SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended September 30, 1999
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to
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Commission file number 333-02015
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CYTOGEN Corporation
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(Exact name of Registrant as specified in its charter)
Delaware 22-2322400
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
600 College Road East, CN 5308, Princeton, NJ 08540-5308
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(Address of Principal Executive Offices and Zip Code)
Registrant's telephone number, including area code (609) 750-8200
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes X No .
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Class Outstanding at November 1, 1999
- ---------------------------- -------------------------------
Common Stock, $.01 par value 70,375,055
PART I - FINANCIAL INFORMATION
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Item I - Consolidated Financial Statements
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except share data)
(Unaudited)
September 30, December 31,
1999 1998
------------ ------------
ASSETS:
Current Assets:
Cash and cash equivalents ............................................. $ 6,660 $ 3,015
Short-term investments ................................................ 2,361 --
Receivable on common stock sold ....................................... -- 2,500
Accounts receivable, net .............................................. 2,822 1,362
Inventories ........................................................... 205 250
Other current assets .................................................. 626 330
--------- ---------
Total current assets ............................................... 12,674 7,457
--------- ---------
Property and Equipment:
Leasehold improvements ................................................ 9,075 9,438
Equipment and furniture ............................................... 5,049 7,350
--------- ---------
14,124 16,788
Less-Accumulated depreciation and amortization ........................ (12,419) (14,163)
--------- ---------
Net property and equipment ......................................... 1,705 2,625
--------- ---------
Other Assets .............................................................. 1,467 818
--------- ---------
$ 15,846 $ 10,900
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Current portion of long-term liabilities .............................. $ 129 $ 848
Accounts payable and accrued liabilities .............................. 4,465 7,386
--------- ---------
Total current liabilities ........................................ 4,594 8,234
--------- ---------
Long-Term Liabilities ..................................................... 2,303 2,223
--------- ---------
Stockholders' Equity:
Preferred stock, $.01 par value, 5,400,000 shares authorized -
Series C Junior Participating Preferred Stock, $.01 par value,
200,000 shares authorized, none issued and outstanding ............. -- --
Common stock, $.01 par value, 89,600,000 shares authorized,
70,375,000 and 61,950,000 shares issued and outstanding
in 1999 and 1998, respectively ...................................... 704 619
Additional paid-in capital ............................................ 310,796 301,836
Accumulated deficit ................................................... (302,551) (302,012)
--------- ---------
Total stockholders' equity ......................................... 8,949 443
--------- ---------
$ 15,846 $ 10,900
========= =========
The accompanying notes are an integral part of these statements
2
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands, except per share data)
(Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
Revenues:
Product related:
ProstaScint .......................................... $ 1,646 $ 1,597 $ 4,899 $ 4,593
Quadramet ............................................ -- 735 -- 955
Others ............................................... 188 228 509 696
-------- -------- -------- --------
Total product sales ........................ 1,834 2,560 5,408 6,244
Quadramet royalties .................................. 245 -- 706 1,664
-------- -------- -------- --------
Total product related ...................... 2,079 2,560 6,114 7,908
License and contract .................................... 267 210 3,006 1,456
-------- -------- -------- --------
Total revenues ............................. 2,346 2,770 9,120 9,364
-------- -------- -------- --------
Operating Expenses:
Cost of product and contract manufacturing revenues ..... 955 2,255 3,229 6,090
Research and development ................................ 708 2,579 2,746 8,341
Acquisition of technology rights ........................ -- -- 1,214 --
Equity loss in Targon subsidiary ........................ -- -- -- 1,020
Selling and marketing ................................... 1,094 1,247 3,122 3,581
General and administrative .............................. 892 3,212 2,784 5,833
-------- -------- -------- --------
Total operating expenses ................... 3,649 9,293 13,095 24,865
-------- -------- -------- --------
Operating loss ............................. (1,303) (6,523) (3,975) (15,501)
Gain on sale of laboratory and
manufacturing facilities ................................ -- -- 3,298 --
Gain on sale of Targon subsidiary ........................... -- 2,833 -- 2,833
Interest income ........................................... 131 109 282 537
Interest expense ............................................ (60) (97) (144) (535)
-------- -------- -------- --------
Net loss ................................................... (1,232) (3,678) (539) (12,666)
Dividends on series B preferred stock ....................... -- -- -- (119)
-------- -------- -------- --------
Net loss to common stockholders ............................. $ (1,232) $ (3,678) $ (539) $(12,785)
======== ======== ======== ========
Basic and diluted net loss per common share ................. $ (0.02) $ (0.06) $ (0.01) $ (0.23)
======== ======== ======== ========
Basic and diluted weighted average
common shares outstanding ................................ 68,757 58,149 66,204 55,426
======== ======== ======== ========
The accompanying notes are an integral part of these statements.
3
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
(Unaudited)
Nine Months Ended September 30,
-------------------------------
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................................... $ (539) $(12,666)
-------- --------
Adjustments to reconcile net loss to cash used for operating activities:
Acquisition of technology rights ..................................... 1,214 --
Depreciation and amortization ........................................ 786 974
Imputed interest ..................................................... (33) 81
Stock option and warrant grants ...................................... 122 32
Write down of assets ................................................. 79 --
Gain on sale of laboratory and manufacturing facilities .............. (3,298) --
Gain on sale of Targon subsidiary .................................... -- (2,833)
Equity loss in Targon subsidiary ..................................... -- 1,020
Changes in assets and liabilities:
Accounts receivable, net ......................................... (1,421) 2,868
Inventories ...................................................... 45 316
Other assets ..................................................... (151) (91)
Accounts payable and accrued liabilities ......................... (3,660) 2,010
Other liabilities ................................................ 71 87
-------- --------
Total adjustments ................................. (6,246) 4,464
-------- --------
Net cash used for operating activities ............................. (6,785) (8,202)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash acquired from Prostagen, Inc. (see Note 2) ......................... 550 --
Net proceeds from sale of laboratory and
manufacturing facilities .................................................. 3,584 --
Proceeds from sale of Targon subsidiary ..................................... -- 2,000
Purchases of short-term investments ......................................... (2,361) --
Purchases of property and equipment ......................................... (139) (109)
-------- --------
Net cash provided by investing activities .......................... 1,634 1,891
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ...................................... 9,578 37
Proceeds from issuance of notes payable ..................................... -- 2,000
Payment of long-term liabilities ............................................ (782) (100)
-------- --------
Net cash provided by financing activities .......................... 8,796 1,937
-------- --------
Net increase (decrease) in cash and cash equivalents ........................ 3,645 (4,374)
Cash and cash equivalents, beginning of period .............................. 3,015 7,401
-------- --------
Cash and cash equivalents, end of period .................................... $ 6,660 $ 3,027
======== ========
The accompanying notes are an integral part of these statements
4
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company
CYTOGEN Corporation ("CYTOGEN" or the "Company") is a biopharmaceutical
company engaged in the development, commercialization and marketing of products
to improve diagnosis and treatment of prostate disease, and of products for
unmet needs in the broader urological and oncology markets. Cytogen has three
products on the market including ProstaScint(R) prostate cancer diagnostic,
Quadramet(R) treatment for bone cancer pain from cancer that has spread to the
bone and OncoScint(R) imaging agent for colorectal and ovarian cancers. Cytogen
also holds the intellectual property rights to prostate specific membrane
antigen ("PSMA"), a unique antigen under development for immunotherapeutic and
other approaches, particularly in the area of prostate cancer.
Basis of Consolidation
The consolidated financial statements include the accounts of CYTOGEN and
its wholly- owned subsidiaries. Intercompany balances and transactions have been
eliminated in consolidation.
Basis of Presentation
The consolidated financial statements of CYTOGEN Corporation are unaudited
and include all adjustments which in the opinion of management are necessary to
present fairly the financial condition and results of operations as of and for
the periods set forth in the Consolidated Balance Sheets, Consolidated
Statements of Operations and Consolidated Statements of Cash Flows. All such
accounting adjustments are of a normal, recurring nature. The consolidated
financial statements do not include all of the information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles and should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission, which includes financial statements as of and for the year ended
December 31, 1998. The results of the Company's operations for any interim
period are not necessarily indicative of the results of the Company's operations
for any other interim period or for a full year.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash in banks and all
highly-liquid investments with a maturity of three months or less at the time of
purchase.
5
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
Net Loss Per Share
Basic net loss per common share is based upon the weighted average common
shares outstanding during each period. Diluted net loss per common share is the
same as basic net loss per common share, as the inclusion of common stock
equivalents would be antidilutive.
2. ACQUISITION OF PROSTAGEN, INC.:
On June 15, 1999, CYTOGEN reacquired the rights for immunotherapy to its
PSMA technology by acquiring 100% of the outstanding capital stock of Prostagen,
Inc. ("Prostagen") for 2,050,000 shares of CYTOGEN common stock, plus
transaction costs. The acquisition was accounted for using the purchase method
of accounting, whereby the purchase price was allocated to the assets acquired
and liabilities assumed from Prostagen based on their respective fair values at
the acquisition date. The excess of the purchase price over the fair value of
the net tangible assets of approximately $1.2 million was assigned to acquired
technology rights and has been recorded as a non-cash charge to operations in
the accompanying financial statements. Acquired technology rights reflects the
value of the PSMA technology development projects underway at the time of the
Prostagen acquisition. The Company may issue up to an additional 450,000 shares
of CYTOGEN common stock upon the satisfactory termination of lease obligations
assumed in the Prostagen acquisition.
The Company had sublicensed PSMA to Prostagen for prostate cancer
immunotherapy in 1996. In connection with the acquisition, CYTOGEN acquired
approximately $550,000 in cash, a minority ownership in Northwest
Biotherapeutics, Inc., which is developing PSMA for cell therapy, and a contract
with Velos, Inc. for marketing a cancer patient software management program for
hospitals and health care payors. In addition, the Company may issue up to an
additional $4.0 million worth of CYTOGEN common stock (based on the value at the
time of issuance) if certain milestones are achieved in the PSMA development
program. In addition the Company may issue up to 500,000 shares upon beneficial
resolution of other contractual arrangements entered by Prostagen.
3. PROGENICS PHARMACEUTICALS, INC. JOINT VENTURE:
On June 15, 1999, CYTOGEN entered into a joint venture with Progenics
Pharmaceuticals, Inc. ("Progenics") to develop vaccine and antibody-based
immunotherapeutic products utilizing CYTOGEN's proprietary PSMA technology. The
joint venture will be owned equally by CYTOGEN and Progenics. Progenics will
fund up to $3 million of development costs of the program. After that point, the
Company and Progenics will equally share the future costs of the program.
CYTOGEN has the exclusive North American marketing rights on products developed
by the joint venture. In connection with the licensing of the PSMA technology to
the joint venture, CYTOGEN will receive $2 million in payments of which $500,000
was received in June 1999, with the balance to be paid in installments through
6
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
December 31, 2001. As a result, CYTOGEN recorded approximately $1.8 million in
license fee revenue during the three months ended June 30, 1999, based on the
net present value of the future payments (using a discount rate of 10%).
4. SALE OF LABORATORY AND MANUFACTURING FACILITIES:
In January 1999, the Company sold certain of its laboratory and
manufacturing facilities to Bard BioPharma L.P., a subsidiary of Purdue Pharma
L.P. ("Purdue"), for $3.9 million. CYTOGEN also signed a three-year agreement
under which two of CYTOGEN's products, ProstaScint and OncoScint CR/OV, will
continue to be manufactured by CYTOGEN at its former facility. As a result of
the sale, the Company recognized a gain of approximately $3.3 million in its
consolidated statement of operations during the first quarter of 1999.
5. SALES OF CYTOGEN COMMON STOCK:
In January 1999, the Company sold 2,666,667 shares of CYTOGEN common
stock to a subsidiary of The Hillman Company for an aggregate price of $2.0
million or $0.75 per share. Also in January, the Company exercised a put right
granted to CYTOGEN under a $12.0 million equity line agreement with an
institutional investor, for the sale of 475,342 shares of common stock at an
aggregate price of $500,000 or $1.0519 per share. The Company will not draw on
the remaining $11.5 million of the equity line agreement and has deregistered
shares which were previously registered with the Securities and Exchange
Commission ("SEC") to be issued under the facility.
In August 1999, the Company sold to the State of Wisconsin Investment
Board 3,105,590 shares of CYTOGEN common stock at an aggregate price of $5.0
million or $1.61 per share.
6. SALE OF UNDEVELOPED LAND:
In October 1999, the Company sold its undeveloped land in Ewing, New
Jersey for net proceeds of $714,000. As a result of the sale, the Company will
recognize a gain of approximately $54,000 in its consolidated statement of
operations during the fourth quarter of 1999.
7
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Background. To date, the Company's revenues have resulted primarily from
(i) sales and royalties from ProstaScint, Quadramet and OncoScint CR/OV; (ii)
payments received from contract manufacturing and research services pursuant to
agreements; (iii) fees generated from the licensing of its technology and
marketing rights to its products; and (iv) milestone payments received when
events stipulated in the collaborative agreements with third parties have been
achieved.
In July 1999, the Company submitted an application to sell $9.2 million of
state tax benefits pursuant to state legislation permitting certain New Jersey
corporations to sell unused net operating tax losses and research and
development credits. The Company has received notice of approval, however, no
assurance can be given as to timing of closing of the sale of the benefits, the
amount the approval may be for, or the period over which the benefit may be
realized.
In August 1999, the Company sold to the State of Wisconsin Investment
Board 3,105,590 shares of CYTOGEN common stock at an aggregate price of $5.0
million or $1.61 per share.
In October 1999, the Company sold its undeveloped land in Ewing, New
Jersey for net proceeds of $714,000.
During November 1999, the Company reached an agreement in principle with
the Bard Urological Division of the C.R. Bard Company ("Bard") to assume sole
responsibility for the marketing and sales of the Company's ProstaScint product,
and to phase out the existing co-marketing agreement (the "Co-Marketing
Agreement") with Bard. The Company entered into the Co-Marketing Agreement with
Bard in 1996 to market and promote ProstaScint. The transition is expected to be
concluded by mid-year 2000, with the co-marketing agreement terminated at that
time. The Company has sales personnel marketing the ProstaScint product at
present, and is currently expanding its sales force. However, the Company has
limited experience in direct selling and can not give any assurance as to the
impact on sales by assuming selling efforts itself.
Three months ended September 30, 1999 and 1998
Revenues. Total revenues for the third quarter of 1999 were $2.3 million
compared to $2.8 million for the same period in 1998 with the decrease primarily
attributable to lower Quadramet royalty revenues during the third quarter of
1999 versus actual sales during the comparable period of 1998 (described below).
Product related revenues, which included product sales and royalties, accounted
for 89% of total revenues in 1999, versus 92% from the same period of 1998.
License and contract revenues accounted for the remainder of revenues.
Product related revenues for the third quarter of 1999 were $2.1 million
compared to $2.6 million for the same period in 1998. ProstaScint accounted for
79% and 62% of product related revenues in the third quarter of 1999 and 1998,
respectively, while revenues from Quadramet accounted for 12% and 29% of product
8
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
related revenues, respectively, for the third quarters in 1999 and 1998. Sales
of ProstaScint were $1.6 million for both comparable quarters of 1999 and 1998.
ProstaScint sales have experienced growth since product launch, but the growth
has been inconsistent. There can be no assurance that growth will continue.
Revenues from Quadramet were $245,000 in the third quarter of 1999 compared
to $735,000 of Quadramet revenues in the third quarter of 1998. Royalty revenues
during the third quarter of 1999 were reduced by $65,000 (for second and third
quarters of 1999) related to product distribution agreements between Berlex
Laboratories ("Berlex") and its distributors. From the time of product launch in
1997 through June 1998, CYTOGEN recorded royalty revenues for Quadramet based on
minimum contractual payments, which were in excess of actual sales. Subsequent
to June 1998, the minimum royalty arrangement was discontinued and CYTOGEN
recorded product revenues from Quadramet based on actual sales. Beginning in
1999, Quadramet royalties are based on net sales of Quadramet by Berlex,
CYTOGEN's marketing partner for Quadramet. Berlex relaunched the product in
March 1999. Although CYTOGEN believes that Berlex is an advantageous marketing
partner, and that the product offers clinical advantages, there can be no
assurance that Quadramet will, following the re-launch of the product, achieve
market acceptance on a timely basis or sufficiently to result in significant
revenues for CYTOGEN.
Other product sales included revenues from OncoScint CR/OV which were
$188,000 in 1999 compared to $214,000 in the comparable period of 1998. The
Company sells OncoScint for diagnostic use in ovarian and colorectal cancer. The
Company is experiencing competition in the colorectal market and expects this
competition to increase.
License and contract revenues for the third quarter of 1999 and 1998 were
$267,000 and $210,000, respectively, and included $102,000 and $229,000 of
contract manufacturing revenues in 1999 and 1998, respectively. The Company is
phasing out contract manufacturing services, due to the sale of the
manufacturing facility earlier this year, and expects to receive no further
revenues from this service after 1999. License and contract research revenues
have fluctuated in the past and may fluctuate in the future.
Operating Expenses. Total operating expenses for the third quarter of 1999
were $3.6 million compared to $9.3 million recorded in the third quarter of
1998. The decrease from the prior year period was a result of savings realized
from various actions taken in 1999 and 1998, including the sale of the
manufacturing facility which reduced the cost of manufacturing the Company's
products, closure of the Cellcor Inc. ("Cellcor") subsidiary in September 1998,
corporate downsizing, and the curtailing of certain basic research and clinical
programs. The savings over the prior year period included $1.3 million from cost
of product and contract manufacturing revenues, $1.8 million from the Cellcor
closure, $1.1 million from the termination and curtailing of certain basic
research and clinical programs, and $1.3 million from the cost containment
efforts in general and administrative services and from the 1998 restructuring
costs associated with the implementation of a turn-around plan and corporate
downsizing.
9
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
Cost of product and contract manufacturing revenues for the third quarter
of 1999 were $955,000 compared to $2.3 million recorded in the same period of
the prior year. The decrease from the prior year period is due to decreased
contract manufacturing costs associated with decreased contract manufacturing
activities in 1999, lower manufacturing costs for ProstaScint, OncoScint and the
elimination of Quadramet manufacturing costs which were included in the third
quarter of 1998. Under a January 1999 agreement with Purdue, employees involved
in manufacturing will remain CYTOGEN employees, but Purdue will absorb their
labor costs except for time spent on manufacturing CYTOGEN products. The
majority of maintenance and facility related costs are absorbed by Purdue. Under
that agreement, CYTOGEN manufacturing employees may be hired by Purdue.
Research and development expenses for the third quarter of 1999 were
$708,000 compared to $2.6 million recorded in the same period of 1998. The
decrease from the prior year period is due to the curtailing of certain of the
Company's product development efforts including the closure of Cellcor, the
termination of certain basic research programs and the scale back of various
clinical programs.
Selling and marketing expenses were $1.1 million for third quarter of 1999
compared to $1.2 million in the same period of 1998. These expenses reflect the
marketing efforts for ProstaScint product and expenses to establish and maintain
the PIE(TM) ("Partners in Excellence") program, a network of accredited nuclear
medicine imaging centers ("PIE Site") that are certified as proficient in the
interpreting of the ProstScint scans. As of October 25, 1999, there were 299 PIE
Sites. The decrease in expenditures over the prior year period is due to the
timing of certain marketing programs and these expenses may fluctuate from
quarter to quarter and may increase over time as product marketing efforts
increase.
General and administrative expenses for the third quarter of 1999 were
$892,000 compared to $3.2 million for the comparable period in 1998. The
decrease from the prior year is due to various cost containment efforts
implemented in 1999 and 1998, the 1998 restructuring costs associated with the
implementation of a turn-around plan, Cellcor closure, and corporate downsizing.
Interest Income/Expense. Interest income for the third quarter of 1999 was
$131,000 compared to $109,000 in the same period of 1998. The increase from the
prior year period is due to higher average cash and short-term investment
balances for the periods.
Interest expense for the third quarter of 1999 was $60,000 compared to
$97,000 recorded in the same period of 1998. The decrease from the prior year is
due to the 1998 imputed interest relating to an agreement to reacquire the
marketing rights to OncoScint CR/OV.
Net Loss. Net loss to common stockholders for the third quarter in 1999
was $1.2 million compared to a net loss of $3.7 million incurred in the same
period of 1998. The net loss per common share was $0.02 on 68.8 million average
common shares outstanding compared to a loss of $0.06 on 58.1 million average
common shares outstanding for the same period in 1998.
10
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
Nine months ended September 30, 1999 and 1998
Revenues. Total revenues for the nine months ended September 30, 1999 and
1998 were $9.1 million and $9.4 million, respectively. Product related revenues,
which included product sales and royalties, accounted for 67% of total revenues
in 1999 versus 84% in the comparable period of 1998. License and contract
revenues accounted for the remainder of revenues.
Product related revenues for the nine months ended September 30, 1999 and
1998 were $6.1 million and $7.9 million, respectively. ProstaScint accounted for
80% and 58% of product related revenues for the nine months in 1999 and 1998,
respectively, while revenues from Quadramet accounted for 12% and 33% of product
related revenues for the nine months in 1999 and 1998, respectively. Sales of
ProstaScint were $4.9 million in 1999 compared to $4.6 million in 1998.
Revenues from Quadramet decreased to $706,000 in the nine months ended
September 30, 1999 from $2.6 million in the same period of 1998. From the time
of product launch in 1997 through June 1998, CYTOGEN recorded royalty revenues
for Quadramet based on minimum contractual payments, which were in excess of
actual sales. Subsequent to June 1998, the minimum royalty arrangement was
discontinued and CYTOGEN recorded product revenues from Quadramet based on
actual sales. Beginning in 1999, the Quadramet royalties are based on net sales
of Quadramet by Berlex.
Other product sales, including revenues from OncoScint CR/OV, were
$509,000 in 1999 compared to $696,000 in the comparable period of 1998. The
decrease from the prior year is due, in part, to the discontinuation of the
autolymphocyte therapy treatment program resulted from the closure of Cellcor
subsidiary. Revenues from OncoScint CR/OV were $500,000 in 1999 versus $645,000
in the same period of 1998. The decrease in OncoScint sales was a result of
increased competition in the colorectal market.
License and contract revenues for the nine months ended September 30, 1999
and 1998 were $3.0 million and $1.5 million, respectively, and included $603,000
and $1.1 million of contract manufacturing revenues in 1999 and 1998,
respectively. The Company is phasing out contract manufacturing services and
expects to receive no further revenues from this service after 1999. The 1999
license fee included $1.8 million of revenue from the licensing of PSMA to a
joint venture formed by CYTOGEN and Progenics (see Note 3 to the Consolidated
Financial Statements).
Operating Expenses. Total operating expenses for the nine months ended
September 30, 1999 were $13.1 million and included a non-cash charge of $1.2
million related to the acquisition of technology rights from Prostagen. Total
operating expenses for the comparable period in 1998 were $24.9 million. The
decrease from the prior year period was a result of savings realized from
various actions taken in 1999 and 1998, including the sale of the manufacturing
facility which reduced the cost of manufacturing the Company's products, closure
of the Cellcor subsidiary, corporate downsizing, the termination of product
11
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
development efforts through Targon, and the termination and curtailing of
certain basic research and clinical programs. The savings over the prior year
period included $2.8 million from cost of product and contract manufacturing
revenues, $4.0 million from the Cellcor closure, $1.0 million due to the sale of
Targon, $2.7 million from the termination and curtailment of certain basic
research and clinical programs, and $1.9 million from cost containment efforts
in general and administrative services and from the 1998 restructuring costs
associated with the implementation of a turn-around plan and corporate
downsizing.
Cost of product and contract manufacturing revenues for the nine months
ended September 30, 1999 were $3.2 million compared to $6.1 million recorded in
the same period of the prior year. The decrease from the prior year period is
due to decreased contract manufacturing costs associated with decreased contract
manufacturing activities in 1999 and lower manufacturing costs for CYTOGEN
products.
Research and development expenses for the nine months ended September 30,
1999 were $2.7 million compared to $8.3 million recorded in the same period of
1998. The decrease from the prior year period is due to the curtailing of
certain of the Company's product development efforts including the closure of
Cellcor, the termination of basic research programs and the scale back of
various clinical programs.
Acquisition of technology rights of $1.2 million represents a non-cash
charge related to the acquisition of Prostagen (see Note 2 to the Consolidated
Financial Statements).
Equity loss in Targon subsidiary was $1.0 million during 1998. The Company
sold its interest in Targon in 1998.
Selling and marketing expenses were $3.1 million for the nine months ended
September 30, 1999 compared to $3.6 million in the same period of 1998. These
expenses reflect the marketing efforts for ProstaScint product and expenses to
establish and maintain PIE program. The decrease in expenditures over the prior
year period is due to the timing of certain marketing programs.
General and administrative expenses for the nine months ended September
30, 1999 were $2.8 million compared to $5.8 million for the comparable period in
1998. The decrease from the prior year is due to various cost containment
efforts implemented in 1999 and 1998, including the closure of Cellcor and
corporate downsizing, and to the 1998 restructuring costs including severance
and implementation of a turn-around plan.
Gain on sale of laboratory and manufacturing facilities. The Company
recorded a gain of $3.3 million during 1999 resulting from a sale of certain of
the Company's laboratory and manufacturing facilities to Purdue for $3.9 million
in January 1999.
12
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
Interest Income/Expense. Interest income for the nine months ended
September 30, 1999 was $282,000 compared to $537,000 in the same period of 1998.
Interest income during 1998 included interest realized from a $10.0 million note
due from Targon, which was canceled as a result of the sale of the Company's
interest in Targon.
Interest expense for the nine months ended September 30, 1999 was $144,000
compared to $535,000 recorded in the same period of 1998. Interest expense
during 1998 included interest associated with a $10.0 million note due to Elan,
which was canceled as a result of the sale of the Company's interest in Targon,
and imputed interest relating to an agreement to reacquire the marketing rights
to OncoScint CR/OV.
Net Loss. Net loss to common stockholders for the nine months ended
September 30, 1999 was $539,000 compared to a net loss of $12.8 million incurred
in the same period of 1998. The net loss per common share was $0.01 on 66.2
million average common shares outstanding compared to a loss of $0.23 on 55.4
million average common shares outstanding for the same period in 1998.
Liquidity and Capital Resources
The Company's cash, cash equivalents and short-term investments were $9.0
million as of September 30, 1999, compared to $3.0 million as of December 31,
1998. The cash used for operating activities for the nine months ended September
30, 1999 was $6.8 million versus $8.2 million in the same period of 1998. Cash
used for operating activities during 1999 included a final payment of $1.0
million to The Dupont Pharmaceuticals Company ("Dupont") for the Quadramet
manufacturing commitment, and payments of various 1998 restructuring costs
including severances.
Historically, the Company's primary sources of cash have been proceeds
from the issuance and sale of its stock through public offerings and private
placements, product related revenues, revenues from contract manufacturing and
research services, fees paid under its license agreements and interest earned on
its cash and short term investments. In October 1999, the Company sold its
undeveloped land in Ewing, New Jersey for net proceeds of $714,000 and the
Company received approval for the sale of its unused net operating tax losses
and research and development credits by the State of New Jersey. The amount
available for sale is yet to be determined.
In August 1999, the Company sold to the State of Wisconsin Investment
Board 3,105,590 shares of CYTOGEN common stock at an aggregate price of $5.0
million or $1.61 per share. As a result of this funding the Company terminated
the remaining $11.5 million of a $12 million equity line agreement, that was
entered into in October 1998, and has deregistered shares which were previously
registered with the SEC to be issued under the facility.
13
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
In connection with the acquisition of Prostagen in June 1999, the Company
received $550,000 in cash along with other assets held by Prostagen (see Note 2
to the Consolidated Financial Statements). Also in June, CYTOGEN received its
first payment of $500,000 related to the licensing of PSMA technology to a joint
venture between CYTOGEN and Progenics. The remaining balance of $1.5 million
will be paid in installments through December 31, 2001 (see Note 3 to the
Consolidated Financial Statements).
In January 1999, the Company sold its manufacturing and laboratory
facilities for $3.9 million, of which $744,000 of the proceeds was used to repay
the outstanding balance of a term loan entered in 1998. In addition, CYTOGEN
sold 2,666,667 shares to a subsidiary of The Hillman Company at $0.75 per share
for a total of $2.0 million. The shares were sold under a registration
statement.
Quadramet. Under an exclusive license agreement in October 1998 with
Berlex for the manufacture and sale of Quadramet, Berlex will pay CYTOGEN
royalties on net sales of Quadramet, as well as milestone payments based on
achievement of certain sales levels. In connection with the Berlex agreement,
CYTOGEN granted Berlex a warrant to purchase 1,000,000 shares of CYTOGEN common
stock at an exercise price of $1.002 per share through October 2003, which is
exercisable after the earlier of one year or the achievement of defined sales
levels.
CYTOGEN paid DuPont $1 million in the first quarter of 1999 as final
payment for the securing of the long-term manufacturing commitment for
Quadramet.
ProstaScint. ProstaScint was launched in February 1997. Significant cash
will be required to support the Company's marketing program and expansion and
maintenance of the PIE program.
In 1996, CYTOGEN entered into the Co-Marketing Agreement to market and
promote ProstaScint. The Bard Co-Marketing Agreement is being terminated and
expected to be concluded by mid-year 2000. The Company will continue to make
commission payments to Bard at a declining rate. In the nine months ended
September 30, 1999 and 1998, the Company recorded $489,000 and $550,000,
respectively, for Bard commissions.
The Company's capital and operating requirements may change depending upon
various factors, including: (i) the success of the Company and its strategic
partners in manufacturing, marketing and commercialization of its other
products; (ii) the amount of resources which the Company devotes to clinical
evaluations and the expansion of marketing and sales capabilities; (iii) results
of clinical trials and research and development activities; and (iv) competitive
and technological developments, in particular the Company may expend funds for
development of its PSMA technologies .
14
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
The Company's financial objectives are to meet its capital and operating
requirements through revenues from existing products, license and research
contracts, and control of spending. To achieve its strategic objectives, the
Company may enter into research and development partnerships and acquire,
in-license and develop other technologies, products or services. Certain of
these strategies may require payments by the Company in either cash or stock in
addition to the costs associated with developing and marketing a product or
technology. The Company currently has no commitments or specific plans for
acquisitions or strategic alliances. However, the Company believes that, if
successful, such strategies may increase long term revenues. There can be no
assurance as to the success of such strategies or that resulting funds will be
sufficient to meet cash requirements until product revenues are sufficient to
cover operating expenses. To fund these strategic and operating activities, the
Company may sell equity and debt securities as market conditions permit or enter
into credit facilities.
The Company has incurred negative cash flows from operations since its
inception, and has expended, and expects to continue to expend in the future,
substantial funds to complete its planned product development efforts, including
acquisition of products and complementary technologies, research and
development, clinical studies and regulatory activities, and to further its
marketing and sales. The Company expects that its existing capital resources as
of September 30, 1999, together with the net proceed of $714,000 from a sale of
the undeveloped land in October 1999 and decreased operating costs will be
adequate to fund the Company's operations through the year 2000. No assurance
can be given that the Company will not consume a significant amount of its
available resources before that time. In addition, the Company expects that it
will have additional requirements for debt or equity capital, irrespective of
whether and when it reaches profitability, for further development of products,
product and technology acquisition costs, and working capital.
The Company's future capital requirements and the adequacy of available
funds will depend on numerous factors, including the successful
commercialization of its products, the costs associated with the acquisition of
complementary products and technologies, progress in its product development
efforts, the magnitude and scope of such efforts, progress with clinical trials,
progress with regulatory affairs activities, the cost of filing, prosecuting,
defending and enforcing patent claims and other intellectual property rights,
competing technological and market developments, and the expansion of strategic
alliances for the sales, marketing, manufacturing and distribution of its
products. To the extent that the currently available funds and revenues are
insufficient to meet current or planned operating requirements, the Company will
be required to obtain additional funds through equity or debt financing,
strategic alliances with corporate partners and others, or through other
sources. Based on the Company's historical ability to raise capital and current
market conditions, the Company believes other financing alternatives are
available. There can be no assurance that the financing commitments described
above or other financial alternatives will be available when needed or at terms
commercially acceptable to the Company or that the Company would have adequate
authorized unissued shares available for issuance without stockholder approval.
If adequate funds are not available, the Company may be required to delay,
further scale back or eliminate certain aspects of its operations or attempt to
obtain funds through arrangements with collaborative partners or others that may
15
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
require the Company to relinquish rights to certain of its technologies, product
candidates, products or potential markets. If adequate funds are not available,
the Company's business, financial condition and results of operations will be
materially and adversely affected.
Year 2000 Compliance
The "Year 2000 problem" describes the concern that certain computer
applications, which use two digits rather than four to represent dates, will
interpret the year 2000 as 1900 and malfunction on January 1, 2000.
CYTOGEN's Internal Systems. The efficient operation of the Company's
business is dependent in part on its computer software programs and operating
systems (collectively, Programs and Systems). These Programs and Systems are
used in several key areas of the Company's business, including clinical,
purchasing, inventory management, sales, shipping, and financial reporting, as
well as in various administrative functions. The Company has completed its
evaluation of the Program and Systems to identify any potential year 2000
compliance problem. As a result, the Company's Programs and Systems were
modified and replaced with fully compliant systems. The Company believes that it
has achieved year 2000 compliance on all of its critical and non-critical
internal systems.
Readiness of Third Parties. The Company is also working with its
processing banks, network providers and manufacturing partners to ensure their
systems are year 2000 compliant. All these costs will be borne by the
processors, network and software companies and manufacturing partners. In July a
letter was sent to all vendors requesting a written statement indicating status
of their compliance. Currently, the Company's processing banks and manufacturing
partners are in the process of completing their year 2000 compliance programs.
If the manufacturing partners systems fail on January 1, 2000 the Company's
revenues may be adversely impacted. In the event that some or all of the
processing banks are unable to be compliant, the Company will switch merchant
year 2000 accounts to those that are compliant.
Risks Associated with the Year 2000. The Company is not aware, at this
time, of any Year 2000 non-compliance that will not be fixed by the Year 2000.
However, some risks that the Company faces include: the failure of internal
information systems, defects in its work environment, a slow down in its
customers' ability to make payments, and the availability of products for sale.
Contingency Plans. The Company has completed a contingency plan to address
a worst case year 2000 scenario. This contingency plan will be fully tested by
November 29, 1999.
16
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
==============================
Cautionary Statement
The foregoing discussion contains historical information as well as
forward looking statements that involve a number of risks and uncertainties. In
addition to the risks discussed above, among other factors that could cause
actual results to differ materially from expected results are the following: (i)
the Company's ability to access the capital markets in the near term and in the
future for continued funding of existing projects and for the pursuit of new
projects; (ii) the ability to attract and retain personnel needed for business
operations and strategic plans; (iii) the timing and results of clinical
studies, and regulatory approvals; (iv) market acceptance of the Company's
products, including programs designed to facilitate use of the products, such as
the PIE Program; (v) demonstration over time of the efficacy and safety of the
Company's products; (vi) the degree of competition from existing or new
products; (vii) the decision by the majority of public and private insurance
carriers on whether to reimburse patients for the Company's products; (viii) the
profitability of its products; (ix) the ability to attract, and the ultimate
success of, strategic partnering arrangements, collaborations, and acquisition
candidates; (x) the ability of the Company and its partners to identify new
products as a result of those collaborations that are capable of achieving FDA
approval, that are cost-effective alternatives to existing products and that are
ultimately accepted by the key users of the product; (xi) the success of the
Company's marketing partners in obtaining marketing approvals in Canada and in
European countries, in achieving milestones and achieving sales of products
resulting in royalties; and (xii) the ability to protect and practice the
Company's intellectual property, including patents and know-how.
17
PART II - OTHER INFORMATION
Item 5 - Other Information
- ------
On September 22, 1999, the Company received a warning letter from
the U.S. Food and Drug Administration ("FDA") relating to its
former manufacturing facilities. The warning letter followed an
inspection of the facilities which was concluded during late
Spring of 1999. The Company has cooperated fully with the FDA in
the inspection and has taken steps to correct the noted items.
The Company believes that it has resolved a majority of the items
and is implementing steps to address the remaining items.
Products and manufacturing are not affected and the Company
believes that there are no product safety concerns. The facility
in which manufacturing of the Company's products takes place was
sold to a third party in January 1999, and manufacturing
personnel is being phased to that party by year end.
Item 6(a) - Exhibits
- ---------
27 Financial Data Schedule
(Submitted to SEC only in electronic format).
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CYTOGEN CORPORATION
Date November 15, 1999 By /s/ Jane M. Maida
--------------------- -------------------------------------
Jane M. Maida
Chief Accounting Officer
(Authorized Accounting Officer)
19