MIRAVANT MEDICAL TECHNOLOGIES - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2005

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______.

Commission File Number: 0-25544

Miravant Medical Technologies

(Exact name of Registrant as specified in its charter)

Delaware	77-0222872
(State or other jurisdiction of	(IRS Employer Identification No.)
incorporation or organization)

336 Bollay Drive, Santa Barbara, California 93117

(Address of principal executive offices, including zip code)

(805) 685-9880

(Registrant's telephone number, including area code)

Not applicable

(Former name, former address and formal fiscal year, if changed since last report)

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 o.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o No x.

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class	Outstanding at May 9, 2005
Common Stock, $.01 par value	37,295,900

TABLE OF CONTENTS

	PART I. FINANCIAL INFORMATION

		Page

Item 1.	Condensed Consolidated Financial Statements

	Condensed consolidated balance sheets as of March 31, 2005
	(unaudited) and December 31, 2004	3
	Condensed consolidated statements of operations for the three
	months ended March 31, 2005 and 2004 (unaudited)	4
	Condensed consolidated statement of stockholders' equity (deficit)
	for the three months ended March 31, 2005 (unaudited)	5
	Condensed consolidated statements of cash flows for the three
	months ended March 31, 2005 and 2004 (unaudited)	6
	Notes to condensed consolidated financial statements (unaudited)	7

Item 2.	Management's Discussion and Analysis of Financial
	Condition and Results of Operations	12

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43

Item 4.	Controls and Procedures	43

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	44

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44

Item 3.	Defaults Upon Senior Securities	44

Item 4.	Submission of Matters to a Vote of Security Holders	44

Item 5.	Other Information	44

Item 6.	Exhibits	45

	Signatures	46

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MIRAVANT MEDICAL TECHNOLOGIES

CONDENSED CONSOLIDATED BALANCE SHEETS

Assets	March 31, 2005			December 31, 2004
Current assets:	(Unaudited)
Cash and cash equivalents	$	2,180,000		$	3,112,000
Marketable securities		995,000			2,987,000
Prepaid expenses and other current assets		178,000			314,000
Total current assets		3,353,000			6,413,000

Property, plant and equipment:
Vehicles		28,000			28,000
Furniture and fixtures		1,356,000			1,393,000
Equipment		4,272,000			4,525,000
Leasehold improvements		2,721,000			2,720,000
		8,377,000			8,666,000
Accumulated depreciation		(8,259,000	)		(8,541,000	)
		118,000			125,000

Patents, net		930,000			898,000
Other assets		73,000			73,000
Total assets	$	4,474,000		$	7,509,000

Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable	$	1,244,000		$	1,352,000
Accrued payroll and expenses		631,000			506,000
Total current liabilities		1,875,000			1,858,000

Long-term liabilities:
Convertible debt:
Face value of convertible debt		10,421,000			10,317,000
Deferred financing costs and beneficial conversion value		(2,526,000	)		(2,684,000	)
Total long-term liabilities		7,895,000			7,633,000

Stockholders' equity (deficit):
Preferred stock, 30,000,000 shares authorized; 1,112,966 shares issued and outstanding at March 31, 2005 and December 31, 2004, respectively; liquidation preference of $2.70 per share over common shareholders		2,924,000			2,924,000
Common stock, 75,000,000 shares authorized; 37,049,923 and 36,718,605 shares issued and outstanding at March 31, 2005 and December 31, 2004, respectively		208,792,000			208,508,000
Notes receivable from officers		(412,000	)		(524,000	)
Accumulated deficit		(216,600,000	)		(212,890,000	)
Total stockholders' equity (deficit)		(5,296,000	)		(1,982,000	)
Total liabilities and stockholders' equity (deficit)	$	4,474,000		$	7,509,000

See accompanying notes.

MIRAVANT MEDICAL TECHNOLOGIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three months ended March 31,
	2005			2004

Revenues	$	¾		$	¾

Costs and expenses:
Research and development		1,852,000			2,261,000
General and administrative		1,450,000			1,724,000
Total costs and expenses		3,302,000			3,985,000

Loss from operations		(3,302,000	)		(3,985,000	)

Interest and other income (expense):
Interest and other income		41,000			20,000
Interest expense		(477,000	)		(1,538,000	)
Gain on sale of assets		28,000			9,000
Total net interest and other expense		(408,000	)		(1,509,000	)

Net loss	$	(3,710,000	)	$	(5,494,000	)
Net loss per share - basic and diluted	$	(0.10	)	$	(0.20	)
Shares used in computing net loss per share		36,938,937			27,251,824

See accompanying notes.

MIRAVANT MEDICAL TECHNOLOGIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICT)

(Unaudited)

	Preferred Stock Shares		Preferred Stock Amount		Common Stock Shares		Common Stock Amount		Notes Receivable from Officers			Accumulated Deficit			Total
Balance at January 1, 2005		1,112,966	$	2,924,000		36,718,605	$	208,508,000	$	(524,000	)	$	(212,890,000	)	$	(1,982,000	)
Comprehensive loss:
Net loss		¾		¾		¾		¾		¾			(3,710,000	)		(3,710,000	)
Total comprehensive loss																(3,710,,000	)
Issuance of shares for stock awards and stock option exercises		¾		¾		206,746		160,000		¾			¾			160,000
Repayments on officer notes, net of reserve for officer notes		¾		¾		¾		¾		126,000			¾			126,000
Issuance interest payments on debt, net of deferred financing costs		¾		¾		124,572		124,000		¾			¾			124,000
Non-cash interest on officer notes		¾		¾		¾		¾		(14,000	)		¾			(14,000	)
Balance at March 31, 2005		1,112,966	$	2,924,000		37,049,923	$	208,792,000	$	(412,000	)	$	(216,600,000	)	$	(5,296,000	)

See accompanying notes.

MIRAVANT MEDICAL TECHNOLOGIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three months ended March 31,
Operating activities:	2005			2004
Net loss	$	(3,710,000	)	$	(5,494,000	)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization		50,000			76,000
Amortization of deferred compensation		—			89,000
Gain on sale of equipment		(28,000	)		(9,000	)
Stock awards and restricted stock grants		159,000			233,000
Non-cash interest and amortization of deferred financing costs on long-term debt		477,000			1,520,000
Provision (reduction) for employee and officer loans, net of non-cash interest on related loans		112,000			(100,000	)
Changes in operating assets and liabilities:
Prepaid expenses and other assets		136,000			(511,000	)
Accounts payable and accrued payroll		17,000			600,000
Net cash used in operating activities		(2,787,000	)		(3,596,000	)

Investing activities:
Purchases of patents		(57,000	)		(120,000	)
Proceeds from the sale of marketable securities		1,992,000			—
Proceeds from the sale of property, plant and equipment		36,000			35,000
Purchases of property, plant and equipment		(26,000	)		(10,000	)
Net cash provided by (used in) investing activities		1,945,000			(95,000	)

Financing activities:
Proceeds from convertible note arrangements		—			2,000,000
Proceeds from issuance of common stock and exercise of warrants		1,000			1,698,000
Payments of deferred financing costs		(91,000	)		—
Proceeds from repayment of note to officers		—			125,000
Net cash (used in) provided by financing activities		(90,000	)		3,823,000

Net increase (decrease) in cash and cash equivalents		(932,000	)		132,000
Cash and cash equivalents at beginning of period		3,112,000			1,030,000
Cash and cash equivalents at the end of the period	$	2,180,000		$	1,162,000

Supplemental disclosures:
Cash paid for:
State taxes	$	3,000		$	3,000
Interest	$	—		$	1,000

Supplemental disclosure on non-cash transaction:
During the three months ended March 31, 2005, the Company issued 124,572 shares of Common Stock in

payment of $124,000 in interest obligations related to long term debt agreements.

See accompanying notes.

MIRAVANT MEDICAL TECHNOLOGIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.	Basis of Presentation

The information contained herein has been prepared in accordance with Rule 10-01 of Regulation S-X. The information at March 31, 2005 and for the three month period ended March 31, 2005 and 2004, is unaudited. In the opinion of management, the information reflects all adjustments necessary to make the results of operations for the interim periods a fair statement of such operations. All such adjustments are of a normal recurring nature. Interim results are not necessarily indicative of results for a full year. For a presentation including all disclosures required by accounting principles generally accepted in the United States, these condensed consolidated financial statements should be read in conjunction with the audited condensed consolidated financial statements for the year ended December 31, 2004 included in the Miravant Medical Technologies Annual Report on Form 10-K filed with the Securities and Exchange Commission.

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™ PDT, the Company's proprietary technologies for photodynamic therapy. The Company is located in Santa Barbara, California.

The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Company's assets and the satisfaction of its liabilities in the normal course of business. Through March 31, 2005, the Company had an accumulated deficit of $216.6 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 costs associated with an additional confirmatory Phase III clinical trial related to the Company's New Drug Application, or NDA, for PHOTREX™ (formerly known as PhotoPoint® SnET2) for the treatment of wet age-related macular degeneration, or AMD, 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 continues to monitor its spending in the research and development and the preclinical studies and clinical trials of its products. The cost of an additional confirmatory Phase III clinical trial and any other requirements the Company will need to complete to satisfy the conditions of the Approvable Letter from the U.S. Food and Drug Administration, or FDA, including amending the NDA and obtaining related requisite regulatory approval, commencing pre-commercialization activities prior to receiving regulatory approval, and successfully completing the development of the Company's cardiovascular program under its Guidant collaboration, will require substantial expenditures. If requisite regulatory approval is obtained, then substantial additional financing will be required for the manufacture, marketing and distribution of its product in order to achieve a level of revenues adequate to support the Company's cost structure. As a result of the Company's most recent financing completed in May 2005, pursuant to a Series B Convertible Preferred Stock Agreement, or the May 2005 Preferred Stock Agreement, and if the Company is able to continue to borrow under the Note and Warrant Purchase Agreement, or the March 2005 Debt Agreement (see Note 5), executive management believes that as long as payment of its outstanding debt is not accelerated, then the Company has the ability to conserve cash required for operations through December 31, 2006. If the funding from the March 2005 Debt Agreement and/or additional funding is not available when needed, the Company believes that depending on the amount borrowed under the March 2005 Debt Agreement, it may have cash required for operations through December 31, 2005 assuming 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.

The Company believes it can raise additional funding, to support operations through corporate collaborations or partnerships, licensing of PHOTREX or new products and additional equity or debt financings, if necessary. There can be no assurance that it will be successful in obtaining additional financing or that financing will be available on favorable terms.

The Company is currently authorized to issue up to 75,000,000 shares of Common Stock and up to 30,000,000 shares of Preferred Stock. The Board of Directors has 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 shareholders. As of May 9, 2005, there were 37,295,900 shares of Common Stock issued and outstanding; approximately 10,486,000 shares of Common Stock reserved for issuance pursuant to the conversion of outstanding debt and payment of related interest; 5,561,764 shares of Common Stock reserved for issuance pursuant to our equity compensation plans; 21,780,750 shares of Common Stock reserved for issuance pursuant to outstanding warrants, of which the Common Stock underlying the warrants for 8,000,000 shares are unregistered and unauthorized; 1,112,966 shares of Series A Preferred Stock issued and outstanding and 1,112,966 shares of Common Stock issuable upon the conversion of the Series A Preferred Stock; 8,000,000 shares of Series B Preferred Stock issued and outstanding and 8,000,000 shares of Common Stock issuable upon the conversion of the Series B Preferred Stock; and 75,000 shares of Series B Junior Participating Stock authorized and reserved for issuance.

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes. Actual results may differ from those estimates and such differences may be material to the condensed consolidated financial statements.

2.	Marketable Securities

Marketable securities in 2005 and 2004 consist of short-term, interest-bearing corporate bonds. The Company has established investing guidelines relative to concentration, maturities and credit ratings designed to maintain safety and liquidity.

In accordance with Statement of Financial Accounting Standards, or SFAS, No. 115, "Accounting for Certain Investments in Debt and Equity Securities," the Company determines the appropriate classification of debt and equity securities at the time of purchase and re-evaluates such designation as of each balance sheet date. As of March 31, 2005, all marketable securities were classified as "available-for-sale." Available-for-sale securities and investments are carried at fair value with unrealized gains and losses reported as a separate component of stockholders' equity. Realized gains and losses on investment transactions are recognized when realized based on settlement dates and recorded as interest income. Interest and dividends on securities are recognized when earned. Declines in value determined to be other-than-temporary on available-for-sale securities are listed separately as a non-cash loss in investment in the condensed consolidated financial statements.

3.	Comprehensive Loss

For the three months ended March 31, 2005 and 2004, comprehensive loss was $3.7 million and $5.5 million, respectively. There was no difference between net loss and comprehensive loss for the three months ended March 31, 2005 and 2004.

4.	Per Share Data

Basic loss per common share is computed by dividing the net loss by the weighted average shares outstanding during the period. Diluted earnings per share reflect the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted to common stock. 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 condensed consolidated statements of operations are the same.

5.	Convertible Debt Agreement

In March 2005, the Company entered into a Note and Warrant Purchase Agreement, or the March 2005 Debt Agreement, with the March 2005 Lender. The March 2005 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 March 2005 Debt Agreement is $15.0 million with the last available borrowing in July 2007, as amended in April 2005. The March 2005 Lender's obligation to fund each borrowing request is subject to material conditions described in the March 2005 Debt Agreement. In addition, the March 2005 Lender may terminate its obligations under the March 2005 Debt Agreement at any time if Miravant, in the reasonable judgment of the March 2005 Lender, is not meeting its business objectives and is subject to negative covenants and other restrictions. As amended in April 2005, each note and accrued interest, if any, can be convertible into shares of the Company's Common Stock at a conversion price of $1.00 per share or 125% of the average monthly closing price of the month preceding the conversion, whichever is greater. The notes earn interest quarterly at the prime rate plus three percent (3%) and at the Company's option and subject to certain restrictions, the Company may make interest payments in cash or in shares of Common Stock. In connection with each borrowing under the March 2005 Debt Agreement, the Company will issue a warrant to purchase one-quarter (1/4) of a share of Miravant Common Stock for each share of Common Stock to be issued upon conversion. As amended in April 2005, the exercise price of each warrant will be equal to $1.00 per full share of Common Stock or 125% of the average monthly closing price of the month preceding the conversion, whichever is greater. Each warrant will terminate on December 31, 2013, unless previously exercised. The Company has also agreed to provide the March 2005 Lender certain registration rights in connection with this transaction. Additionally, the Company extended the term of all prior warrants issued to the March 2005 Lender to December 31, 2013. A total of 8,075,000 warrants were extended, with original expiration dates ranging from August 2007 through December 2008. In connection with the extension of the term of the warrants, the Company revalued each warrant and determined there was not a material change in value, as such no additional expense was recorded. As of March 31, 2005, there were no borrowings outstanding under the March 2005 Debt Agreement.

6.	Stock-Based Compensation

Statement of Financial Accounting Standard, or SFAS, No. 123, "Accounting for Stock-Based Compensation," encourages, but does not require, companies to record compensation expense for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed by Accounting Principles Board Opinion, or APB Opinion, No. 25 and related interpretations including Financial Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation - an Interpretation of APB Opinion No. 25" in accounting for its stock option plans.

If the Company had elected to recognize stock compensation expense based on the fair value of the options granted at grant date for its stock-based compensation plans consistent with the method of SFAS No. 123, the Company's net loss and loss per share would have increased to the pro forma amounts indicated below:

	Three months ended March 31, 2005			Three months ended March 31, 2004

Net loss as reported	$	(3,710,000	)	$	(5,494,000	)
Pro forma stock-based employee compensation cost under SFAS No. 123, net of taxes		(120,000	)		(220,000	)
Pro forma net loss	$	(3,830,000	)	$	(5,714,000	)

Loss per share - basic and diluted:
As reported	$	(0.10	)	$	(0.20	)
Pro forma	$	(0.10	)	$	(0.21	)

7.	Reclassifications

Certain reclassifications have been made to the 2003 unaudited condensed consolidated financial statements to conform to the current period presentation.

8.	Recent Accounting Pronouncements

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123 (revised 2004), "Share-Based Payments" (Statement No. 123(R)), which is a revision of FASB Statement No. 123, "Accounting for Stock-Based Compensation". Statement No. 123(R) supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees", and amends FASB Statement No. 95, "Statement of Cash Flows". Generally, the approach in Statement No. 123(R) is similar to the approach described in Statement No. 123. However, Statement No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the statement of operations based on their fair values. Proforma disclosure is no longer an alternative. The Company expects to adopt Statement No. 123(R) on January 1, 2006.

Statement No. 123(R) permits companies to adopt its requirements using one of two methods. The first method is a modified prospective transition method whereby a company would recognize share-based employee costs from the beginning of the fiscal period in which the recognition provisions are first applied as if the fair-value-based accounting method had been used to account for all employee awards granted, modified, or settled after the effective date and to any awards that were not fully vested as of the effective date. Measurement and attribution of compensation cost for awards that are nonvested as of the effective date of Statement No. 123(R) would be based on the same estimate of the grant-date fair value and the same attribution method used previously under Statement No. 123.

The second adoption method is a modified retrospective transition method whereby a company would recognize employee compensation cost for periods presented prior to the adoption of Statement No. 123(R) in accordance with the original provisions of Statement No. 123; that is, an entity would recognize employee compensation cost in the amounts reported in the pro forma disclosures provided in accordance with Statement No. 123. A company would not be permitted to make any changes to those amounts upon adoption of Statement No. 123(R) unless those changes represent a correction of an error. For periods after the date of adoption of Statement No. 123(R), the modified prospective transition method described above would be applied.

The Company currently expects to adopt Statement No. 123(R) using the modified prospective transition method, and expects the adoption to have an effect on its results of operations similar to the amounts reported historically in the Company's footnotes under the pro forma disclosure provisions of Statement No. 123.

9.	Subsequent Events

Preferred Stock

In May 2005, the Company entered into an $8.0 million Series B Convertible Preferred Stock Agreement, or the May 2005 Preferred Stock Agreement, with three investors, or the Purchasers, resulting in net proceeds to the Company of approximately $7.5 million. Pursuant to the May 2005 Preferred Stock Agreement, the Company issued 8.0 million shares of a newly created Series B Preferred Stock, or the Series B Preferred. The shares of Series B Preferred are convertible, initially at a one-for-one ratio based on a purchase price of $1.00 per share, into shares of the Company's Common Stock. The Company also issued a warrant to purchase one share of Common Stock for each share of Common Stock to be issued upon conversion. The exercise price of each warrant is $1.00 per share and the warrants expire May 3, 2010. The Company also granted the Purchasers registration rights with respect to the shares of Common Stock underlying the convertible Series B Preferred Stock and related warrants issued to the Purchasers. As a result of the May 2005 Preferred Stock Agreement, which triggered certain anti-dilution provisions, the Company will be required to issue warrants to the debt holders of the December 2002 Convertible Debt and Warrant Agreement and certain debt holders of the August 2003 Convertible Debt and Warrant Agreement. The warrants issued in connection with these anti-dilution adjustments will be for the purchase of a total of 3,775,000 shares of Common Stock of the Company, at an exercise price of $1.00 and will expire December 31, 2013.

March 2005 Credit Agreement

In addition, in April 2005 the Company amended its March 2005 Debt Agreement, to establish the minimum conversion rate of the notes and the exercise price of the related warrants to $1.00 per share of convertible Common Stock or 125% of the average monthly closing price of the month preceding the conversion, whichever is greater. The last available borrowing was extended to July 1, 2007.

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

This section of the Annual Report on Form 10-Q contains forward-looking statements, which involve known and unknown risks and uncertainties. These statements may be identified by the use of words such as "may," "will," "should," "potential," "expects," "anticipates," "intends," "plans," "believes" and similar expressions. These statements are based on our current beliefs, expectations and assumptions, and are subject to a number of risks and uncertainties, including but not limited to statements regarding: our general beliefs concerning the efficacy and potential benefits of photodynamic therapy; our ability to successfully complete the conditions of the Approvable Letter as outlined by the U.S. Food and Drug Administration, or the FDA, relating to our New Drug Application, or NDA, submission for SnET2, which we have recently branded for ophthalmology indications as PHOTREX™; our ability to raise funds to continue operations; the use of PHOTREX to treat wet age-related macular degeneration, or AMD; our ability to meet the covenants and continue to borrow under the $15.0 million March 2005 Convertible Debt and Warrant Purchase Agreement, or the March 2005 Debt Agreement; the August 2003 Unsecured Convertible Debt and Warrant Purchase Agreement, or the August 2003 Debt Agreement; our ability to ultimately receive regulatory approval from the FDA for our NDA submission upon satisfactory completion of the contingencies outlined by the FDA in their Approvable Letter; the assumption that we will continue as a going concern; our ability to regain our listing status on Nasdaq or other national stock market exchanges; our plans to collaborate with other parties and/or license PHOTREX; our ability to meet the requirements of our July 2004 Collaboration Agreement and Securities Purchase Agreement with Guidant Corporation; 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 projected IND filings; 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 failure to comply with the covenants in our March 2005 Debt Agreement and August 2003 Debt Agreement; or, to the extent we are unable to comply with these covenants, our ability to obtain waivers from these covenants, which could lead to a default under those agreements; 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 laser 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 the "Risk Factors," section of "Management's Discussion and Analysis of Financial Condition and Results of Operations," 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 Condensed 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 PhotoPointâ. Our drugs and devices are in various stages of development and require regulatory approval prior to sales, marketing or clinical use.

Our most advanced drug, PHOTREX™ (formerly known as PhotoPoint® SnET2), generic name rostaporfin, has completed two Phase III clinical trials for the treatment of wet age-related macular degeneration, or AMD. We submitted a New Drug Application, or an NDA, for PHOTREX, to the U.S. Food and Drug Administration, or the FDA, for its marketing approval on March 31, 2004 with a priority review designation. On September 30, 2004, we announced that the FDA had issued an Approvable Letter for our NDA submission for PHOTREX. The letter outlined the conditions for final marketing approval, which included a request for an additional confirmatory Phase III clinical trial, as well as certain other requirements. We have completed a Special Protocol Assessment with the FDA for the confirmatory placebo-controlled, randomized clinical trial, and have made the decision to conduct the clinical trial at investigational sites in the United Kingdom and Central and Eastern Europe. We have selected Kendle International, Inc., an international clinical research organization, or CRO, to manage the clinical trial, which is currently planned to commence in 2005. Even though the FDA has issued a conditional Approvable Letter, the FDA may not ultimately approve our NDA for PHOTREX. The clinical trial and approval process will take a significant amount of cost and time, and FDA approval, if any, is contingent upon satisfying safety and efficacy requirements.

We have been unprofitable since our founding and have incurred a cumulative net loss of approximately $216.6 million as of March 31, 2005. We expect to continue to incur significant, and possibly increasing, operating losses over the next few years. We believe we will be required to obtain substantial additional debt or equity financing to fund our operations until we achieve a level of revenues sufficient to support our anticipated cost structure. Our independent registered public accounting firm, Ernst & Young LLP, have indicated in their report accompanying our December 31, 2004 consolidated financial statements that, based on the standards of the Public Company Accounting Oversight Board (United States), 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 control overall costs by monitoring closely all research and development costs. Our ability to achieve and sustain profitability depends upon our ability, alone or with others, to receive regulatory approval on our NDA submission for PHOTREX 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 PHOTREX 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 PHOTREX in AMD and our ability to establish a collaboration with a corporate partner or other sales organization to commercialize PHOTREX once regulatory approval is received, if at all. Our revenues to date have consisted of license reimbursements, grants awarded, royalties on our devices, PHOTREX 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 of PHOTREX.

Our significant funding activities over the last eighteen months have consisted of the following:

An $8.0 million convertible preferred stock investment completed in May 2005;

·	A $15.0 million convertible line-of-credit financing completed in March 2005;

A Collaboration Agreement and Securities Purchase Agreement with Guidant Corporation, or Guidant, completed July 1, 2004, providing an equity investment of $3.0 million upon signing and two additional investments of $2.0 million each upon the completion of certain milestones related to our cardiovascular program;

A $10.3 million equity investment completed in April 2004;

A $2.0 million convertible debt financing completed in February 2004;

Warrant exercises through May 9, 2005 providing proceeds of approximately $1.5 million; and

The sale of our investment in a former affiliate, Xillix Technologies Corp., or Xillix, in December 2003, providing net cash proceeds of $1.6 million.

As a result of the Company’s most recent financing completed in May 2005 pursuant to a Series B Convertible Preferred Stock Agreement, or the May 2005 Preferred Stock Agreement, and if we are able to continue to borrow under the Note and Warrant Purchase Agreement, or the March 2005 Debt Agreement, executive management believes that as long as payment of its outstanding debt is not accelerated, then we have the ability to conserve cash required for operations through December 31, 2006. If the funding from the March 2005 Debt Agreement and/or additional funding is not available when needed, we believe that depending on the amount borrowed under the March 2005 Debt Agreement, we may have cash required for operations through December 31, 2005 assuming 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. We believe we can raise additional funding, to support operations through corporate collaborations or partnerships, licensing of PHOTREX or new products and additional equity or debt financings, if necessary. There can be no assurance 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 the first quarter of 2005 have focused on the commencement of the confirmatory Phase III clinical trial and in 2004 our primary efforts focused on preparing and submitting our NDA for marketing approval in AMD for PHOTREX. We expect over the next year or so, our likely activities and costs to consist of the following:

Commencement of a confirmatory Phase III clinical trial for AMD based on the Approvable Letter from the FDA;

Development activities in preparation for an Investigational New Drug application, or IND, and Phase I clinical trial for our cardiovascular program;

Commencement of activities related to drug and device manufacturing in support of the confirmatory Phase III clinical trial for AMD and in preparation of our cardiovascular Phase I clinical trial; and

Review and follow-up of our Phase II dermatology clinical trial.

The level of effort extended for each of these activities will depend on available funding and resources. If requisite regulatory approval is obtained for PHOTREX, substantial additional funding will be required to support the manufacture, marketing and distribution activities required to generate revenues at a level that adequately supports our cost structure.

Ophthalmology

In ophthalmology, our primary focus through March 31, 2004, had been the preparation of our NDA for submission for marketing approval of PHOTREX, a new drug for the treatment of AMD. The NDA was submitted on March 31, 2004 and on September 30, 2004, we announced that the FDA had issued an Approvable Letter for our NDA submission for PHOTREX. The Approvable Letter outlined the conditions for final marketing approval, which included a request for an additional confirmatory Phase III clinical trial, as well as certain other requirements. In March 2005, we announced that we would conduct a confirmatory Phase III clinical trial in the United Kingdom and Central and Eastern Europe based on a Special Protocol Assessment by the FDA. We have selected Kendle International Inc., an international clinical research organization, to manage the clinical trial, which we plan to initiate in 2005. The clinical trial is designed to evaluate AMD patients with both classic and occult choroidal neovascularization (CNV lesions). Currently, we expect the study to be conducted at up to 50 investigational sites. We plan to conduct a primary efficacy endpoint analysis at twelve months (one year after initial treatment), and expect a total of approximately 650 patients to be analyzed.

The competitive PDT drug Visudyne (QLT, Inc. and Novartis) has been approved as a treatment for AMD, specifically predominantly classic lesions, since April 2002 and is currently in widespread use in the U.S. and internationally. In January 2005, Macugen® was introduced to the market by Eyetech Pharmaceuticals, Inc. and will be co-promoted with Pfizer, Inc. Macugen is the first anti-angiogenic drug approved for the treatment of wet AMD involving a series of injections directly into the eye. The treatment is considered a competitive and potentially complementary technology to PDT. The FDA approved Macugen for both classic and occult lesions, which we believe will increase the overall number of patients seeking treatment for wet AMD.

We believe that the technology of PDT will continue to be utilized as a component of first-line therapy for wet AMD, either stand-alone or in combination with steroids and newer anti-angiogenic drugs. In addition to conducting the confirmatory Phase III clinical trial to be conducted in Europe, we currently plan to initiate combination studies of PHOTREX with other drug agent(s).

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 PHOTREX 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 for the prevention and treatment of restenosis. Atherosclerosis is a common condition involving complex lipid, or fat, 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 conducting preclinical pharmacology and toxicology studies using our lead cardiovascular drug candidate, MV0633. Pending the outcome of our preclinical studies, financial considerations, and other factors, we are planning to prepare an IND in cardiovascular disease for MV0633 in 2005. The timing of the IND is dependent on numerous factors, including preclinical results, pharmacology and toxicology results, available funding and other resources. In July 2004, we entered into a Collaboration Agreement with Guidant Corporation, or Guidant, to develop MV0633 for cardiovascular diseases. In connection with the Collaboration Agreement, we are required to file the IND in order to avoid penalties and to receive continued funding.

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, or Kidney, 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

In our dermatology program, we use a topical gel formulation to deliver MV9411, a proprietary photoreactive drug, directly to the skin. 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, or outer layer of the skin, 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 are now in the process of closing the Phase II clinical trial. Analysis of the clinical results and other factors such as the availability of funding and other resources will determine whether we continue this program.

Oncology

In our oncology research program, we have completed numerous preclinical studies in solid tumors to target tumor cells and tumor neovasculature. 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. The focus of our preclinical research has been 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, which is currently inactive, and under which we may choose to submit protocols for clinical trials in the future.

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."

Program	Description/Indication	Phase of Development	Estimated date of Phase
Ophthalmology	AMD (PHOTREX)	Commencement of confirmatory Phase III clinical trial	Q2/Q3 2005
	New drug compounds	Research studies	Completed
Dermatology	Psoriasis (MV9411)	Close out of Phase II	Q2 2005
Cardiovascular disease	VP and Restenosis (MV0633 and other compounds)	Continuation of Preclinical studies and IND submission	**
	AV Graft (MV2101)	Continuation of Preclinical studies	**

Oncology	Tumor research	Continuation of Research studies	**
	(MV 6401)

** 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 PHOTREX for AMD or other disease indications, our ability to complete the confirmatory Phase III clinical trial for PHOTREX for AMD, our ability to reduce operating costs as needed, our ability to regain our listing status on Nasdaq or other national stock market exchanges and various other economic and development factors, such as the cost of the programs, reimbursement and the available alternative therapies, we may or may not elect or be able to further develop PhotoPoint PDT procedures in ophthalmology, cardiovascular disease, dermatology, oncology or in any other indications.

Results of Operations

Revenues. We had no revenues for the three months ended March 31, 2005 and 2004.

Historically, we have recorded limited revenues for the sale of our bulk active pharmaceutical ingredient and license income for the reimbursement of out-of-pocket expenses incurred under license agreements. Any future revenue will likely be related to new collaborative agreements, and royalties or revenues from drug and device sales upon regulatory approval and subsequent commercial sales, if any.

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 $1.9 million for the three months ended March 31, 2005 compared to $2.3 million for the same period in 2004. The reduction in research and development costs for the three months ended March 31, 2005 compared to 2004, related to the completion of the NDA and the continued scale back of costs. Research and development expenses for the three months ended March 31, 2005 and 2004 related primarily to indirect costs such as payroll, payroll taxes and employee benefits. Additionally, we incurred research and development expenses for:

Preparation for submission of the NDA and the upcoming confirmatory Phase III clinical trial for PHOTREX in AMD;

Preclinical pharmacology and toxicology studies and preparation of an IND for the cardiovascular program; and

·	Work associated with the development of new devices, delivery systems, drug compounds and formulations for the dermatology and cardiovascular programs.

As previously disclosed, we have three research and development programs on which we have focused our efforts: ophthalmology, cardiovascular disease and dermatology. Research and development costs are initially identified as direct costs and indirect costs, with only direct costs tracked by specific program. These direct costs consist of clinical, preclinical, drug and formulation development, device development and research costs. We do not track our indirect research and development costs by program. These indirect costs consist of labor, overhead and other indirect costs. The research and development costs for specific programs represent the direct costs incurred. The direct research and development costs by program are as follows:

	Three months ended March 31,
Program	2005		2004
Direct costs:
Ophthalmology	$	499,000	$	695,000
Cardiovascular disease		114,000		35,000
Dermatology		¾		42,000
Total direct costs	$	613,000	$	772,000

Indirect costs		1,239,000		1,489,000
Total research and development costs	$	1,852,000	$	2,261,000

Ophthalmology. Our direct ophthalmology program costs have decreased to $499,000 for the three months ended March 31, 2005 from $695,000 for the same period in 2004. This decrease relates primarily to costs associated with the preparation and filing of the NDA for PHOTREX in the first quarter of 2004. The NDA filing was completed in 2004 and as such, there were no NDA related costs in the first quarter of 2005. The decrease in NDA filing costs discussed above was off-set in part by costs incurred in the first quarter of 2005 related to the planning and set up of the confirmatory clinical trial for PHOTREX. We expect our ophthalmology costs to increase significantly during the remainder of 2005 as the confirmatory clinical trial advances.

Cardiovascular Disease. Our direct cardiovascular disease program costs increased to $114,000 for the three months ended March 31, 2005 from $35,000 for the same period in 2004. The increase from 2004 to 2005 reflects the results of a Collaboration Agreement entered into in July 2004 with Guidant Corporation, which requires us to develop MV0633 for restenosis, atherosclerosis and atherosclerotic vulnerable plaque cardiovascular diseases. This agreement provides partial funding for, and mandates milestones in the development process of MV0633. Research costs for 2005 are comprised of preclinical pharmacology and toxicology study costs and other costs incurred for the preparation of the IND and Phase I clinical trial. Research costs incurred for 2004 related primarily to the development and manufacturing activities for drug to be used in the preclinical studies and the preparation work for an IND and Phase I clinical trial. We expect to continue to incur an increase in development costs for this program due to the preparation of the Phase I clinical trial.

Dermatology. Our direct dermatology program costs decreased to $0 for the three months ended March 31, 2005 from $42,000 for the same period in 2004. Costs incurred in the dermatology program included expenses for drug development and drug formulation, internal and external preclinical study costs, and Phase I and Phase II clinical trial expenses. The decrease in 2005 as compared to the same period in 2004 is related to the completion of the Phase II clinical trial.

Indirect Costs. Our indirect costs have decreased to $1.2 million for the three months ended March 31, 2005 from $1.5 million for the same period in 2004. Generally, the decrease in 2005 as compared to the same period in 2004 was attributed to a slight decrease in indirect costs such as payroll, payroll taxes and employee benefits.

We expect that future research and development expenses may fluctuate depending on available funds, continued expenses incurred related to our completion of the conditions of the Approvable Letter received from the FDA, pre-commercialization costs for drug and devices manufacturing, costs for preclinical studies and clinical trials in our dermatology, cardiovascular and other programs, costs associated with the purchase of raw materials and supplies for the production of devices and drug for use in preclinical studies and clinical trials, 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 have slightly decreased to $1.5 million for the three months ended March 31, 2005 from $1.7 million for the same period in 2004. 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. The slight decrease in 2005 as compared to the same period in 2004, is related primarily to decreases in employee wages, bonuses and amortization of deferred compensation.

We expect future general and administrative expenses to remain consistent with prior periods although they may fluctuate depending on available funds, 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, and 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 increased to $41,000 for the three months ended March 31, 2005 from $20,000 for the same period in 2004. The overall increase in interest and other income is 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 2005 and 2004 primarily represents interest earned on cash and marketable security balances 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.

Interest Expense. Interest expense significantly decreased to $477,000 for the three months ended March 31, 2005 from $1.5 million for the three months ended March 31, 2004. The decrease in 2005 compared to 2004 is primarily related to a decrease in the amortization of the beneficial conversion value from the February 2004 Debt Agreement and the August 2003 and 2002 Debt Agreements, which was incurred in 2004. Under Emerging Issues Task Force No. 98-5, or EITF No. 98-5, we were required to determine the beneficial conversion value for the August 2003 Debt Agreement and the December 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 an as converted assumption and the value of detachable warrants issued. The remaining beneficial conversion value from the August 2003 Debt Agreement and December 2002 Debt Agreement of $681,000 was amortized during the three months ended March 31, 2004. Additionally, a $300,000 beneficial conversion value associated with the February 2004 Debt Agreement was recorded and amortized during the three months ended March 31, 2004. These amounts were recorded as interest expense. The remaining interest expense for 2004 related to interest incurred on the outstanding debt from the December 2002 Debt Agreement and August 2003 Debt Agreement and the amortization of related deferred financing costs. Interest expense for the three months ended March 31, 2005 consisted of interest incurred from the outstanding debt of $227,000 and amortization of deferred financing costs of $250,000. The level of interest expense in future periods is expected to increase as monthly borrowings on the debt is continued, deferred financing costs associated with the August 2003 Debt Agreement continue to amortize over the term of the related borrowings and any borrowings under the March 2005 Debt Agreement.

Gain on Sale of Assets. The gain on sale of assets increased to $28,000 for the three months ended March 31, 2005 from $9,000 for the same period in 2004. The gain on sale of assets in 2005 and 2004 related to the gain on the sale of furniture and equipment. The increase in 2005 compared to 2004, reflects increased efforts to sell excess furniture and equipment resulting in reduced facility storage costs.

Liquidity and Capital Resources

Since inception through March 31, 2005, we have accumulated a deficit of approximately $216.6 million and expect to continue to incur substantial, and possibly increasing, operating losses for the next few years. We have financed our operations primarily through private placements of Common Stock and Preferred Stock, private placements of convertible notes and short-term notes, our initial public offering, a secondary public offering, Pharmacia's purchases of Common Stock and credit arrangements. As of March 31, 2005, we have received proceeds from the sale of equity securities, convertible notes and credit arrangements of approximately $254.8 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 March 31, 2005, our condensed consolidated financial statements have been prepared assuming we will continue as a going concern. Our independent registered public accounting firm, Ernst & Young LLP, have indicated in their report accompanying our December 31, 2004 consolidated financial statements that, based on the standards of Public Company Accounting Oversight Board (United States), our viability as a going concern is in question.

In May 2005, we entered into an $8.0 million Series B Convertible Preferred Stock Agreement, or the May 2005 Preferred Stock Agreement, with three investors, or the Purchasers, resulting in net proceeds to us of approximately $7.5 million. Pursuant to the May 2005 Preferred Stock Agreement, we issued 8.0 million shares of a newly created Series B Preferred Stock, or the Series B Preferred. The shares of Series B Preferred are convertible, initially at a one-for-one ratio based on a purchase price of $1.00 per share, into shares of our Common Stock. We also issued a warrant to purchase one share of Common Stock for each share of Common Stock to be issued upon conversion. The exercise price of each warrant is $1.00 per share and the warrants expire May 3, 2010. We also granted the Purchasers registration rights with respect to the shares of Common Stock underlying the convertible Series B Preferred Stock and related warrants issued to the Purchasers. As a result of the May 2005 Preferred Stock Agreement, which triggered certain anti-dilution provisions, we will be required to issue warrants to the debt holders of the December 2002 Convertible Debt and Warrant Agreement and certain debt holders of the August 2003 Convertible Debt and Warrant Agreement. The warrants issued in connection with these anti-dilution adjustments will be for the purchase of a total of 3,775,000 shares of our Common Stock, at an exercise price of $1.00 and will expire December 31, 2013.

In March 2005, we entered into a Note and Warrant Purchase Agreement, or the March 2005 Debt Agreement, with the March 2005 Lender. The March 2005 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 March 2005 Debt Agreement is $15.0 million with the last available borrowing in July 2007, as amended in April 2005. The March 2005 Lender's obligation to fund each borrowing request is subject to material conditions described in the March 2005 Debt Agreement. In addition, the March 2005 Lender may terminate its obligations under the March 2005 Debt Agreement at any time if Miravant, in the reasonable judgment of the March 2005 Lender, is not meeting its business objectives, and is subject to negative covenants and other restrictions. As amended in April 2005, each note and accrued interest, if any, can be convertible into shares of our Common Stock at a conversion price of $1.00 per share or 125% of the average monthly closing price of the month preceding the conversion, whichever is greater. The notes earn interest quarterly at the prime rate plus three percent (3%) and at our option and subject to certain restrictions, we may make interest payments in cash or in shares of Common Stock. In connection with each borrowing under the March 2005 Debt Agreement, we will issue a warrant to purchase one-quarter (1/4) of a share of Miravant Common Stock for each convertible share of Common Stock to be issued upon conversion. As amended in April 2005, the exercise price of each warrant will be equal to $1.00 per full share of Common Stock or 125% of the average monthly closing price of the month preceding the conversion, whichever is greater. Each warrant will terminate on December 31, 2013, unless previously exercised. We have also agreed to provide the March 2005 Lender certain registration rights in connection with this transaction. Additionally, the Company extended the term of all prior warrants issued to the March 2005 Lender to December 31, 2013. The term of a total of 8,075,000 warrants was extended, with original expiration dates ranging from August 2007 through December 2008. In connection with the extension of the term of the warrants, the Company revalued each warrant and determined there was not a material change in value, as such no additional expense was recorded. As of March 31, 2005, there were no borrowings outstanding under the March 2005 Debt Agreement.

In July 2004, we entered into a Collaboration Agreement and Securities Purchase Agreement with Advanced Cardiovascular Systems, Inc., a wholly owned subsidiary of Guidant Corporation, pursuant to which we sold 1,112,966 shares of Series A Convertible Preferred Stock, resulting in proceeds to us of $3.0 million. Additionally, we can receive up to $4.0 million in additional convertible preferred stock investments upon the completion of certain milestones related to our cardiovascular program. The $3.0 million of Preferred Stock purchased by Guidant is convertible into our Common Stock at $2.70 per share and includes registration rights for the underlying Common Stock.

In April 2004, we entered in a Securities Purchase Agreement, or the 2004 Equity Agreement, with a group of institutional investors, whereby we sold 4,564,000 shares of Common Stock at $2.25 per share, resulting in proceeds to us of $10.3 million. There were no placement fees associated with the offering and the shares issued were unregistered.

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, convertible at $2.00 per share. As of May 9, 2005, all $2.0 million of the Notes issued have been converted into 1.0 million shares of Common Stock.

In August 2003, we entered into a Convertible Debt and Warrant Purchase Agreement, or the August 2003 Debt Agreement, with a group of private accredited investors, or the August 2003 Lenders, pursuant to which we issued securities to the August 2003 Lenders in exchange for gross proceeds of $6.0 million. Under the August 2003 Debt Agreement, the debt can be converted 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 August 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 August 2003 Lenders. 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. As of May 9, 2005, $2.6 million of the $6.0 million principal balance of the 2003 Notes have been converted into 2.6 million shares Common Stock.

In connection with the August 2003 Debt Agreement, we also issued to the August 2003 Lenders warrants to purchase an aggregate of 4,500,000 shares of our Common Stock. The exercise price of each warrant is $1.00 per share and the warrants will terminate on December 31, 2013, unless amended as noted below or unless previously exercised. In accordance with the registration rights related to the August 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, 1,425,000 warrants have been exercised through May 9, 2005, resulting in proceeds to us of $1.4 million.

In connection with the closing of the March 2005 Debt Agreement, of the 3,025,000 unexercised warrants issued in connection with the August 2003 Debt Agreement, 1,875,000 warrants issued to a certain 2003 Lender were extended to December 31, 2013 from the original expiration date of August 28, 2008.

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 available borrowing provisions of this agreement were terminated in May 2004. As of December 31, 2004, we have borrowed $6.3 million and there will be no further borrowings under this agreement. Additionally, in connection with borrowings under the 2002 Debt Agreement, 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. In connection with the closing of the March 2005 Debt Agreement, the expiration date of these warrants have been extended to December 31, 2013.

In connection with the execution of the August 2003 Debt Agreement, certain of the 2002 Lenders, to whom we issued notes to under our December 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. Additionally, under the anti-dilution provision of the December 2002 Debt Agreement, the conversion price of the five notes issued thereunder to the 2002 Lenders during the period February 2003 through July 2003 were reduced to $1.00 and the exercise price of the related warrants issued to the 2002 Lenders during the same period was reduced to $1.00 per share. In connection with the closing of the March 2005 Debt Agreement, the expiration date of these warrants have been extended to December 31, 2013.

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.

Contractual Obligations

Payments due by Period	Debt (1)		Building and Equipment Leases (2)		Total
Q2-Q4 2005	$	—	$	49,000	$	49,000
2006		3,400,000		126,000		3,526,000
2007		—		3,000		3,000
2008		6,300,000		3,000		6,303,000
2009		—		—		—
Total Contractual Obligations	$	9,700,000	$	181,000	$	9,881,000

(1)

The debt represents $3.4 million of borrowings under the August 2003 Agreement, which has a due date of August 28, 2006 and $6.3 million of 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 a lease on one building and various office equipment. The lease of our primary facility and storage area are month-to-month and are not presented in the table shown above. Should these two facilities be maintained through 2005, the rental costs should approximate an additional $620,000 per year. In addition, we are aware that the lessors can give us a 30-day notice at any time requiring us to vacate.

Kendle Contract

In March 2005, we selected Kendle, a leading international CRO, to conduct our confirmatory Phase III clinical trial for PHOTREX in AMD. Upon the execution of the agreement, we expect that an up front payment of approximately $700,000 will be due, of which we have already paid $350,000, and we also expect that we will be required to make monthly payments of approximately $120,000 per month over the term of the clinical trial, with various milestone payment amounts due on the first and last patient enrolled, at the one year analysis and upon receipt of the final clinical study report. We are also responsible for payment of out-of-pocket costs incurred by Kendle, as well as payments made by them to the clinical sites for patient treatments and ancillary costs incurred. When finalized, we expect the agreement to include a provision allowing it to be terminated due to clinical efficacy or safety issues at any time with any expenses and services incurred by Kendle, as of the date of termination, to be paid by us.

Statement of Cash Flows

For the three months ended March 31, 2005 net cash used in operations was $2.8 million compared to $3.6 million used during the three months ended March 31, 2004. The decrease in cash used for operations from 2005 compared to 2004 was due to an decrease in operating costs related the preparation of the NDA submitted with the FDA that were incurred in 2004. In addition operating costs were offset by the use of common stock for payment of interest expense and compensation as well the non-cash cost associated with beneficial conversion amortization in 2004. We expect that cash used for operations will increase significantly in the future due to the commencement of the confirmatory Phase III clinical trial in mid 2005.

For the three months ended March 31, 2005, net cash provided by investing activities was $1.9 million compared to $95,000 used in investing activities for the same period in 2004. The increase in cash provided by investing activities in 2005 compared to 2004 was due to sales of marketable securities in 2005, which was not done during the same period in 2004. Investing uses also included the purchases of patents and property, plant and equipment.

The net cash used in financing activities for the three months ended March 31, 2005 was $90,000 compared to $3.8 million provided by financing activities for the same period in 2004. The cash used in financing activities for 2005 primarily related to deferred financing costs. The cash provided by financing activities for 2004 primarily related to the $2.0 million from the 2004 Debt Agreement and the $1.5 million received from warrant exercises. Financing activities for the remaining of 2005 will increase significantly due to the recently completed $8.0 million preferred stock investment as well as other possible financings.

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 successfully complete the confirmatory Phase III clinical trial for PHOTREX in AMD as outlined by the Approvable Letter from the FDA;

Our ability to resubmit our NDA and ultimately obtain regulatory approval for PHOTREX;

The cost of performing a confirmatory Phase III clinical trial and pre-commercialization activities;

Our ability to establish additional collaborations and/or license PHOTREX or our other new products;

Our ability to continue our efforts to conserve our use of cash, while continuing to advance programs;

Our ability to continue to borrow under the March 2005 Debt Agreement;

Our ability to meet our obligations under the December 2002 Debt Agreement, August 2003 Debt Agreement, the Securities Purchase Agreement and Collaboration Agreement with Guidant, and the March 2005 Debt Agreement;

Our ability to receive future equity investments from Guidant by meeting the milestones established under our Collaboration Agreement;

The viability of PHOTREX for future use;

Our ability to raise equity financing or use common stock for employee and consultant compensation;

Our ability to regain our listing status on Nasdaq or other national stock market exchanges;

Our ability to file and maintain IND's for new drug and disease indications;

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 March 31, 2005, our condensed consolidated financial statements have been prepared assuming we will continue as a going concern; and our independent registered public accounting firm, Ernst & Young LLP, have indicated in their report accompanying our December 31, 2004 consolidated financial statements that, based on generally accepted auditing standards, our viability as a going concern is in question. We are continuing our scaled-back spending efforts in research and development and the preclinical studies and clinical trials of our products. The cost of an additional confirmatory Phase III clinical trial and any other requirements we will need to complete to satisfy the conditions of the Approvable Letter from the FDA, resubmitting the NDA and obtaining related requisite regulatory approval, commencing pre-commercialization activities prior to receiving regulatory approval, and successfully completing the development of our cardiovascular program under our Guidant collaboration, will require substantial expenditures. If requisite regulatory approval is obtained, then 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. As a result of our most recent financing completed in May 2005, pursuant to the May 2005 Preferred Stock Agreement, and if we are able to continue to borrow under the March 2005 Debt Agreement, executive management believes that as long as payment of our outstanding debt is not accelerated, then we have the ability to conserve cash required for operations through December 31, 2006. If the funding from the March 2005 Debt Agreement and/or additional funding is not available when needed, we believe that, depending on the amount borrowed under the March 2005 Debt Agreement, we may have cash required for operations through December 31, 2005 assuming 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. We believe we can raise additional funding to support operations through corporate collaborations or partnerships, licensing of PHOTREX or new products and additional equity or debt financings, if necessary. There can be no assurance 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 and the cost to successfully complete the conditions required by the FDA which includes an additional confirmatory Phase III clinical trial;

Our ability to resubmit our NDA and ultimately obtain regulatory approval for PHOTREX

Our ability to continue to borrow and meet the requirements of the March 2005 Debt Agreement;

The potential future use of PHOTREX for ophthalmology or other disease indications;

Our ability to 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;

Our ability to meet the milestones and covenants established under our collaboration agreement with Guidant;

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 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 registered public accounting firm, Ernst & Young LLP, have indicated in their report accompanying our December 31, 2004 consolidated financial statements that, based on the standards of the Public Company Accounting Oversight Board (United States), our viability as a going concern is in question.

RISK FACTORS

FACTORS AFFECTING FUTURE OPERATING RESULTS

The following section of this report describes material risks and uncertainties relating to our business. Our business, results of operations or cash flows may be adversely affected if any of the following risks actually occur. In such case, the trading price of our Common Stock could decline.

RISKS RELATED TO OUR BUSINESS

Our future success is highly dependent on regulatory approval and successful commercialization of PHOTREX. We may not be able to successfully complete the additional confirmatory Phase III clinical trial required or the results of the clinical trial may not support the approval of the NDA by the FDA. If we are unable to satisfy the requirements of the FDA and thus unable to obtain approval of the NDA for any reason, our business will be substantially harmed.

On September 30, 2004, we announced that the FDA notified us that they have issued an Approvable Letter for PHOTREX. The letter outlined the conditions for final marketing approval, which included a request for an additional confirmatory Phase III clinical trial. Even though the FDA issued an Approvable Letter, the FDA may not ultimately approve our NDA for PHOTREX. This approval process may take a significant amount of time and the FDA's approval, is contingent upon satisfying these additional requirements. For instance, the FDA has required a confirmatory Phase III clinical trial prior to final approval, which will be costly and will cause a significant delay in the timing of receiving FDA approval, if at all. If the FDA does approve this NDA, the approved label claims could be for a limited market or may likely have increased competition, resulting in smaller than expected markets and revenue. Any delay in receiving FDA approval would further limit our ability to begin market commercialization of PHOTREX and would harm our ability to raise additional capital to support 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.

We are highly leveraged, our recent debt and equity 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 aggregate face amount of our debt outstanding was approximately $10.4 million as of May 9, 2005. 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 shares of Preferred Stock in May 2005 and July 2004 and Common Stock in April 2004, the issuance of warrants to purchase Common Stock in connection with the December 2002 Debt Agreement, August 2003 Debt Agreement, March 2005 Debt Agreement and May 2005 Preferred Stock Agreement and related negotiations with existing debtors has resulted in the issuance of significant amounts of securities which has a dilutive effect on our existing stockholders. Also, we are highly leveraged, which may place us at a competitive disadvantage and makes us more susceptible to downturns in our business in the event our cash balances are not sufficient to cover our debt service requirements. In addition, the March 2005 Debt Agreement, the July 2004 Collaboration Agreement and Securities Purchase Agreement with Guidant Corporation, the August 2003 Debt Agreement and the December 2002 Debt Agreement contain certain covenants that impose 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.

It may be difficult to recruit patients and/or maintain the patients enrolled in our additional confirmatory Phase III clinical trial thus making it challenging to successfully complete the conditions of the FDA's Approvable Letter, which may substantially harm our business.

The Approvable Letter received from the FDA regarding our NDA filed for PHOTREX requested that we perform an additional confirmatory Phase III clinical trial to confirm the results of the clinical trial results included in our NDA submission. This clinical trial requires us to treat a portion of the patients with a placebo. Since there are already two approved products available for use in AMD, with the potential for an approval of additional treatments during our clinical trial, it may be difficult to recruit patients into our clinical trial. Additionally, for those patients that are enrolled in our clinical trial, it may be difficult to keep them enrolled for further treatments or follow-up, especially if they have other treatment options and/or suspect that they have received a placebo. This challenge may delay the recruitment of patients into our clinical trial. Due to this recruitment challenge and existing products, we have chosen to perform the clinical trial in Central and Eastern Europe, which may be costly and time consuming. A delay in completing our required confirmatory Phase III clinical trial would delay the regulatory approval of our NDA, if approved at all, which would likely require additional funding and substantially harm our business.

Even though we recently raised $8.0 million in May 2005, we have $15.0 million available to us under the March 2005 Debt Agreement, and we previously raised $10.3 million in April 2004 and entered into a Collaboration and Securities Purchase Agreement which may provide up to an additional $4.0 million in equity capital to support our cardiovascular program, we will need additional funds to support the significant costs associated with completing another clinical trial, and to support our ongoing operations, and if we fail to obtain additional funding, we may be forced to significantly scale back or cease operations.

We are continuing our scaled-back efforts implemented in 2002 in research and development and the preclinical studies and clinical trials of our products. However, the cost of the confirmatory Phase III clinical trial associated with the NDA filing for PHOTREX, 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 likely 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 successfully complete the confirmatory Phase III clinical trial for PHOTREX in AMD as outlined by the Approvable Letter from the FDA;

Our ability to resubmit our NDA and ultimately obtain regulatory approval for PHOTREX;

The cost of performing a confirmatory Phase III clinical trial and pre-commercialization activities;

Our ability to establish additional collaborations and/or license PHOTREX or our other new products;

Our ability to continue our efforts to conserve our use of cash, while continuing to advance programs;

Our ability to continue to borrow under the March 2005 Debt Agreement;

Our ability to receive future equity investments from Guidant by meeting the milestones established under our Collaboration Agreement;

The viability of PHOTREX for future use;

Our ability to raise equity financing or use common stock for employee and consultant compensation;

Our ability to regain our listing status on Nasdaq or other national stock market exchanges;

Our ability to file and maintain IND's for new drug and disease indications;

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.

The March 2005 Lender’s obligation to fund each borrowing request is subject to material conditions described in the March 2005 Debt Agreement. In addition, the March 2005 Lender may terminate its obligations under the March 2005 Debt Agreement at any time if Miravant, in the reasonable judgment of the March 2005 Lender, is not meeting its business objectives and is subject to negative covenants and other restrictions. If we are able to continue to borrow under the March 2005 Debt Agreement, executive management believes that as long as our debt is not accelerated, then we have the ability to conserve cash required for operations through December 31, 2006. If the funding from the March 2005 Debt Agreement and/or additional funding is not available when needed, we believe that depending on the amount of borrowings received under the March 2005 Debt Agreement we may have cash required for operations through December 31, 2005 assuming 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.

We continue to seek additional capital needed to fund our operations through corporate collaborations or partnerships, through licensing of PHOTREX or new products and through public or private equity or debt financings. There can be no assurance that we will be successful in obtaining additional financing or that financing will be available on favorable terms. 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, including from our existing agreements with Guidant, it is likely to 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.

Even if we receive regulatory approval of PHOTREX for the treatment of AMD, PHOTREX may not be commercially successful.

Even if PHOTREX 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 PHOTREX 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 PHOTREX 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 PHOTREX or render PHOTREX obsolete.

We have limited marketing capability and experience and thus rely heavily upon third parties in this regard. Additionally, due to our financial condition, we have performed limited pre-marketing activities which may delay the commencement of marketing our product, PHOTREX, if approved for immediate commercialization.

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 are currently in discussion with several companies to market, distribute and sell PHOTREX. However, we have performed only limited pre-marketing activities, additional pre-marketing may delay the launch of the commercialization of PHOTREX. Our marketing, distribution and sales capabilities or current or future arrangements with third parties for such activities may not be adequate for the initial commercial launch or the successful commercialization of our products.

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 March 31, 2005, had an accumulated deficit of approximately $216.6 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. 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 registered public accounting firm, Ernst & Young LLP, have indicated in their report accompanying our December 31, 2004 consolidated financial statements that, based on the standards of the Public Company Accounting Oversight Board (United States), our viability as a going concern is in question.

Our ability to achieve and sustain profitability depends upon our ability, alone or with others, to ultimately receive regulatory approval on our NDA filing for PHOTREX in AMD after we complete the additional confirmatory Phase III clinical trial and other FDA requirements, to fund and successfully complete the development of our other proposed products, obtain the required regulatory clearances and manufacture and market our proposed products. No revenues have been generated from commercial sales of PHOTREX 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 for PHOTREX in AMD and our ability to establish a collaboration with a corporate partner or other sales organization to commercialize PHOTREX if regulatory approval is received. Our revenues to date have consisted of license reimbursements, grants awarded, royalties on our devices, PHOTREX 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 may rely on third parties to assist us with the regulatory process for the IND's and NDA, if needed, and to conduct additional 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 IND's and our NDA, with respect to which the FDA issued an Approvable Letter for PHOTREX that outlined the conditions for final marketing approval, including a request for an additional confirmatory Phase III clinical trial. We have selected Kendle International, Inc., or Kendle, a leading international CRO with locations throughout Europe, to conduct our confirmatory Phase III clinical trial for PHOTREX in AMD. 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 will need to rely on Kendle and other consultants and third parties to complete the conditions of the Approvable Letter and amend the NDA submission and for review by the FDA.

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, 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, non-PDT products include, but are not limited to, Macugen and other drugs designed to inhibit angiogenesis or otherwise target new blood vessels, and certain medical devices such as drug-eluting stents in cardiovascular disease.

We are aware of various competitors involved in the AMD and photodynamic therapy sectors. 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 sectors include QLT Inc., or QLT, DUSA Pharmaceuticals, or DUSA, Axcan Pharm Inc., or Axcan, Eyetech Pharmacueticals Inc., or Eyetech, Pharmacyclics, Genetech, Inc., Alcon, Inc., and Allergan, Inc. In AMD, QLT's drug Visudyne® has received marketing approval in the United States and certain other countries for the treatment of AMD and has been commercialized by Novartis. Eyetech received marketing approval for its MacugenÒ treatment for AMD in December 2004 and expects to begin co-marketing their product with Pfizer, Inc. in the beginning of 2005. Genetech, Inc. and Alcon, Inc. are both completing Phase III clinical trials. Other laser, surigical or pharmaceutical treatments for AMD also may compete against us.

In photodynamic therapy, Axcan and DUSA have photodynamic therapy drugs, both of which have received marketing approval in the United States - Photofrin® (Axcan) for the treatment of certain oncology indications and Levulan® (DUSA Pharmaceuticals) for the treatment of actinic keratoses, a dermatological condition. Pharmacyclics has a photodynamic therapy drug that has not received marketing approval, which is being used in certain preclinical studies and/or clinical trials for ophthalmology, oncology and cardiovascular indications. We are aware of other drugs and devices under development by these and other 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, treatment price and cost and patent position, among other issues. As the photodynamic therapy industry evolves, we believe that for cardiovascular disease and some other disease indications, 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.

Our products, including PHOTREX 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 have completed testing for efficacy or safety in humans and none of our products, including PHOTREX, 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 our Phase III clinical studies in AMD, and 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. Moreover, 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.

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 may need 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 PHOTREX. Similarly, we must also establish relationships with suppliers and manufacturers to build our medical devices and to manufacture our compounds. Currently we have partnered with Iridex for the manufacture of certain light sources for use in AMD and have entered into an agreement with Hospira, Inc. (formerly Fresenius), or Hospira, for supply of the final dose formulation of PHOTREX. We also have entered into a collaboration agreement with Guidant for the development of new drugs and devices in cardiovascular disease through Phase I clinical trials. Due to the expense of the drug approval process it is beneficial 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. To commercialize and further develop PHOTREX for AMD or other indications we likely need to establish a new collaborative relationship with a corporate partner or a sales organization.

We are currently at various stages of discussions with companies regarding the establishment of new collaborations. If we are not successful in establishing new collaborative partners for the potential development of PHOTREX 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.

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 PHOTREX, 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.

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.

We have limited manufacturing capability and experience and thus rely heavily upon third parties in this area. 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.

Prior to supplying drugs or devices for commercial use, our manufacturing facilities, as well as the Iridex and Hospira manufacturing facilities, must be inspected and approved by the FDA for current Good Manufacturing Practices, or cGMP, 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 requirements.

We currently have the capacity, in conjunction with our manufacturing suppliers Hospira and Iridex, to manufacture products at certain commercial levels and we believe we will be able to do so under cGMPs with subsequent FDA approval. If we receive 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 may need to expend substantial funds, hire and retain 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 PHOTREX, Hospira is the sole manufacturer of the final dose formulation of PHOTREX 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 PHOTREX, or the final formulation of PHOTREX at commercial levels or back-up suppliers of the light producing devices. If Hospira 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.

As a result of our shares being delisted from trading on 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®, or OTCBB, effective as of the opening of business on July 12, 2002. Our management continues to review our ability to regain our listing status with Nasdaq or other national stock market exchanges, however, we cannot guarantee we will be able to meet the relisting requirements for the Nasdaq National Market or the Nasdaq Small Cap Market or other national stock market exchanges on a timely basis, if at all, and there is no guarantee that any of the stock market exchanges would approve our relisting request even if we met all the listing requirements. Our ability to obtain additional funding, beyond our current funding agreements is impeded by a number of factors including that fact that our Common Stock is currently being traded on the OTCBB and may prevent us from obtaining additional financing as required in the near term on favorable terms or at all.

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.

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.

All of our products, except PHOTREX, MV2101 and MV9411, are in an early stage of development and all of our products, including PHOTREX, MV2101 and MV9411, may never be successfully commercialized.

Our products, except PHOTREX, MV2101 and MV9411, are at an early stage of development and our ability to successfully commercialize these products, including PHOTREX, MV2101 and MV9411, is dependent upon:

Successful completion of 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.

The price of our Common Stock has been and may continue to be volatile.

From time to time and in particular over the past 14 months, the price of our Common Stock has been highly volatile. These fluctuations create a greater risk of capital losses for our stockholders as compared to less volatile stocks. From March 31, 2004 to May 9, 2005, our Common Stock price, per OTCBB closing prices, has ranged from a high of $4.10 to a low of $0.54.

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 in the future could be the result of any number of factors, including:

Our ability and the cost to successfully complete the conditions required by the FDA which includes an additional confirmatory Phase III clinical trial;

Announcements concerning Miravant or our collaborators, competitors or industry;

Our ability to successfully establish new collaborations and/or license PHOTREX or our other new products;

The impact of dilution from past or future equity or convertible debt financings;

Our ability to meet the milestones and covenants established under our collaboration agreement with Guidant;

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 or other national stock market exchanges;

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 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.

We cannot make assurances 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.

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.

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 may need to obtain product liability insurance for our confirmatory Phase III clinical trial. If we are not required to have product liability insurance then we do not expect to obtain it 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 PHOTREX drug technology or PhotoPoint PDT light device technology. A successful product liability claim could result in monetary or other damages that could harm our business, financial condition and additionally cause us to cease operations.

We rely on the availability of certain unprotected intellectual property rights, and if access to such rights becomes unavailable, our business could suffer.

Our trade secrets may become known or be independently discovered by competitors. Furthermore, inventions or processes discovered by our employees will not necessarily become our property and may remain the property of such persons or others.

In addition, certain research activities relating to the development of certain patents owned by or licensed to us were funded, in part, by agencies of the United States Government. When the United States Government participates in research activities, it retains certain rights that include the right to use the resulting patents for government purposes under a royalty-free license.

We also rely upon unpatented trade secrets, and no assurance can be given that others will not independently develop substantially equivalent proprietary information and techniques, or otherwise gain access to our trade secrets or disclose such technology, or that we can meaningfully protect our rights to our unpatented trade secrets and know-how.

In the event that the intellectual property we do or will rely on becomes unavailable, our ability to be competitive will be impeded and our business will suffer.

Our 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.

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. The Rights Plan, as amended, provides that the trigger percentage of 20% will not apply to Pharmacia with regard to certain shares acquired by Pharmacia, St. Cloud Investments, Ltd, or any other person or entity who acquires shares in a financing transaction with us which generates net proceeds not less than $5.0 million, and has been approved by our Board of Directors. 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. Additionally, pursuant to the certificate of designation for our Series A-1 Preferred Stock, we are restricted from taking certain actions without obtaining the prior approval of at least two-thirds (2/3) of the then outstanding shares of Series A-1 Preferred Stock voting together as a separate class, and are also restricted from taking certain actions without obtaining the prior approval of at least a majority of the then outstanding shares of Series B Preferred Stock, voting together as a separate class. These restrictions include, but are not limited to, limitations on our ability to make repurchases of our capital stock, limitations on our ability to declare dividends or pay distributions, and limitations on our ability to enter into a business combination transaction. Moreover, the issuance of additional preferred stock may make it more difficult or may discourage another party from acquiring voting control of us.

We are exposed to risks from recent legislation requiring companies to evaluate and maintain internal controls over financial reporting.

Section 404 of the Sarbanes-Oxley Act of 2002 requires our management to report on, and our independent auditors to attest to, the effectiveness of our internal control structure and procedures for financial reporting, beginning in fiscal year 2006, based on our current aggregate market value of voting stock held by non-affiliates, as measured on June 30, 2005. As a result, we expect to incur increased expense and to devote additional management resources to Section 404 compliance. In addition, it is difficult for management or our independent auditors to predict how long it will take to complete the assessment of the effectiveness of our internal control over financial reporting. This results in a heightened risk of unexpected delays to completing the project on a timely basis. In the event that our chief executive officer, chief financial officer or independent auditors determine that our internal controls over financial reporting are not effective as defined under Section 404, investor perceptions of Miravant may be adversely affected and could cause a decline in the market price of our stock.

Recent changes in the accounting treatment of stock options could have a negative impact on our financial statements and possibly cause our stock price to decline.

On December 16, 2004, the Financial Accounting Standards Board, or FASB, issued FASB Statement No. 123(R), "Share-Based Payments", or Statement No. 123(R), which includes proposed rule changes requiring companies to expense the fair value of employee stock options and other forms of stock-based compensation. Currently, we include such expenses on a pro forma basis in the notes to our annual financial statements in accordance with accounting principles generally accepted in the United States, but do not record a charge for employee stock option expense in the reported financial statements. Once we are required to comply with Statement No. 123(R), as of January 1, 2006 our financial results will be negatively impacted, which could in turn lead to a decline in our stock price.

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 ophthalmology and 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 3.

QUANTITATIVE AND QUALITATIVE 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.

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 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 risk due to its fixed rates on its debt.

ITEM 4.

CONTROLS AND PROCEDURES

Our management evaluated, with the participation of our chief executive officer and our chief financial officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our chief executive officer and our chief financial officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

None.

ITEM 2.

UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.	EXHIBITS AND REPORTS ON FORM 8-K

	(a)	Exhibits	Description

		Exhibit 31.1	Certification Of Chief Executive Officer Pursuant To Section 13(A) Or 15(D) Of The Securities Exchange Act Of 1934As Adopted Pursuant To Section 302 Of The Sarbanes-Oxley Act Of 2002.

		Exhibit 31.2	Certification Of Chief Financial Officer Pursuant To Section 13(A) Or 15(D) Of The Securities Exchange Act Of 1934As Adopted Pursuant To Section 302 Of The Sarbanes-Oxley Act Of 2002.

		Exhibit 32.1	Certification of the Chief Executive Officer and the Chief Financial Officer Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 Of The Sarbanes-Oxley Act Of 2002.

		Exhibit 10.1	Note and Warrant Purchase Agreement dated March 7, 2005 (incorporated by reference from the Registrant’s Form 8-K dated March 7, 2005 (File No. 0-25544)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed in its behalf by the undersigned thereunto duly authorized.

Miravant Medical Technologies

Date:	May 13, 2005	By: /s/ John M. Philpott
		John M. Philpott
		Chief Financial Officer
		(on behalf of the Company and as
		Principal Financial Officer and
		Principal Accounting Officer)