to the development of
certain patents owned by or licensed to us were funded, in part, by agencies of
the United States Government. When the United States Government participates in
research activities, it retains certain rights that include the right to use the
resulting patents for government purposes under a royalty-free license.
We also rely upon unpatented trade secrets, and no assurance can be given
that others will not independently develop substantially equivalent proprietary
information and techniques, or otherwise gain access to our trade secrets or
disclose such technology, or that we can meaningfully protect our rights to our
unpatented trade secrets and know-how.
In the event that the intellectual property we do or will rely on becomes
unavailable, our ability to be competitive will be impeded and our business will
suffer.
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 2003 Lenders 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 2003 Lenders pursuant to their participation rights
under the 2003 Debt Agreement with respect to future financings by Miravant. 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 other 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. OUR INDUSTRY IS SUBJECT TO
TECHNOLOGICAL UNCERTAINTY, WHICH MAY RENDER OUR PRODUCTS AND DEVELOPMENTS
OBSOLETE AND OUR BUSINESS MAY SUFFER.
The pharmaceutical industry is subject to rapid and substantial
technological change. Developments by others may render our products under
development or our technologies noncompetitive or obsolete, or we may be unable
to keep pace with technological developments or other market factors.
Technological competition in the industry from pharmaceutical, biotechnology and
device companies, universities, governmental entities and others diversifying
into the field is intense and is expected to increase. These entities represent
significant competition for us. Acquisitions of, or investments in, competing
pharmaceutical or biotechnology companies by large corporations could increase
such competitors' financial, marketing, manufacturing and other resources.
We are engaged in the development of novel therapeutic technologies,
specifically photodynamic therapy. As a result, our resources are limited and we
may experience technical challenges inherent in such novel technologies.
Competitors have developed or are in the process of developing technologies that
are, or in the future may be, the basis for competitive products. Some of these
products may have an entirely different approach or means of accomplishing
similar therapeutic, diagnostic and imaging effects compared to our products. We
are aware that three of our competitors in the market for photodynamic therapy
drugs have received marketing approval of their product for certain uses in the
United States or other countries. Our competitors may develop products that are
safer, more effective or less costly than our products and, therefore, present a
serious competitive threat to our product offerings.
The widespread acceptance of therapies that are alternatives to ours may
limit market acceptance of our products even if commercialized. The diseases for
which we are developing our therapeutic products can also be treated, in the
case of cancer, by surgery, radiation and chemotherapy, and in the case of
restenosis, by surgery, angioplasty, drug therapy and the use of devices to
maintain and open blood vessels. These treatments are widely accepted in the
medical community and have a long history of use. The established use of these
competitive products may limit the potential for our products to receive
widespread acceptance if commercialized.
Our understanding of the market opportunities for our PhotoPoint PDT is
derived from a variety of sources, and represents our best estimate of the
overall market sizes presented in certain disease areas. The actual market size
and market share which we may be able to obtain may vary substantially from our
estimates, and is dependent upon a number of factors, including:
* Competitive treatments or diagnostic tools, either existing or those
that may arise in the future;
* Performance of our products and subsequent labeling claims; and
* Actual patient population at and beyond product launch.
OUR PRODUCTS ARE SUBJECT TO OTHER STATE AND FEDERAL LAWS, FUTURE LEGISLATION AND
REGULATIONS SUBJECTING US TO COMPLIANCE ISSUES THAT COULD CREATE SIGNIFICANT
ADDITIONAL EXPENDITURES AND LIMIT THE PRODUCTION AND DEMAND FOR OUR POTENTIAL
PRODUCTS.
In addition to the regulations for drug or device approvals, we are subject
to regulation under state, federal or other law, including regulations for
worker occupational safety, laboratory practices, environmental protection and
hazardous substance control. We continue to make capital and operational
expenditures for protection of the environment in amounts which are not
material. Some of the risks and uncertainties related to laws and future
legislation or regulations include:
* Our future capital and operational expenditures related to these
matters may increase and become material;
* We may also be subject to other present and possible future local,
state, federal and foreign regulation;
* Heightened public awareness and concerns regarding the growth in
overall health care expenditures in the United States, combined with
the continuing efforts of governmental authorities to contain or
reduce costs of health care, may result in the enactment of national
health care reform or other legislation or regulations that impose
limits on the number and type of medical procedures which may be
performed or which have the effect of restricting a physician's
ability to select specific products for use in certain procedures;
* Such new legislation or regulations may materially limit the demand
and manufacturing of our products. In the United States, there have
been, and we expect that there will continue to be, a number of
federal and state legislative proposals and regulations to implement
greater governmental control in the health care industry;
* The announcement of such proposals may hinder our ability to raise
capital or to form collaborations; and
* Legislation or regulations that impose restrictions on the price that
may be charged for health care products or medical devices may
adversely affect our results of operations.
We are unable to predict the likelihood of adverse effects which might
arise from future legislative or administrative action, either in the United
States or abroad.
OUR BUSINESS IS SUBJECT TO ENVIRONMENTAL PROTECTION LAWS AND REGULATIONS, AND IN
THE EVENT OF AN ENVIRONMENTAL LIABILITY CLAIM, WE COULD BE HELD LIABLE FOR
DAMAGES AND ADDITIONAL SIGNIFICANT UNEXPECTED COMPLIANCE COSTS, WHICH COULD HARM
OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
We are subject to federal, state, county and local laws and regulations
relating to the protection of the environment. In the course of our business, we
are involved in the handling, storage and disposal of materials that are
classified as hazardous. Our safety procedures for the handling, storage and
disposal of such materials are designed to comply with applicable laws and
regulations. However, we may be involved in contamination or injury from these
materials. If this occurs, we could be held liable for any damages that result,
and any such liability could cause us to pay significant amounts of money and
harm our business. Further, the cost of complying with these laws and
regulations may increase materially in the future.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risk disclosures 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 December 31, 2008 and August 28, 2006, respectively, and these notes can
be converted to Common Stock at the option of the holder. The Company believes
it is not subject to significant interest rate risk due to the fixed rates on
its debt.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
All information required by this item is included on pages 58 - 81 in Item
15. of Part IV of this Report and is incorporated into this item by reference.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Miravant Medical Technologies
We have audited the accompanying consolidated balance sheets of Miravant Medical
Technologies as of December 31, 2003 and 2002, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended December 31, 2003. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Miravant Medical
Technologies at December 31, 2003 and 2002 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2003, in conformity with accounting principles generally accepted
in the United States.
The accompanying financial statements have been prepared assuming that Miravant
Medical Technologies will continue as a going concern. As more fully described
in Note 1, the Company has incurred recurring operating losses, which have
resulted in a working capital deficit, an accumulated deficit and a deficit in
stockholders' equity. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. The financial statements do not
include any adjustments to reflect possible future effects on the recoverability
and classification of assets or the amounts and classification of liabilities
that may result from the outcome of this uncertainty.
/S/ ERNST & YOUNG LLP
Woodland Hills, California
March 16, 2004
CONSOLIDATED BALANCE SHEETS
December 31,
2003 2002
------------------ -------------------
Assets
Current assets:
Cash and cash equivalents............................................... $ 1,030,000 $ 723,000
Prepaid expenses and other current assets............................... 298,000 551,000
------------------ -------------------
Total current assets....................................................... 1,328,000 1,274,000
Property, plant and equipment:
Vehicles................................................................ 28,000 28,000
Furniture and fixtures.................................................. 1,393,000 1,389,000
Equipment............................................................... 5,200,000 5,531,000
Leasehold improvements.................................................. 2,720,000 3,495,000
------------------ -------------------
9,341,000 10,443,000
Accumulated depreciation................................................ (9,125,000) (9,837,000)
------------------ -------------------
216,000 606,000
Investments in affiliates.................................................. -- 393,000
Patents, net............................................................... 707,000 978,000
Other assets............................................................... 154,000 139,000
------------------ -------------------
Total assets............................................................... $ 2,405,000 $ 3,390,000
================== ===================
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable........................................................ $ 1,456,000 $ 1,361,000
Accrued payroll and expenses............................................ 536,000 628,000
Short-term debt......................................................... -- 5,238,000
------------------ -------------------
Total current liabilities.................................................. 1,992,000 7,227,000
Long-term liabilities:
Convertible debt:
Face value of convertible debt........................................ 12,916,000 1,003,000
Deferred financing costs and beneficial conversion value.............. (5,476,000) (379,000)
------------------ -------------------
Net convertible debt.................................................... 7,440,000 624,000
Long-term debt.......................................................... -- 5,555,000
Sublease security deposits.............................................. -- 94,000
------------------ -------------------
Total long-term liabilities................................................ 7,440,000 6,273,000
Stockholders' equity (deficit):
Common stock, 50,000,000 shares authorized; 25,564,904 and 24,225,089 shares
issued and outstanding at December 31, 2003 and
2002, respectively.................................................... 190,586,000 180,255,000
Notes receivable from officers.......................................... (603,000) (570,000)
Deferred compensation................................................... (16,000) (266,000)
Accumulated deficit..................................................... (196,994,000) (189,529,000)
------------------ -------------------
Total stockholders' equity (deficit)....................................... (7,027,000) (10,110,000)
------------------ -------------------
Total liabilities and stockholders' equity (deficit)....................... $ 2,405,000 $ 3,390,000
================== ===================
See accompanying notes.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
2003 2002 2001
------------------- ------------------- ------------------
Revenues:
License - contract research and development....... $ -- $ 20,000 $ 302,000
Bulk active pharmaceutical ingredient sales....... -- 479,000 4,306,000
Royalties......................................... -- -- 75,000
------------------- ------------------- ------------------
Total revenues....................................... -- 499,000 4,683,000
Costs and expenses:
Cost of goods sold................................ -- 479,000 934,000
Research and development.......................... 7,616,000 9,549,000 13,493,000
General and administrative........................ 4,620,000 5,726,000 5,903,000
------------------- ------------------- ------------------
Total costs and expenses............................. 12,236,000 15,754,000 20,330,000
Loss from operations................................. (12,236,000) (15,255,000) (15,647,000)
Interest and other income (expense):
Interest and other income......................... 76,000 169,000 798,000
Interest expense.................................. (5,649,000) (286,000) (2,139,000)
Gain on sale of assets............................ 62,000 10,000 586,000
Gain on sale of investment in affiliate........... 1,196,000 -- --
Gain on retirement of debt........................ 9,086,000 -- --
Non-cash loss in investment in affiliate.......... -- (598,000) --
------------------- ------------------- ------------------
Total net interest and other income (expense)........ 4,771,000 (705,000) (755,000)
------------------- ------------------- ------------------
Net loss............................................. $ (7,465,000) $ (15,960,000) $ (16,402,000)
=================== =================== ==================
Net loss per share - basic and diluted............... $ (0.30) $ (0.78) $ (0.88)
=================== =================== ==================
Shares used in computing net loss per share.......... 24,703,543 20,581,214 18,647,071
=================== =================== ==================
See accompanying notes.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Notes Accumulated
Receivable Deferred Other
Common Stock from Compensation Comprehensive Accumulated
Shares Amount Officers and Interest Loss Deficit Total
------------ --------------- ------------- --------------- -------------- --------------- ----------
Balance at January 1, 2001.... 18,576,503 $ 158,842,000 $ (487,000) $(1,220,000) $ (132,000) $(157,167,000)$ (164,000)
Comprehensive loss:
Net loss.................. -- -- -- -- -- (16,402,000)(16,402,000)
Net change in accumulated
other comprehensive
loss..................... -- -- -- -- (224,000) -- (224,000)
-------------
Total comprehensive loss..... (16,626,000)
Exercise of stock options and
warrants.................... 35,690 315,000 -- -- -- -- 315,000
Issuance of stock awards..... 263,882 2,255,000 -- -- -- -- 2,255,000
Non-cash contributions by
Pharmacia Corporation........ -- 194,000 -- -- -- -- 194,000
Officer notes and non-cash
interest on officer notes.... -- -- (335,000) -- -- -- (335,000)
Deferred compensation......... -- (110,000) -- 110,000 -- -- --
Amortization of deferred
compensation................. -- -- -- 563,000 -- -- 563,000
------------ --------------- ------------- --------------- -------------- --------------- ---------
Balance at December 31, 2001....18,876,075 $ 161,496,000 $ (822,000) $ (547,000) $ (356,000) $(173,569,000)$(13,798,000)
Comprehensive loss:
Net loss................... -- -- -- -- -- (15,960,000) (15,960,000)
Net change in accumulated
other comprehensive loss.. -- -- -- -- 356,000 -- 356,000
-------------
Total comprehensive loss...... (15,604,000)
Issuance of stock at $0.50 per
share (net of approximately
$81,000 of offering costs)...5,000,000 2,419,000 -- -- -- -- 2,419,000
Issuance of stock awards and
ESOP Employer matching
contribution................. 349,014 78,000 -- -- -- -- 78,000
Non-cash contributions by
Pharmacia Corporation:
Lease payments............. -- 40,000 -- -- -- -- 40,000
Debt restructuring......... -- 15,393,000 -- -- -- -- 15,393,000
Officer notes and non-cash
interest on officer notes.... -- -- (248,000) -- -- -- (248,000)
Reserve for officer notes..... -- -- 500,000 -- -- -- 500,000
Deferred compensation and
deferred interest related to
warrants granted............. -- 829,000 -- (534,000) -- -- 295,000
Amortization of deferred
compensation.................. -- -- -- 815,000 -- -- 815,000
------------ --------------- ------------- --------------- ------------- --------------- ----------
Balance at December 31, 2002....24,225,089 $ 180,255,000 $ (570,000) $(266,000) $ -- $(189,529,000)$(10,110,000)
Comprehensive loss:
Net loss................... -- -- -- -- -- (7,465,000) (7,465,000)
-------------
Total comprehensive loss...... (7,465,000)
Issuance of restricted shares,
stock awards, stock option
exercises and ESOP matching
contributions................ 949,815 87,000 -- -- -- -- 87,000
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
Value of warrants and options
issued to employees.......... -- 4,725,000 -- (53,000) -- -- 4,672,000
Non-cash interest on officer
notes........................ -- -- (61,000) -- -- -- (61,000)
Repayments on officer notes,
net of reserve for officer
notes........................ -- -- 28,000 -- -- -- 28,000
Amortization of deferred
compensation.................. -- -- -- 303,000 -- -- 303,000
------------ --------------- ------------- --------------- ------------- --------------- ----------
Balance at December 31, 2003....25,564,904 $ 190,586,000 $ (603,000) $ (16,000) $ -- $(196,994,000)$ (7,027,000)
============ =============== ============= =============== ============= ============== ============
See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
Operating activities: 2003 2002 2001
---------------- ---------------- ---------------
Net loss............................................... $ (7,465,000) $ (15,960,000) $ (16,402,000)
Adjustments to reconcile net loss to net cash used
by operating activities:
Gain on retirement of debt.......................... (9,086,000) -- --
Depreciation and amortization....................... 543,000 887,000 1,194,000
Amortization of deferred compensation............... 303,000 815,000 563,000
Gain on sale of investment in affiliate............. (1,196,000) -- --
Non-cash loss in investment in affiliate............ -- 598,000 --
Gain on sale of property, plant and equipment....... (61,000) (10,000) (586,000)
Stock awards and ESOP matching contribution......... 79,000 78,000 2,255,000
Non-cash interest and amortization of
deferred financing costs on debt.................. 5,521,000 319,000 2,288,000
Reserve and abandonment for patents................. 363,000 81,000 --
Provision for employee and officer loans, net of non-
cash interest on related loans................... (70,000) 802,000 (68,000)
Changes in operating assets and liabilities:
Accounts receivable ............................. -- 5,030,000 (4,148,000)
Prepaid expenses, inventories and other assets... 253,000 122,000 (326,000)
Accounts payable and accrued payroll............... (12,000) (1,332,000) (17,000)
------------------ ------------------ ------------------
Net cash used in operating activities.................. (10,828,000) (8,570,0000) (15,247,000)
Investing activities:
Purchases of marketable securities..................... -- (28,679,000) (43,684,000)
Sales of marketable securities......................... -- 33,333,000 57,930,000
Proceeds from sale of investment in affiliate.......... 1,589,000 -- --
Purchases of property, plant and equipment............. (120,000) -- (287,000)
Sublease security deposits............................. (94,000) -- --
Proceeds from sale of property, plant and equipment.... 122,000 71,000 863,000
Purchases of patents................................... (186,000) (154,000) (67,000)
------------------ ------------------ ------------------
Net cash provided by investing activities.............. 1,311,000 4,571,000 14,755,000
Financing activities:
Proceeds from issuance of Common Stock, less
issuance costs...................................... 8,000 2,419,000 315,000
Proceeds from convertible note arrangements............ 11,300,000 1,000,000 --
Repayment of long-term debt............................ (1,170,000) -- --
Payments of deferred financing costs................... (351,000) -- --
Repayments (advances) of notes to officers............. 37,000 (155,000) (300,000)
------------------ ------------------ ------------------
Net cash provided by financing activities.............. 9,824,000 3,264,000 15,000
Net increase (decrease) in cash and cash equivalents... 307,000 (735,000) (477,000)
Cash and cash equivalents at beginning of period....... 723,000 1,458,000 1,935,000
------------------ ------------------ ------------------
Cash and cash equivalents at end of period............. $ 1,030,000 723,000 1,458,000
================== ================== ==================
State taxes paid....................................... $ 4,000 $ 4,000 $ 20,000
================== ================== ==================
Interest paid.......................................... $ 104,000 $ -- $ --
================== ================== ==================
See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Description of Business, Basis of Presentation and Going Concern:
Miravant Medical Technologies, or Miravant or the Company, is engaged in
the research and development of drugs and medical device products for use in
PhotoPoint(TM) PDT, the Company's proprietary technologies for photodynamic
therapy. The Company is located in Santa Barbara, California.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. This basis of accounting
contemplates the recovery of the Company's assets and the satisfaction of its
liabilities in the normal course of business. Through December 31, 2003, the
Company had an accumulated deficit of $197.0 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 submitting 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 the Company's product in order to achieve a level of revenues
adequate to support the Company's cost structure. As discussed further in Note
12, in February 2004, the Company entered into a $2.0 million Unsecured
Convertible Debenture Purchase Agreement, or the February 2004 Debt Agreement,
with certain accredited investors, or the February 2004 Lenders, which provided
proceeds of $2.0 million. 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, or the 2003 Lenders, pursuant to which the Company
issued securities to the Lenders in exchange for gross proceeds of $6.0 million.
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, or 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 December 31, 2003, the Company had borrowed $6.3 million
under the 2002 Debt Agreement. The Company believes it can raise additional
funding to support operations through corporate collaborations or partnerships,
licensing of SnET2 or new products and additional equity or debt financings
prior to June 30, 2004. 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 due date is not accelerated, then the Company
has the ability to conserve cash required for operations through December 31,
2004 (unaudited). If the $5.7 million is not available or only a portion thereof
is available, the Company believes that it will have cash required for
operations through June 30, 2004 (unaudited) by the delay or reduction in scope
of one or more of our research and development programs and adjusting, deferring
or reducing salaries of employees and by reducing operating facilities and
overhead expenditures. 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 consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and the accompanying notes. Actual results
may differ from those estimates and such differences may be material to the
consolidated financial statements.
Certain reclassifications of prior year amounts have been made for purposes
of consistent presentation.
Principles of Consolidation:
The consolidated financial statements include the accounts of Miravant
Medical Technologies and its wholly owned subsidiaries, Miravant Systems, Inc.,
Miravant Pharmaceuticals, Inc. and Miravant Cardiovascular, Inc. All significant
intercompany balances and transactions have been eliminated in consolidation.
Cash Equivalents:
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Investments in Affiliates:
Investments in affiliates owned more than 20% but not in excess of 50%,
where the Company is deemed to be able to exercise significant influence, are
recorded under the equity method. Investments in affiliates, owned less than
20%, where the Company is not deemed to be able to exercise significant
influence, are recorded under the cost method. Under the equity method,
investments are carried at acquisition cost and generally adjusted for the
proportionate share of the affiliates' earnings or losses. Under the cost
method, investments are recorded at acquisition cost and adjusted to fair market
value based on the investment classification.
In December 1996, the Company purchased an equity interest in Ramus Medical
Technologies, or Ramus, for $2.0 million. The investment was accounted for under
the equity method because the investment was more than 20% but not in excess of
50% of Ramus' outstanding common stock. As the Company was the main source of
financing for Ramus, the Company recorded 100% of Ramus' loss to the extent of
the investment made by the Company. The investment in Ramus has been fully
reserved for as of December 31, 2003 and 2002, respectively.
In June 1998, the Company purchased an equity interest in Xillix
Technologies Corp., or Xillix. The Company received 2,691,904 shares of Xillix
common stock, in exchange for $3.0 million in cash and 58,909 shares of Miravant
Common Stock. In December 2003, the Company sold its investment in Xillix for
net proceeds of approximately $1.6 million. The investment had previously been
accounted for under the cost method and classified as available-for-sale. See
Note 10 for further discussion on the Company's investment in Xillix.
Equipment and Leasehold Improvements:
Equipment is stated at cost with depreciation provided over the estimated
useful lives of the respective assets on the straight-line basis. Leasehold
improvements are stated at cost with amortization provided on the straight-line
basis. The estimated useful lives of the assets are as follows:
Furniture and fixtures 5 years
Equipment 3 - 5 years
Leasehold improvements 5 years or the remaining life of
the lease term, whichever is shorter
Patents:
Costs of acquiring patents are capitalized and amortized on the
straight-line basis over the estimated useful life of the patents, generally
seventeen years. Costs of patents filed or in the filing process, or patents
pending, are capitalized as prepaid patents and are not amortized until the
patent is issued. Accumulated amortization was $524,000 and $453,000 at December
31, 2003 and 2002, respectively, and reserves recorded for patents amounted to
$767,000 and $566,000 at December 31, 2003 and 2002, respectively. The cost of
servicing the Company's patents are expensed as incurred. The weighted average
amortization period for the Company's patents is approximately 11.5 years.
Amortization expense related to patents amounted to $94,000, $76,000 and $72,000
for the years ended December 31, 2003, 2002 and 2001, respectively. The
estimated amortization expense related to patents for the next five years ended
December 31, as of December 31, 2003 is as follows:
2004 $ 89,000
2005 $ 89,000
2006 $ 89,000
2007 $ 89,000
2008 $ 89,000
Long-Lived Assets:
The Company reviews for the impairment of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Company
periodically reviews the carrying value of its patents and provides reserves for
any patents which are not actively being researched or marketed. During the
years ended December 31, 2003, 2002 and 2001, the Company increased the patent
reserve by $200,000, $81,000 and zero, respectively, which is included in
research and development expenses in the consolidated statements of operations.
No other impairment losses have been recorded by the Company. An impairment loss
would be recognized when the estimated future cash flows expected to result from
the use of the asset and its eventual disposition is less than its carrying
amount.
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.
The Company also has granted and continues to grant warrants and options to
various consultants of the Company. These warrants and options are generally in
lieu of cash compensation and, as such, deferred compensation is recorded
related to these grants. Deferred compensation for warrants and options granted
to non-employees has been determined in accordance with SFAS No. 123 and
Emerging Issues Task Force, or EITF, 96-18, as the fair value of the
consideration received or the fair value of the equity instruments issued,
whichever is more reliably measured. Deferred compensation is amortized over the
consulting or vesting period.
Revenue Recognition:
The Company recognizes revenues from product sales based on when ownership
of the product transfers to the customer and when collectibility is reasonably
assured. Sales of bulk active pharmaceutical ingredient, or bulk API, to a
former collaborative partner were recorded as revenue in the period when the
product was received by the former collaborative partner at their facility.
Licensing revenues represent reimbursements from a former collaborative partner
for out-of-pocket expenses incurred in preclinical studies and clinical trials
for the SnET2 PhotoPoint PDT treatment for age related macular degeneration, or
AMD. These licensing revenues were recognized in the period when the
reimbursable expenses were incurred. Grant income is recognized in the period in
which the grant related expenses are incurred and royalty income is recognized
in the period in which the royalties are earned.
Research and Development Expenses:
Research and development costs are expensed as incurred. Research and
development expenses are comprised of the following types of costs incurred in
performing research and development activities: salaries and benefits, allocated
overhead and facility costs, preclinical study costs, clinical trial and related
clinical device and drug manufacturing costs, contract services and other
outside costs. The acquisition of technology rights for research and development
projects and the value of equipment and drug product for specific research and
development projects, with no or low likelihood of alternative future use, are
also included in research and development expenses.
Segment Reporting:
The Company is engaged principally in one line of business, the research
and development of drugs and medical device products for the use in the
Company's proprietary technologies for photodynamic therapy.
Comprehensive Loss:
The Company has elected to report other comprehensive loss in the
consolidated statements of stockholders' equity (deficit) with the change in
accumulated other comprehensive loss consisting of the following:
2003 2002 2001
--------------- -------------- -----------------
Unrealized holding gains (losses) arising from
available-for-sale securities.......................... $ 1,196,000 $ (242,000) $ (224,000)
Reclassification adjustment for other-than-temporary
non-cash (gain) loss in investment..................... $(1,196,000) 598,000 --
--------------- -------------- -----------------
Net (increase) decrease in accumulated other
comprehensive loss .................................... $ -- $ 356,000 $ (224,000)
=============== ============== =================
Net Loss Per Share:
The Company calculates earnings per share in accordance with SFAS No. 128,
"Earnings per Share." Basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per share
reflects the potential dilution that would occur if securities or other
contracts to issue common stock were exercised or converted to common stock.
Common stock equivalent shares from all stock options, warrants and convertible
securities for all years presented have been excluded from this computation as
their effect is anti-dilutive.
Basic loss per common share is computed by dividing the net loss by the
weighted average shares outstanding during the period in accordance with SFAS
No. 128. Since the effect of the assumed exercise of common stock options and
other convertible securities was anti-dilutive, basic and diluted loss per share
as presented on the consolidated statements of operations are the same.
Recent Accounting Pronouncements:
In January 2003, the Financial Accounting Standards Board, or FASB, issued
Financial Interpretation No. 46, or FIN 46, "Consolidation of Variable Interest
Entities, an interpretation of APB No. 51", which was amended in December 2003.
FIN 46 as amended requires that if a company holds a controlling financial
interest in a variable interest entity, or VIE, the assets and liabilities and
results of the VIE's activities should be consolidated in the entity's financial
statements. The Company does not expect FIN 46 to have a material impact on its
consolidated results of operations or financial position.
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 how an issuer classifies and measures in its
statement of financial position certain financial instruments with
characteristics of both liabilities and equity. SFAS No. 150 requires that an
issuer classify a financial instrument that is within the scope of SFAS No. 150
as a liability, or an asset in some circumstances, because that financial
instrument embodies an obligation of the issuer. SFAS No. 150 is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim periods beginning after June
15, 2003. The adoption of SFAS No. 150 did not have a material impact on the
Company's results of operations or financial position.
2. Credit Arrangements and Collaborative Funding
Pharmacia Debt Settlement
On August 28, 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 retirement 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, 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 retirement of debt
in the consolidated statements of operations as part of interest and other
income/(expense) as follows:
Outstanding debt as of August 28, 2003.............................. $ 10,623,000
Less: Fair market value of 390,000 shares of Common Stock
(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 retirement of debt......... $ 9,086,000
===============
Prior Pharmacia Agreements
In March 2002, the Company's prior agreements with Pharmacia were
significantly modified or terminated by the Contract Modification and
Termination Agreement. This agreement modified the credit agreement between the
Company and Pharmacia, or the 2001 Credit Agreement. The outstanding debt that
the Company owed to Pharmacia of approximately $26.8 million was reduced to
$10.0 million plus accrued interest. Interest on the debt was recorded at the
prime rate, which was 4.75% at March 5, 2002 and 4.25% at December 31, 2002.
Additionally, early repayment provisions and many of the covenants were
eliminated or modified. In exchange for these changes and the rights to SnET2,
the Company terminated its right to receive a $3.2 million loan that was
available under the 2001 Credit Agreement. This agreement was superceded by the
Termination and Release Agreement entered into in August 2003.
In accordance with SFAS No. 15, "Accounting by Debtors and Creditors for
Troubled Debt Restructurings", the Company permanently reduced the debt due to
Pharmacia to the total future cash payments of the debt, including amounts
designated as interest and principal. The total future cash payments, at the
then current interest rates, was estimated to be $10.8 million. The difference
between the total debt outstanding of $26.2 million (net of the unamortized
deferred financing costs of approximately $900,000) and the total future cash
payments of the restructured debt of $10.8 million was recorded as an increase
to stockholders' equity due to Pharmacia being a greater than 10% stockholder in
the Company at the time. Therefore, the Company recorded a $15.4 million
increase to stockholders' equity in the first quarter of 2002.
In connection with the Contract Modification and Termination Agreement with
Pharmacia, which provided for the first debt payment to be paid on March 5,
2003, the Company negotiated an extension on the first installment of $5.0
million to August 29, 2003, as amended. The Company paid Pharmacia a total of
$250,000 consisting of interest due through March 5, 2003 and an extension fee
of $21,000 for the extension of the payment date in the year ended December 31,
2003.
The Contract Modification and Termination Agreement also provided for the
transfer of ownership of several assets back to the Company, which were
previously sold to Pharmacia under the May 2001 Manufacturing Facility Asset
Purchase Agreement, or the Asset Purchase Agreement, including the lasers
utilized in the Phase III AMD clinical trials, the bulk API and FDF inventories
and the bulk API manufacturing equipment used to manufacture SnET2. The Company
recorded the transfer of ownership of the bulk API manufacturing equipment at
its net carrying value prior to sale to Pharmacia, which was $277,000. Under
generally accepted accounting principles, there was no value recorded on the
balance sheet for the transfer of ownership of the lasers, and the bulk API and
FDF inventory, since these assets, according to the Company's accounting
policies, had been expensed as research and development costs in prior years.
The Company has issued an aggregate of 360,000 warrants to purchase
Miravant Common Stock upon draws on the 2001 Credit Agreement. These warrants,
which had been valued at $1.7 million using the Black-Scholes valuation model,
had been recorded as deferred financing costs on the balance sheet and were
being amortized as interest expense over the life of the credit agreement. As
noted above, the deferred financing costs were eliminated in the permanent
reduction of the debt owned to Pharmacia under the accounting for the Contract
Modification and Termination Agreement. The Company amortized $374,000 related
to these deferred financing costs through interest expense in the year ended
December 31, 2001.
Under the Asset Purchase Agreement entered into in May 2001, Pharmacia
issued a purchase order to buy the Company's existing SnET2 bulk API inventory
at cost for $2.2 million. The existing bulk API inventory had been previously
expensed in research and development costs in prior periods. Pharmacia also
committed to buy up to an additional $2.8 million of the bulk API which would be
manufactured by the Company through March 2002. Additionally, Pharmacia agreed
to purchase the manufacturing equipment necessary to produce the bulk API for
$863,000, its fair market value as appraised by an independent appraisal firm.
The sale of the bulk API manufacturing equipment resulted in a gain on sale of
property, plant and equipment of $586,000. Sales of bulk API manufactured and
shipped through December 31, 2001, were paid by Pharmacia directly into an
inventory escrow account, which, through the Contract Modification and
Termination Agreement, was released to the Company in full in January 2002. The
equipment escrow account, containing a principal balance of $863,000, was
released in March 2002.
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, or the 2003 Lenders, in exchange for gross
proceeds of $6.0 million. Under the 2003 Debt Agreement, at the option of the
2003 Lenders, the debt can be converted 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 holder 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 prepaid 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 submitted by March 31, 2004,
as amended. 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 two quarterly
interest payments on October 1, 2003 in cash in the amount of $44,000 and in the
amount of $122,000 on January 1, 2004 in the form of shares of Common Stock.
In connection with the 2003 Notes, the Company also issued to the 2003
Lenders warrants to purchase an aggregate of 4,500,000 shares of the Company's
Common Stock. Each holder 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 4,500,000 shares of Common Stock
underlying the convertible promissory notes, 3,375,000 shares of Common Stock
underlying the warrants and 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
the Black-Scholes valuation model. 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 year ended December 31, 2003, the Company recorded
amortization expense of $329,000 related to the deferred financing costs
associated with the warrant valuation, which is included in interest expense in
the consolidated statement of operations.
Additionally, under EITF No. 98-5, the Company was required to determine
the beneficial conversion value of 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 on an as converted basis and the 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 model 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: Fair value of the 2003 Notes........................................... (6,000,000)
-----------
Beneficial conversion value.............. $ 2,772,000
===========
The beneficial conversion value is being amortized over the period from the
date of note issuance to the period of first available note conversion. Since
approximately 75% of the 2003 Notes can be converted into registered Common
Stock, the Company expensed $2.1 million of the beneficial conversion value to
interest expense as of December 31, 2003. The remaining 25% of the 2003 Notes
are currently not convertible and are expected to be convertible by 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 December 31, 2003, the
Company recorded total amortization expense of $2.4 million related to the
beneficial conversion value of the 2003 Notes, which is included in interest
expense in the 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 2003 Lenders.
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 the Black-Scholes valuation
model, and is amortizing these deferred financing costs over the term of the
underlying promissory notes, or December 31, 2008.
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 model 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: Fair value of the 2002 Notes........................................... (6,300,000)
-----------
Beneficial conversion value.............. $ 2,210,000
===========
The beneficial conversion value is being amortized over the period from the
date of note issuance to the period of first available note conversion. Since
approximately 80% of the 2002 Notes can be converted into registered Common
Stock, the Company expensed $1.8 million of the beneficial conversion value to
interest expense as of December 31, 2003. The remaining 20% of the 2002 Notes
are currently not convertible and are expected to be convertible by 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 December 31, 2003, the
Company recorded total amortization expense of $1.9 million related to the
beneficial conversion value of the 2002 Notes, which is included in interest
expense in the 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 December 31, 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 submitted an NDA by March 31, 2004, as amended, (ii) such submission 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 drawdown fees and certain legal costs
in the amount of $244,000 have been capitalized and are being amortized over the
life of the 2002 Debt Agreement resulting in amortization expense of $207,000
recorded and included in interest expense in the consolidated statement of
operations for the year ended December 31, 2003. The exercise price of each
warrant will be equal to fair market value at the date of borrowing. 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 December 31, 2003, the Company has borrowed a total of
$6.3 million and has accrued interest of $493,000, which is also convertible at
$1.00 per share. For the year ended December 31, 2003, the Company has recorded
amortization expense of $201,000 related to the deferred financing costs for
these warrant from 2002 Debt Agreements, which is included in interest expense
in the consolidated statement of operations.
A separate convertible promissory note, or Note, has been issued for each
borrowing request received and such Notes will earn interest at 9.4% per annum
and be due December 31, 2008. The interest on each Note can be accrued and added
to the existing Notes. In general, each Note and any accrued interest can be
converted into shares of Miravant's Common Stock on the earlier of March 31,
2003, or the date on which the trading price of our Common Stock exceeds 250% of
the conversion price of the Note.
Deferred Financing Costs and Beneficial Conversion Value:
As of December 31, 2003 and 2002, deferred financing costs and
beneficial conversion value consisted of the following:
2003 2002
----------------- -------------------
Amortized value of warrants issued for 2003 Notes $ 2,464,000 $ --
Amortized value of warrants issued for 2002 Notes 1,954,000 326,000
Beneficial Conversion value of the 2003 Notes 416,000 --
Beneficial Conversion value of the 2002 Notes 265,000 --
Other deferred financing 377,000 53,000
----------------- -------------------
Total deferred financing costs and beneficial
conversion value $ 5,476,000 $ 379,000
================= ===================
Maturities of Convertible Notes:
Principal payments on the convertible notes obligations, assuming no
conversion prior to maturity, are due in the amounts of $6.1 million in fiscal
2006 and $6.8 million in fiscal 2008.
3. Stockholders' Equity
Private Placements:
In August 2002, the Company completed a private placement financing which
consisted of the sale of unregistered shares of Common Stock for gross proceeds
of $2.5 million at $0.50 per share, based on a premium of approximately 20% of
the average closing price for the prior 10 trading days. For every two common
shares acquired, the equity purchase included a warrant to purchase one share of
Common Stock at a price of $0.50 per share that expire in August 2007. In
addition, an origination warrant was issued to purchase 300,000 shares of Common
Stock at $0.50 per share. A group of private investors participated in the
offering.
Preferred Stockholder Rights Plan:
On July 13, 2000, the Board of Directors of the Company adopted a Preferred
Stockholder Rights Plan, or the Rights Plan. Under the Rights Plan, Miravant has
issued a dividend of one right for each share of its Common Stock held after the
close of business on July 31, 2000. The Rights Plan is designed to assure
stockholders' fair value in the event of a future unsolicited business
combination or similar transaction involving the Company. This Rights Plan was
not adopted in response to any attempt to acquire the Company, and Miravant is
not aware of any such efforts.
The rights will become exercisable only if a person or group (i) acquires
20% or more of Miravant's Common Stock, or (ii) announces a tender offer that
would result in ownership of 20% or more of the Common Stock. In April 2001, the
Rights Plan was amended to increase the trigger percentage from 20% to 25% as it
applies to Pharmacia and excluded shares acquired by Pharmacia in connection
with the 2001 Credit Agreement with Pharmacia, and from the exercise of warrants
held by Pharmacia. Each right would entitle a stockholder to buy a fractional
share of the Company's preferred stock. Each right has an initial exercise price
of $180.00. Once the acquiring person or group has acquired 20% or more of the
outstanding Common Stock of Miravant, each right shall entitle its holder (other
than the acquiring person or group) to acquire shares of the Company or of the
third party acquirer having a value of twice the right's then-current exercise
price.
The rights are redeemable at the option of the Board of Directors up until
ten days after public announcement that any person or group has acquired 20% or
more of Miravant's Common Stock. The redemption price is $0.001 per right. The
rights will expire on July 31, 2010, unless redeemed prior to that date.
Distribution of the rights is not taxable to stockholders.
Notes Receivable from Officers:
In October 1996, the Board of Directors approved personal loans to the
Chief Executive Officer, President and Chief Financial Officer. These loans were
made for a principal amount of $25,000 to each officer collateralized by
unexercised stock options and accrue interest at fixed rates between 6.60% and
6.84%. As of December 31, 2003 and 2002, the total balance of these loans
including accrued interest were $70,000 and $112,000, respectively.
In December 1997, the Compensation Committee of the Board of Directors
recommended, and subsequently approved, non-recourse equity loans in varying
amounts for the Company's Chief Executive Officer, President and Chief Financial
Officer. The notes, which accrue interest at a fixed rate of 5.8%, were provided
specifically for the purpose of exercising options to acquire the Company's
Common Stock and for paying the related option exercise price and payroll taxes.
The notes are collateralized by the underlying shares acquired upon exercise. As
of December 31, 2003 and 2002, the total balance of these loans including
accrued interest were $165,000 and $156,000, respectively.
Additionally, from 1998 through 2002, the Board of Directors have approved
other secured loans made to the Company's Chief Executive Officer and President;
these loans accrue interest at fixed rates between 4.7% and 5.9% and as of
December 31, 2003 and 2002, had a total balance of $961,000 and $914,000,
respectively. No future loans to executive officers have been approved after
June 2002.
The loans the Company has made to officers and certain loans made to
employees over the years are either unsecured, or secured by stock or stock
options. In light of the decrease in the Company's stock price during 2003 and
2002 and certain other factors affecting the collectibility of these loans, the
Company recorded a reserve for these loans to officers and employees in the
amount of $872,000 during the year ended December 31, 2002, respectively. Of the
amount recorded, $182,000 is included in research and development expenses and
$690,000 is included in general and administrative expenses in the statements of
operations for the year ended December 31, 2002. During 2003, the reserve was
reduced by $150,000 due to the write-off of an employee loan specifically
reserved for and a further reduction of $10,000 due to the repayment of certain
amounts related to officer loans previously reserved for. As of December 31,
2003 and 2002, the aggregate balance of these loans to officers and employees,
net of reserves, is $662,000 and $610,000, respectively, of which $59,000 and
$40,000 are included in other assets at December 31, 2003 and 2002,
respectively, and $603,000 and $570,000 are included in notes receivable from
officers at December 31, 2003 and 2002, respectively.
Stock Option Plans:
The Company has six stock-based compensation plans which are described
below: the 1989 Plan, the 1992 Plan, the 1994 Plan, the 1996 Plan or, as a
group, the Prior Plans, the Miravant Medical Technologies 2000 Stock
Compensation Plan or the 2000 Plan and the Non-Employee Directors Stock Option
Plan or the Directors' Plan. As disclosed in Note 1, the Company applies APB
Opinion No. 25 and related interpretations in accounting for its stock option
plans.
The Prior Plans provided for the grant of both incentive stock options and
non-statutory stock options. Stock options were granted under these plans to
certain employees, corporate officers, non-employee directors and consultants.
The purchase price of incentive stock options must equal or exceed the fair
market value of the Common Stock at the grant date and the purchase price of
non-statutory stock options may be less than fair market value of the Common
Stock at grant date. Effective June 14, 2000, the Prior Plans were superseded
with the adoption of the 2000 Plan except to the extent of options outstanding
under the Prior Plans. The Company has allocated 300,000 shares, 750,000 shares,
600,000 shares and 4,000,000 shares for the 1989 Plan, the 1992 Plan, the 1994
Plan and the 1996 Plan, respectively. The outstanding shares granted under the
Prior Plans generally vest in equal annual installments over four years
beginning one year from the grant date and expire ten years from the original
grant date. No further grants will be issued from the Prior Plans.
The 2000 Plan provides for awards which include incentive stock options,
non-qualified stock options, restricted shares, stock appreciation rights,
performance shares, stock payments and dividend equivalent rights. Included in
the 2000 Plan is an employee stock purchase program which has not yet been
implemented. Officers, key employees, directors and independent contractors or
agents of the Company may be eligible to participate in the 2000 Plan, except
that incentive stock options may only be granted to employees of the Company.
The 2000 Plan supersedes and replaces the Prior Plans and the Directors' Plan,
except to the extent of options outstanding under those plans. The purchase
price for awards granted from the 2000 Plan may not be less than the fair market
value at the date of grant. The maximum amount of shares that could be awarded
under the 2000 Plan over its term is 8,000,000 shares, of which approximately
6,211,000 shares have been granted or issued and 1,304,000 shares have been
cancelled netting 4,907,000 shares, which were outstanding under the 2000 Plan
as of December 31, 2003. Awards granted under the 2000 Plan expire on the date
determined by the Plan Administrators as evidenced by the award agreement, but
shall not expire later than ten years from the date the award is granted except
for grants of restricted shares which expire at the end of a specified period if
the specified service or performance conditions have not been met.
Stock Option Summary:
In connection with certain employment agreements and/or related to service
performance, the Company has granted its executives, directors and eligible
employees and consultants, non-qualified and incentive stock options to purchase
shares of Common Stock. The options generally become exercisable in equal
installments over four years beginning one year from the grant date and expire
ten years from the original grant date. The following table summarizes all stock
option activity:
Weighted
Average
Exercise Price Exercise Stock
per Share Price Options
- ---------------------------------------------------------------------------------------------
Outstanding at January 1, 2001.......... $ 0.67 - 55.50 $ 15.34 4,047,302
Granted.............................. 7.25 - 10.68 8.67 608,000
Exercised............................ 0.67 - 9.31 8.84 (35,690)
Cancelled............................ 7.63 - 28.00 9.99 (60,500)
- ---------------------------------------------------------------------------------------------
Outstanding at December 31, 2001........ 1.00 - 55.50 14.60 4,559,112
Granted.............................. 0.51 - 1.35 0.83 3,272,710
Cancelled............................ 0.91 - 40.75 15.73 (3,358,489)
- ---------------------------------------------------------------------------------------------
Outstanding at December 31, 2002........ 0.50 - 55.50 3.69 4,473,333
Granted.............................. 1.08 - 1.35 0.83 195,803
Exercised............................ 0.51 - 0.91 0.84 (9,063)
Cancelled............................ 0.51 - 30.75 11.31 (445,226)
- ---------------------------------------------------------------------------------------------
Outstanding at December 31, 2003........ $ 0.44 - 55.50 $ 3.06 4,214,847
- ---------------------------------------------------------------------------------------------
Options outstanding by price range at
December 31, 2003.................... $ 0.44 - 0.51 $ 0.51 802,355
$ 0.91 - 0.91 $ 0.91 1,707,364
$ 1.00 - 2.00 $ 1.38 926,303
$ 6.00 - 40.25 $ 11.60 763,825
$55.50 - 55.50 $ 55.50 15,000
Exercisable at:
December 31, 2001....................... $ 1.00 - 55.50 $ 16.76 2,815,521
December 31, 2002....................... $ 0.51 - 55.50 $ 6.24 2,117,521
December 31, 2003....................... $ 0.44 - 55.50 $ 3.47 3,351,150
In January 1998, the Company issued loans to the Chief Executive Officer,
President and Chief Financial Officer for the purpose of exercising stock
options. In accordance with the accounting guidance for these types of loans,
the Company recorded deferred compensation of $2.7 million related to these
loans. The Company recorded compensation expense of $538,000 related to these
loans for each of the years ended December 31, 2002 and 2001, respectively. The
deferred compensation related to these loans was fully amortized as of December
31, 2002, as such no further future amortization expense will be incurred.
In November 2002, the Board of Directors approved a stock option exchange
program for certain key employees. The program allowed these employees to
exchange each fully vested stock option with an exercise price of greater than
$5.00 for one-half share of restricted Common Stock. The restricted Common Stock
has been fully vested as of December 31, 2003. The total number of stock options
exchanged and canceled under this program was 2,253,750 shares and the total
number of restricted Common Stock issued was 1,126,875 shares. In accordance
with the accounting guidance for this type of transaction, the Company recorded
deferred compensation of $507,000, which is being amortized over the vesting
period. For the years ended December 31, 2003 and 2002, the Company recorded
amortization expense related to the restricted stock of $253,000 and $254,000
respectively. As of December 31, 2003, the $507,000 of deferred compensation
related to these restricted shares was fully amortized, as such no further
amortization expense will be incurred.
SFAS No. 123 Pro Forma Disclosure:
If the Company had elected to recognize stock compensation expense based on
the fair value of the options granted at grant date for its stock-based
compensation plans consistent with the method of SFAS No. 123, the Company's net
loss and loss per share would have been increased to the pro forma amounts
indicated below:
2002 2001
----------------------------------------- --- ----------------- -- --------------------- -- ------------------
Net loss
As reported........................... $ (7,465,000) $ (15,960,000) $ (16,402,000)
Stock-based employee cost included
in reported net loss............... -- 538,000 538,000
Pro forma stock-based employee
compensation cost under SFAS No.
123................................ (814,000) (2,701,000) (4,717,000)
----------------- --------------------- ------------------
Pro forma............................ $ (8,279,000) $ (18,123,000) $ (20,581,000)
----------------------------------------- --- ----------------- -- --------------------- -- ------------------
Loss per share - basic and diluted:
As reported...................... $ (0.30) $ (0.78) $ (0.88)
Pro forma........................ $ (0.34) $ (0.88) $ (1.10)
----------------------------------------- --- ----------------- -- --------------------- -- ------------------
The fair value of each option grant was estimated using the Black-Scholes
option pricing model using the Multiple Option approach whereby a separate fair
value is computed for each vesting increment of an option. The following
assumptions were used:
2003 2002 2001
----------------------------------------- --- ----------------- --- -------------------- -- ------------------
Expected dividend yield............. 0% 0% 0%
Expected stock price volatility..... 75% 75% 50%
Risk-free interest rate............. 2.95% - 4.10% 3.10% - 5.00% 3.50% - 5.25%
Expected life of options............ 2 - 4 years 2 - 4 years 2 - 4 years
----------------------------------------- --- ----------------- --- -------------------- -- ------------------
Under these assumptions, the weighted average fair value of the stock
option grants during the years ended December 31, 2003, 2002 and 2001 were
$2.69, $0.48 and $3.77, respectively. These assumptions are highly subjective,
in particular the expected stock price volatility of the underlying stock.
Because changes in these subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not provide
a reliable single measure of the fair value of its stock options.
The weighted average remaining contractual life of options outstanding at
December 31, 2003, 2002 and 2001 was 6.7 years, 7.3 years and 6.3 years,
respectively.
Warrants:
From time to time warrants are issued to consultants of the Company or will
be issued in connection with an equity investment in the Company or in
connection with other private placements. The following is a description of the
significant warrants that have been issued over time:
Consultant Warrants:
The Company has issued warrants to various consultants in connection with
consulting agreements and a co-development agreement over the years. As of
December 31, 2003, warrants to purchase a total of 238,750 shares of Common
Stock remained outstanding related to the warrants granted from 1998 to 2002.
These warrants were priced at the fair market value on the date of grant and the
prices ranged from $0.91 to $30.75 per share with expiration dates ranging from
January 2004 through January 2010. During 2003, the Company issued warrants to
purchase 145,000 shares of Common Stock to several consultants with exercise
prices ranging from $0.75 to $1.00 and expiration dates ranging from December
2004 to January 2008. The consulting agreements can be terminated by the Company
at any time and only those warrants vested as of the date of termination are
exercisable. None of the above warrants were exercised in 2003, 2002 or 2001. As
of December 31, 2003, warrants to purchase 383,750 shares of Common Stock
related to consulting agreements were outstanding.
In connection with the consulting warrants the Company is required to
record deferred compensation expense based on a Black-Scholes valuation model
and amortized over the vesting period of the warrant. As of December 31, 2003
and 2002, the Company had deferred compensation balances of $16,000 and $12,000,
respectively. The Company recorded an increase to deferred compensation
associated with the change in the value of these warrants of $53,000 and $27,000
for the years ended December 31, 2003 and 2002, respectively. The fluctuations
in deferred compensation are a result of variable accounting combined with a
fluctuating stock price from period to period. The Company recorded compensation
expense of $49,000, $24,000 and $25,000 for the years ended December 31, 2003,
2002 and 2001, respectively.
Pharmacia Warrants:
In connection with the 2003 Debt Agreement, the Company entered into a
Termination and Release Agreement with Pharmacia. Under this agreement, the
360,000 warrants to purchase Common Stock previously issued in 1999 and 2000 to
Pharmacia, were amended. The exercise price of Pharmacia's outstanding warrants
to purchase 360,000 shares of the Company's Common Stock was reduced to $1.00
from an average exercise price of $15.77, and the expiration date of those
warrants was extended to December 31, 2005 from expiration dates ranging from
May 2004 to May 2005.
2002 Private Placement:
In August 2002, in connection with a private equity placement as previously
discussed, the Company issued warrants to purchase 2,800,000 shares of Common
Stock with an exercise price of $0.50 per share expiring in August 2007.
2002 Convertible Debt Warrants:
In connection with each borrowing under the 2002 Debt Agreement, the
Company issued to the Lenders a warrant to purchase one-quarter (1/4) of a share
of Miravant Common Stock for every $1.00 borrowed. The exercise price of each
warrant will be equal to $1.00 per share. In addition, upon execution of the
2002 Debt Agreement the Company issued the Lenders a warrant to acquire 250,000
shares of the Company's Common Stock, with an exercise price of $0.50 per share.
Each warrant will terminate on December 31, 2008, unless previously exercised.
The Company has also agreed to provide the Lenders certain registration rights
in connection with this transaction. As of December 31, 2003, the Company has
borrowed $6.3 million pursuant to the 2002 Debt Agreement, and issued the
Lenders warrants exercisable for 1,575,000 shares of our Common Stock at $1.00
per share. The Company determined the value of the warrants to be $1.2 million,
using the Black-Scholes valuation model, and is amortizing these deferred
financing costs over the term of the underlying promissory notes, or December
31, 2008.
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 2003 Lenders.
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. The Company determined the value of these additional warrants to be
$970,000, using the Black-Scholes valuation model, and is amortizing these
deferred financing costs over the term of the underlying promissory notes, or
December 31, 2008.
2003 Convertible Debt Warrants:
In connection with the 2003 Debt Agreement, the Company issued to the 2003
Lenders warrants to purchase an aggregate of 4,500,000 shares of the Company's
Common Stock. Each holder 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. The Company
determined the value of the warrants to be $2.8 million, using the Black-Scholes
valuation model, and is amortizing these deferred financing costs over the term
of the underlying promissory notes, or August 28, 2006.
Warrant Summary:
As of December 31, 2003, the Company has warrants outstanding to purchase a
total of 11,683,750 shares of its Common Stock at an average exercise price of
$1.03, with expiration dates ranging from January 2004 through February 2012.
The following table provides further detail on the warrants outstanding by price
range:
Exercise Price Weighted Average Warrant
per Share Exercise Price Shares
==============================================================------------------------------------------------------------
Warrants outstanding by price range at December 31, 2003..... $ 0.01 - 0.50 $ 0.50 3,050,000
$ 0.51 - 7.00 $ 1.06 8,176,250
$ 7.01 - 15.00 $ 12.91 317,500
$15.01 - 30.75 $ 22.06 140,000
------------------------------------------------------------
Total warrants outstanding at December 31, 2003................$ 0.01 - 30.75 $ 1.03 11,683,750
==========================================================================================================================
Preferred Stock
The Company's capital structure allows for the Board of Directors to
authorize 30,000,000 shares of preferred stock. The Board of Directors has the
authority to fix the rights, preferences, privileges and restrictions, including
voting rights of these shares of preferred stock without any future vote or
action by the stockholders. As of December 31, 2003 and 2002, there were no
shares of preferred stock outstanding.
4. Employee Benefit Plans
The Company has available a retirement savings plan for all eligible
employees who have completed three months and 500 hours of service and who are
at least 21 years of age. The plan has received Internal Revenue Service
approval under Section 401(a) of the Internal Revenue Code. Participating
employees are 100% vested upon entering the plan and no matching contribution is
made by the Company.
In December 1996, the Board of Directors approved the Miravant Medical
Technologies 401(k) - Employee Stock Ownership Plan, or the ESOP, which provides
substantially all employees with the opportunity for long-term benefits. The
ESOP was implemented by management on July 1, 1998 and operates on a calendar
year basis. In conjunction with the ESOP, the Company registered with the
Securities and Exchange Commission 300,000 shares of the Company's Common Stock
for purchase by the ESOP. The ESOP provides for eligible employees to allocate
pre-tax deductions from payroll which are used to purchase the Company's Common
Stock at fair market value on a bi-weekly basis. The ESOP also provides for a
discretionary contribution made by the Company based on the amounts contributed
by the participants. The amount to be contributed by the Company is determined
by the Board of Directors prior to the start of each plan year. Company
contributions, which the Board of Directors determined to be 100% for the 2003,
2002 and 2001 plan years, are made on a quarterly basis and vest over a five
year period. Total Company matching contributions for 2003, 2002 and 2001 were
not significant.
5. Provision for Income Taxes
Deferred income taxes reflect the net tax effects of net operating loss
carryforwards, credits and temporary differences between the financial
statements and tax basis of assets and liabilities. Significant components of
the Company's deferred tax assets and liabilities as of December 31 are as
follows:
2003 2002
----------------------------------------------------------------
Current Non-current Current Non-current
---------------------------------------------------------------
Deferred tax assets:
Other accruals and reserves........... $ 91,000 $ -- $ 106,000 $ --
Capitalized research and development.. -- 73,000 -- 778,000
Non-cash loss in investment........... -- -- -- 1,749,000
Net operating losses and tax credits.. -- 77,036,000 -- 70,190,000
---------------------------------------------------------------
Total deferred tax assets............... 91,000 77,109,000 106,000 72,717,000
Deferred tax liabilities:
Amortization and depreciation -- 104,000 -- 1,541,000
Federal benefit for state income taxes 6,000 3,863,000 7,000 2,539,000
---------------------------------------------------------------
Total deferred tax liabilities.......... 6,000 3,967,000 7,000 4,080,000
---------------------------------------------------------------
Net deferred tax assets................. 85,000 73,142,000 99,000 68,637,000
Less valuation reserve.................. (85,000) (73,142,000) (99,000) (68,637,000)
---------------------------------------------------------------
$ -- $ -- $ -- $ --
===============================================================
The Company has net operating loss carryforwards for federal tax purposes
of $178.7 million, which expire in the years 2004 to 2023. Research credit
carryforwards aggregating $9.1 million are available for federal and state tax
purposes and expire in the years 2004 to 2023. The Company also has a state net
operating loss carryforward of $81.3 million which expires in the years 2004 to
2008. Of the $81.3 million in state net operating loss carryforwards, $52.2
million will expire during 2004 and 2005. Under Section 382 of the Internal
Revenue Code, the utilization of the Company's tax net operating losses may be
limited based on changes in the percentage of ownership in the Company.
6. Commitments and Contingencies
The Company has entered into agreements with various parties to perform
research and development and conduct clinical trials on behalf of the Company.
For the research and development agreements, the Company has the right to use
and license, patent and commercialize any products resulting from these
agreements. The Company does not have any financial commitments with respect to
these agreements and records these expenses as the services and costs are
incurred. The Company has also entered into licensing and OEM agreements to
develop, manufacture and market drugs and devices for photodynamic therapy and
other related uses. The agreements provide for the Company to receive or pay
royalties at various rates. The Company had no royalty income for the years
ended December 31, 2003 and 2002 and recorded royalty income received from
device sales of $75,000 for the year ended December 31, 2001. Additionally, for
the years ended December 31, 2003, 2002 and 2001, the Company has not paid any
royalties under these agreements.
In 1994, the Company entered into a development and commercial supply
agreement with Pharmacia to receive formulation and packaging services for one
of the Company's drugs at specified prices. In 1998, the rights and obligations
under this agreement were transferred to Fresenius AG with operating terms
remaining the same. For the years ended December 31, 2003, 2002 and 2001 the
Company paid $74,000, $5,000 and $38,000 respectively, and recorded as expense
of $129,000, $5,000 and $21,000, respectively, primarily for the cost of drug
formulation and development.
Under the prior License Agreements, Pharmacia has provided the Company with
funding and development for the right to sell and market the funded products
once approved. For the year ended December 31, 2003, the Company recorded no
license revenues, and recorded license revenues of $20,000 and $302,000 for the
years ended December 31, 2002 and 2001, respectively, related to the
reimbursement of certain preclinical studies and clinical trial costs. In March
2002, all License Agreements with Pharmacia were terminated.
The Company is involved in certain claims and inquiries that are routine to
its business. Legal proceedings tend to be unpredictable and costly. Based on
currently available information, management believes that the resolution of
pending claims, regulatory inquiries, and legal proceedings will not have a
material adverse effect on the Company's operating results, financial position
or liquidity position.
7. Leases
The Company's main facility lease terminated in August 2003 and the Company
is currently on a month-to-month lease for this main facility of approximately
25,000 square feet of office, laboratory and manufacturing space in Santa
Barbara, California. This facility currently houses all of the Company's
operations and employees. The Company entered into this lease in August 1996.
During the third quarter of 2003, the Company reduced its occupancy in this
building from approximately 40,000 square feet to 25,000 square feet. This lease
provides for rent to be adjusted annually based on increases in the consumer
price index and the base rent is currently approximately $33,000 per month. The
leased property is located in a business park. The Company has the ability to
manufacture its active drug ingredient, its light producing and light delivery
devices and perform research and development of drugs, light delivery and light
producing devices from this facility. At this time the Company will continue to
lease month-to-month until the Company's financial position supports a
longer-term commitment. In addition, the Company is aware that the lessors can
give the Company a 30-day notice at any time requiring the Company to vacate.
During 2002, the Company had leases for four buildings for a total average
monthly rental expense of approximately $124,000. One of the leases was assumed
by an unrelated party in its entirety in March 2002. Another lease was sublet in
December 1999 to two separate parties and expired in August 2003. Sublease
rental income from these parties was $37,000 per month, which represented most
of the Company's rental cost. A third lease, which formerly contained the
Company's bulk API manufacturing operations, has been assumed by an unrelated
party from January 1, 2003 through December 31, 2005 and they pay the full cost
of the building directly to the landlord. The Company will be responsible for
the remainder of the term of the lease from January 1, 2006 through March 2006
at a monthly cost currently at $26,000. The final lease, which currently
contains the entire operations of the Company, expired in August 2003 and
continues on a month-to-month basis as described above. All sublease rental
income is netted against the Company's rent expense.
In May 2001, in connection with the Asset Purchase Agreement, Pharmacia
agreed to assume the lease obligations and related building property taxes
through December 31, 2003 for the Company's bulk API manufacturing facility. The
total amount of the rental and property tax payments made by Pharmacia were
accounted for as a capital contribution and rent expense, or as a component of
cost of goods sold, over the lease obligation term. In 2002, Pharmacia paid
$40,000 related to the rent for the bulk API manufacturing facility, of which
the Company recorded $10,000 as rent expense and $30,000 as cost of good sold.
In 2001, Pharmacia paid $194,000 related to the rent and property taxes for the
bulk API manufacturing facility, of which the Company has recorded $50,000 as
rent expense, $110,000 as cost of goods sold and $34,000 into the value of the
year end bulk API inventory. In March 2002, the 2001 Credit Agreement was
amended and the Company had agreed to reassume the lease obligations and related
property taxes through the remainder of the lease term, or March 2006. As of
January 2003, this facility was subleased through December 2005 as discussed
further above.
Future minimum operating lease payments, net of sublease rental income, and
equipment lease payments are as follows:
Minimum
Lease Amounts Sublease Amounts Net
------------------ -------------------- ------------------
2004.......................................... $ 381,000 $ 323,000 $ 58,000
2005.......................................... 391,000 333,000 58,000
2006.......................................... 126,000 -- 126,000
2007.......................................... 3,000 -- 3,000
2008 and thereafter........................... 3,000 -- 3,000
------------------ -------------------- ------------------
Total minimum lease payments.................. $ 904,000 $ 656,000 $ 248,000
------------------ -------------------- ------------------
Rent expense was $613,000, $1.1 million and $1.1 million for the years
ended December 31, 2003, 2002 and 2001, respectively, net of sublease income of
$322,000, $408,000 and $384,000, respectively.
8. Related Party Transactions
In April 1998, the Company entered into a $2.0 million revolving credit
agreement with its affiliate, Ramus. Between 1998 and 1999, Ramus borrowed the
entire $2.0 million available under the credit agreement. As of December 31,
2003, the balance of the loan, including principal and accrued interest, was
$2.7 million. The loan, which was used to fund Ramus' clinical trials and
operating costs. In March 2000, the loan term was extended indefinitely. It was
determined that it was probable that the Company would be unable to collect the
amounts due from Ramus under the contractual terms of the loan agreement.
Therefore, the Company has established a reserve for the entire outstanding
balance of the loan receivable at December 31, 2003 and 2002 and no interest
income is being accrued under the loan. The Company has held discussions with
Ramus to reorganize their outstanding debt or to convert their entire debt,
including accrued and unpaid interest, to Ramus equity.
In July 1996, a partner in a law firm used by the Company for outside legal
counsel was elected by the Board of Directors to serve as Secretary of the
Company. In connection with general legal services provided by the law firm, the
Company was billed $150,000, $47,000 and $55,000 for the years ended December
31, 2003, 2002 and 2001, respectively. From 1996 through December 31, 2003, this
individual's law firm has received warrants to purchase a total of 156,250
shares of Common Stock with an average exercise price of $9.56 for his services
as acting in-house legal counsel and Secretary of the Company.
In August 2003, we received a short-term bridge loan of $250,000 from one
of the Company's non-employee board members, who is currently no longer a board
member. In connection with the loan, the Company issued warrants to purchase
25,000 shares of the Company's Common Stock. This loan was immediately paid off
in September 2003 with the proceeds from the 2003 Debt Agreement.
9. Fair Value of Financial Instruments
The following is information concerning the fair value of each class of
financial instrument as of December 31, 2003 and 2002:
Cash and cash equivalents:
The carrying amounts of cash and cash equivalents approximate their fair
values. Fair values of cash equivalents are based on quoted market prices.
Debt:
At December 31, 2003, the fair value of the Company's obligations are
approximately $12.9 million estimated based on the Company's current incremental
borrowing rate or similar types of financing arrangements. At December 31, 2002,
the fair value of the Company's obligations are approximately $11.1 million
estimated based on the Company's current incremental borrowing rate or similar
types of financing arrangements.
10. Investment in Affiliate
In December 2003, the Company sold its investment in Xillix. The Company
owned approximately 2.7 million shares of Xillix at an adjusted basis of
$393,000 and received net proceeds of approximately $1.6 million. The Company
recorded a gain of $1.2 million in the consolidated statement of operations.
Previously in 2000 and again in 2002, the Company determined that the
decline in the value of its investment in Xillix was other-than-temporary. Since
the Company made the investment in June 1998, the value of the Xillix common
stock had decreased by approximately 70% through 2000 and approximately an
additional 20% through 2002 and had been at similar levels for at least nine
months prior to the write-down. In December 2000, the Company recognized a loss
write-down totaling $3.5 million and in December 2002 another $598,000 loss
write-down was recorded, to reduce its investment in Xillix to its estimated
current fair value based on quoted market prices as of December 31, 2002.
11. Quarterly Results of Operations (Unaudited)
Three Months Ended
----------------------------------------------------------------------------
2002: March 31, June 30, September 30, December 31,
---------------- --------------- ------------------ ---------------
Revenues......................................... $ 499,000 $ -- $ -- $ --
Costs and expenses............................... (4,767,000) (3,622,000) (3,911,000) (3,454,000)
Net interest and other income (expense).......... (207,000) 44,000 38,000 (580,000)
---------------- --------------- ------------------ ---------------
Net loss......................................... $ (4,475,000) $ (3,578,000) $ (3,873,000) $ (4,034,000)
================ =============== ================== ===============
Net loss per share:
Basic and diluted............................ $ (0.24) $ (0.19) $ (0.19) $ (0.16)
================ =============== ================== ===============
2003:
Revenues......................................... $ -- $ -- $ -- $ --
Costs and expenses............................... (3,248,000) (3,437,000) (3,623,000) (1,928,000)
Net interest and other income (expense).......... (104,000) (286,000) 4,800,000 361,000
---------------- --------------- ------------------ ---------------
Net income (loss)................................ $ (3,352,000) $(3,723,000) $ 1,177,000 $ (1,567,000)
================ =============== ================== ===============
Net income (loss) per share - basic.... $ (0.14) $ (0.15) $ 0.05 $ (0.06)
================ =============== ================== ===============
Net income (loss) per share - diluted.. $ (0.14) $ (0.15) $ 0.01 $ (0.06)
================ =============== ================== ===============
During the three months period ended September 30, 2003, the Company
recognized a net gain on retirement of debt of $9.1 million with Pharmacia and
non-cash interest charges of $4.0 million related to the beneficial conversion
valuation as discussed further in Note 3 which is included in net interest and
other income (expense) in the accompanying table. During the three months period
ended December 31, 2003, the Company recognized a net gain on the sale of its
investment in Xillix of $1.2 million as discussed further in Note 10 which is
included in net interest and other income (expense) in the accompanying table.
12. Subsequent Events
In February 2004, the Company entered into an Unsecured Convertible
Debenture Purchase Agreement, or the February 2004 Debt Agreement, with certain
private accredited investors, or the February 2004 Lenders. Under the February
2004 Debt Agreement the Company issued $2.0 million worth of convertible
debentures maturing on February 5, 2008 with interest accruing at 8% per year,
due and payable quarterly, with the first interest payment due on April 1, 2004.
At the Company's option and subject to certain restrictions, the Company may
make interest payments in cash or in shares of its Common Stock, or the interest
can be added to the outstanding principal of the note. Each convertible
debenture issued pursuant to the February 2004 Debt Agreement is convertible at
the holder's option into shares of the Company's Common Stock at $2.00 per
share. The Company is obligated to file a registration statement with the SEC
covering the resale of the shares of Common Stock underlying these convertible
debentures no later than April 30, 2004. Upon the occurrence of certain events
of default, the holders of the convertible debentures may require that they be
repaid prior to maturity. These events of default include the Company's failure
to pay amounts due under the debentures or to otherwise perform any material
covenant in the February 2004 Debt Agreement or other related documents.
In connection with the Company's 2003 Debt Agreement, during the period of
January through March 2004 certain of the 2003 Lenders converted their Notes
into shares of the Company's Common Stock. As of March 15, 2004, of the $6.0
million Notes outstanding $2.5 million of the Notes have been converted into
Common Stock. In addition, of the warrants to purchase 4.5 million shares of
Common Stock related to the 2003 Debt Agreement, 1,425,000 warrants have been
exercised, resulting in proceeds to the Company of $1.4 million.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. 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 Annual Report on Form 10-K. 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 Annual Report on Form 10-K that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This information is incorporated by reference to the Company's definitive
proxy statement to be filed pursuant to Regulation 14A not later than 120 days
after the end of the Company's fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated by reference to the Company's definitive
proxy statement to be filed pursuant to Regulation 14A not later than 120 days
after the end of the Company's fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is incorporated by reference to the Company's definitive
proxy statement to be filed pursuant to Regulation 14A not later than 120 days
after the end of the Company's fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated by reference to the Company's definitive
proxy statement to be filed pursuant to Regulation 14A not later than 120 days
after the end of the Company's fiscal year.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
This information is incorporated by reference to the Company's definitive
proxy statement to be filed pursuant to Regulation 14A not later than 120 days
after the end of the Company's fiscal year.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements
(i) The following financial statement documents are included as part of
Item 8 to this Form 10-K:
Index to Consolidated Financial Statements: Page
Report of Independent Auditors 58
Consolidated Balance Sheets as of
December 31, 2003 and 2002 59
Consolidated Statements of Operations for the
years ended December 31, 2003, 2002 and 2001 60
Consolidated Statements of Stockholders'
Equity (Deficit) for the years ended December 31,
2003, 2002 and 2001 61
Consolidated Statements of Cash Flows for the
years ended December 31, 2003, 2002 and 2001 62
Notes to Consolidated Financial Statements 63
(ii) Schedules required by Article 12 of Regulation S-X:
All schedules are omitted because the required information is
not present or is not present in amounts sufficient to require
submission of the schedule or because the information required
is given in the consolidated financial statements or notes
thereto.
(b) Index to Exhibits:
See Index to Exhibits on pages 85 to 87
(c) Reports on Form 8-K:
None
Incorporating
Exhibit Reference
Number Description (if applicable)
- ------ ----------- ---------------
4.1 Specimen Certificate of Common Stock. [B][4.1]
4.2 Form of Convertible Promissory Note. [A][4.3]
4.3 Form of Indenture. [A][4.4]
4.4 Special Registration Rights Undertaking. [A][4.5]
4.5 Undertaking Agreement dated August 31, 1994. [A][4.6]
4.6 Letter Agreement dated March 10, 1994. [A][4.7]
4.7 Form of $10,000,000 Common Stock and Warrants Offering Investment Agreement. [A][4.8]
4.8 Form of $35 Amended and Restated Common Stock Purchase Warrant. [C][4.1]
4.9 Form of Additional $35 Common Stock Purchase Warrant. [C][4.2]
4.10 Warrant to Purchase 10,000 Shares of Common Stock between the Registrant and Charles S. [D][4.12]
Love.*
4.11 Form of $20 Private Placement Warrant Agreement Amendment No. 1. [F [4.13]
4.12 Form of Common Stock Purchase Warrant between the Registrant and Nida & Maloney.
4.13 Form of Common Stock Purchase Warrant between the Registrant and Pharmacia Corporation.
4.14 Preferred Stock Rights Agreement dated July 13, 2000. [E] [4.1]
4.15 Form of Common Stock Purchase Warrant between the Registrant and Purchasers dated August [S] [10.3]
28, 2002.
4.16 Form of Note Warrant between the Registrant and the Purchaser dated December 19, 2002. [T] [10.4]
4.17 Form of Convertible Promissory Note between the Registrant and the Purchaser dated August [X] [4.1]
28, 2003.
4.18 Form of 50% Warrant between the Registrant and the Purchaser dated August 28, 2003. [X] [4.2]
4.19 Form of 25% Warrant between the Registrant and the Purchaser dated August 28, 2003. [X] [4.3]
4.20 Registration Rights Agreement dated August 28, 2003 between the Registrant and the
Purchaser. [X] [4.4]
4.21 Amendment to Registration Rights Agreement dated February 18, 1999 between the Registrant [X] [4.5]
and Pharmacia.
4.22 Amendment to Warrant Agreements dated February 18, 1999 between the Registrant and [X] [4.6]
Pharmacia.
4.23 Securities Purchase Agreement dated August 28, 2002 between the Registrant and the [S] [10.1]
Purchasers.
4.24 Registration Rights Agreement dated August 28, 2002 between the Registrant and the [S] [10.2]
Purchasers.
4.25 Common Stock Warrant Purchase Certificate dated August 28, 2002 between the Registrant [S] [10.3]
and the Purchasers.
4.26 Registration Rights Agreement dated December 19, 2002 between the Registrant and the [T] [10.2]
Purchasers.
4.27 Form of Convertible Promissory Note between the Registrant and the Purchaser. [T] [10.3]
4.28 Form of Note Warrant between the Registrant and the Purchaser. [T] [10.4]
4.29 Loan Origination Warrant dated December 20, 2002 between the Registrant and the [T] [10.5]
Purchaser.
4.30 Registration Rights Agreement dated February 5, 2004 between the Registrant and the [AA] [4.1]
Purchasers.
4.31 Form of Convertible Promissory Note between the Registrant and the Purchaser dated [AA] [4.2]
February 5, 2004.
5.1 Form of Legal Opinion of Wilson Sonsini Goodrich & Rosati, L.P. [Y] [5.1]
10.1 PDT, Inc. Stock Option Plan dated September 19, 1989.** [A][10.9]
10.2 PDT, Inc. Stock Option Plan dated September 3, 1992.** [A][10.10]
10.3 PDT, Inc. 1994 Stock Option Plan dated December 2, 1994.** [A][10.11]
10.4 PDT, Inc. Non-Employee Directors' Stock Option Plan.** [A][10.12]
10.5 License Agreement dated July 1, 1989 between the Registrant and The University of Toledo,
The Medical College of Ohio and St. Vincent Medical Center as amended.* [G][10.17]
10.6 Form of Directors' and Officers' Indemnification Agreement. [A][10.22]
10.7 Amendment to PDT, Inc. Stock Option Plan dated September 19, 1989.** [H] [10.1]
10.8 Amendment to PDT, Inc. 1994 Stock Option Plan dated December 2, 1994.** [H][10.2]
10.9 Development and Distribution Agreement between Registrant and Iridex Corporation.* [I][10.1]
10.10 Commercial Lease Agreement between Registrant and Santa Barbara Business Park, a [I][10.2]
California Limited Partnership.(1)
10.11 PDT, Inc. 1996 Stock Compensation Plan.** [J]
10.12 Form of Amendment No. 3 to 1989 Stock Option Agreement.** [K][10.4]
10.13 Investment Agreement dated December 27, 1996 between PDT Cardiovascular, Inc. and Ramus
Medical Technologies.* [L] [10.16]
10.14 Co-Development Agreement dated December 27, 1996 between PDT Cardiovascular, Inc. and
Ramus Medical Technologies. [L] [10.17]
10.15 Series A Preferred Stock Registration Rights Agreement dated December 27, 1996 between
PDT Cardiovascular, Inc. and Ramus Medical Technologies.* [L] [10.18]
10.16 Amended and Restated 1996 Stock Compensation Plan.** [M]
10.17 PDT, Inc. 401(k)-Employee Stock Ownership Plan.** [N][10.2]
10.18 Credit Agreement dated April 1, 1998 between the Registrant and Ramus Medical [O][10.5]
Technologies.*
10.19 Convertible Promissory Note dated April 1, 1998 between the Registrant and Ramus Medical [O][10.6]
Technologies.*
10.20 Strategic Alliance Agreement dated June 2, 1998 between the Registrant and Xillix [O][10.7]
Technologies Corp.*
10.21 Subscription Agreement relating to the Registrant's Common Stock dated June 2, 1998 [O][10.8]
between the Registrant and Xillix Technologies Corp.
10.22 Subscription Agreement relating to Xillix's Common Stock dated June 2, 1998 between the [O][10.9]
Registrant and Xillix Technologies Corp.
10.23 Commercial Lease Agreement dated May 27, 1998 between the Registrant and Raytheon Company. [A][10.4]
10.24 Miravant Medical Technologies 2000 Stock Compensation Plan. [P] [4.1]
10.25 Amendment No. 9 dated as of January 1, 2001 to Employment Agreement between the [Q] [10.1]
Registrant and Gary S. Kledzik.**
10.26 Amendment No. 14 dated as of January 1, 2001 to Employment Agreement between the [Q] [10.2]
Registrant and David E. Mai.**
10.27 Amendment No. 6 dated as of January 1, 2001 to Employment Agreement between the [Q] [10.3]
Registrant and John M. Philpott.**
10.28 Contract Modification and Termination Agreement dated March 5, 2002 between the [R] [10.1]
Registrant and Pharmacia Corporation.
10.29 Convertible Debt and Warrant Purchase Agreement dated December 19, 2002 between the [T] [10.1]
Registrant and the Purchasers.
Convertible Debt and Warrant Purchase Agreement dated August 28, 2003 between the
10.30 Registrant and the Purchaser. [X] [10.1]
10.31 Subordination Agreement dated August 28, 2003 between the Registrant and the Purchaser. [X] [10.2]
10.32 Termination and Release Agreement dated August 13, 2003 between the Registrant and
Pharmacia, AB. [X] [10.3]
10.33 Side Letter Agreement dated August 28, 2003 between the Registrant and the Purchaser. [X] [10.4]
10.34 Unsecured Convertible Debt Purchase Agreement dated February 5, 2004 between the
Registrant and the Purchaser. [AA] [10.1]
13.1 Annual Report on Form 10-K for the year ended December 31, 2002. [U]
13.2 Quarterly Report on Form 10-Q for the quarter ended March 31, 2003. [V]
13.3 Quarterly Report on Form 10-Q for the quarter ended June 30, 2003. [W]
13.4 Quarterly Report on Form 10-Q for the quarter ended September 30, 2003. [Z]
23.1 Consent of Independent Auditors.
31.1 Certification of Chief Executive Officer to section 13(a) or 15(d) of 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 section 13(a) or 15(d) of the
securities exchange act of 1934 as adopted pursuant to section 302 of the Sarbanes-Oxley
act of 2002.
32 Certificate of Miravant Medical Technologies Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
- -------------------------------------------
[A] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Registration Statement on Form S-1 (File
No. 33-87138).
[B] Incorporated by reference from the exhibit referred to in brackets
contained in Amendment No. 2 to the Registrant's Registration
Statement on Form S-1 (File No. 33-87138).
[C] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 8-K dated June 30, 1998 (File No.
0-25544).
[D] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 10-Q for the quarter ended March
31, 1998 (File No. 0-25544).
[E] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 8A dated July 18, 2000 (File No.
0-25544).
[F] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 10-K for the year ended December
31, 1999 (File No. 0-25544).
[G] Incorporated by reference from the exhibit referred to in brackets
contained in Amendment No. 1 to the Registrant's Registration
Statement on Form S-1 (File No. 33-87138).
[H] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 10-Q for the quarter ended
September 30, 1995 (File No. 0-25544).
[I] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 10-Q for the quarter ended June 30,
1996 (File No. 0-25544).
[J] Incorporated by reference from the Registrant's 1996 Definitive Proxy
Statement filed June 18, 1996.
[K] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 10-Q for the quarter ended
September 30, 1996 (File No. 0-25544).
[L] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 10-K for the year ended December
31, 1996 (File No. 0-25544).
[M] Incorporated by reference from the Registrant's 1996 Definitive Proxy
Statement filed April 24, 1997. [N] Incorporated by reference from the
exhibit referred to in brackets contained in the Registrant's Form
10-Q for the quarter ended June 30, 1997 (File No. 0-25544).
[O] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 10-Q for the quarter ended June 30,
1998 (File No. 0-25544).
[P] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form S-8 dated August 29, 2000 (File No.
0-25544).
[Q] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 10-Q for the quarter ended March
31, 2001 (File No. 0-25544).
[R] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 8-K dated March 11, 2002 (File No.
0-25544).
[S] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 8-K dated September 3, 2002 (File
No. 0-25544).
[T] 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).
[U] As filed with the Commission on March 31, 2003. [V] As filed with the
Commission on May 15, 2003.
[W] As filed with the Commission on August 14, 2003.
[X] 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).
[Y] As filed with the Commission on November 14, 2003.
[Z] Incorporated by reference from the exhibit referred to in brackets
contained in to the Registrant's Registration Statement on Form S-2
(File No. 333-109367).
[AA] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 8-K dated February 12, 2004 (File
No. 0-25544).
** Management contract or compensatory plan or arrangement.
* Confidential portions of this exhibit have been deleted and filed
separately with the Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934.
(1) The material has been filed separately on paper pursuant to a request
granted by the Commission for a continuing hardship exemption from
filing electronically.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Miravant Medical Technologies
/S/ Gary S. Kledzik
-------------------
Gary S. Kledzik, Ph.D.
Chief Executive Officer and
Chairman of the Board
Dated: March 29, 2004
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gary S. Kledzik and John M. Philpott his true and
lawful attorney-in-fact and agent, with full power of substitution and, for him
and in his name, place and stead, in any and all capacities to sign any and all
amendments to this Report on Form 10-K, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/S/ Gary S. Kledzik Chairman of the Board, Director, March 29, 2004
- ------------------------------------ and Chief Executive Officer,
Gary S. Kledzik, Ph.D. (Principal Executive Officer)
/S/ David E. Mai Director and President March 29, 2004
- ------------------------------------
David E. Mai
/S/ John M. Philpott Chief Financial Officer and Treasurer March 29, 2004
- ------------------------------------ (Principal Financial Officer and
John M. Philpott Principal Accounting Officer)
/S/ Charles T. Foscue Director March 29, 2004
- ------------------------------------
Charles T. Foscue
/S/ Barry Johnson Director March 29, 2004
- ------------------------------------
Barry Johnson