FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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, 2000
OR
|_| 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 1-12830
BioTime, Inc.
(Exact name of registrant as specified in its charter)
California 94-3127919
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
935 Pardee Street
Berkeley, California 94710
(Address of principal executive offices)
(510) 845-9535
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No__
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. 11,342,786 common
shares, no par value, as of November 13, 2000.
1
PART 1--FINANCIAL INFORMATION
Statements made in this Report that are not historical facts may
constitute forward-looking statements that are subject to risks and
uncertainties that could cause actual results to differ materially from those
discussed. Such risks and uncertainties include but are not limited to those
discussed in this report under Item 1 of the Notes to Financial Statements, and
in BioTime's Annual Report on Form 10-K filed with the Securities and Exchange
Commission. Words such as "expects," "may," "will," "anticipates," "intends,"
"plans," "believes," "seeks," "estimates," and similar expressions identify
forward-looking statements.
Item 1. Financial Statements
BIOTIME, INC,
(A Development Stage Company)
CONDENSED BALANCE SHEETS
(Unaudited)
September 30, December 31,
ASSETS 2000 1999
--------------- ----------------
CURRENT ASSETS
Cash and cash equivalents $ 2,020,624 $ 5,292,806
Prepaid expenses and other current assets 37,574 107,285
--------------- ----------------
Total current assets 2,058,198 5,400,091
EQUIPMENT, Net of accumulated depreciation of $332,777and $276,647 245,924 268,653
DEPOSITS AND OTHER ASSETS 9,900 9,900
--------------- ----------------
TOTAL ASSETS $ 2,314,022 $ 5,678,644
=============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 113,915 $ 595,512
COMMITMENTS
SHAREHOLDERS' EQUITY:
Preferred Shares, no par value, undesignated as to Series,
authorized 1,000,000 shares; none outstanding
Common Shares, no par value, authorized 40,000,000 shares; issued
and outstanding 11,342,059 and 10,891,031 28,192,018 27,200,380
Contributed Capital 93,972 93,972
Deficit accumulated during development stage (26,085,883) (22,211,220)
--------------- ----------------
Total shareholders' equity 2,200,107 5,083,132
--------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,314,022 $ 5,678,644
=============== ================
<FN>
See notes to financial statements.
</FN>
2
BIOTIME, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended Period from Inception
September 30, September 30, (November 30, 1990) to
2000 1999 2000 1999 September 30, 2000
---------------- ---------------- ----------------- ---------------- ------------------
REVENUE:
License fee $ -- $ -- $ -- $ 1,037,500 $ 2,500,000
---------------- ---------------- ----------------- ---------------- ----------------
EXPENSES:
Research and development (847,035) (1,957,094) (2,687,112) (3,769,100) (19,269,621)
General and administrative (438,654) (383,913) (1,362,835) (1,496,865) (11,049,289)
---------------- ---------------- ----------------- ---------------- ----------------
Total expenses (1,285,689) (2,341,007) (4,049,947) (5,265,965) (30,318,910)
---------------- ---------------- ----------------- ---------------- ----------------
INTEREST AND OTHER INCOME: 60,734 86,419 175,284 196,344 1,757,858
---------------- ---------------- ----------------- ---------------- ----------------
NET LOSS $ (1,224,955) $ (2,254,588) $ (3,874,663) $ (4,032,121) $ (26,061,052)
================ ================ ================= ================ ================
BASIC AND DILUTED LOSS PER
SHARE $ (0.11) $ (0.21) $ (0.35) $ (0.38)
================ ================ ================= ================
COMMON AND EQUIVALENT
SHARES USED IN
COMPUTING PER SHARE
AMOUNTS:
BASIC AND DILUTED 10,914,073 10,823,754 10,899,426 10,626,433
================ ================ ================= ================
<FN>
See notes to financial statements.
</FN>
3
BIOTIME, INC.
(A Development Stage Company)
STATEMENTS OF SHAREHOLDERS' EQUITY
Series A Convertible
Preferred Shares Common Shares Deficit
--------------------- ----------------------- Accumulated
Number of Number Contributed During
Shares Amount of Shares Amount Capital Development Stage
--------- --------- ----------- ---------- ----------- --------------------
BALANCE, November 30, 1990
(date of inception) -- -- -- -- -- --
NOVEMBER 1990:
Common shares issued for cash 1,312,758 $ 263
DECEMBER 1990:
Common shares issued for
stock of a separate entity at fair value 1,050,210 137,400
Contributed equipment at appraised
value $ 16,425
Contributed cash 77,547
MAY 1991:
Common shares issued for cash
less offering costs 101,175 54,463
Common shares issued for stock
of a separate entity at fair value 100,020 60,000
JULY 1991:
Common shares issued for
services performed 30,000 18,000
AUGUST-DECEMBER 1991
Preferred shares issued for
cash less offering costs of $125,700 360,000 $474,300
MARCH 1992:
Common shares issued for
cash less offering costs of $1,015,873 2,173,500 4,780,127
Preferred shares converted
into common shares (360,000) (474,300) 360,000 474,300
Dividends declared and paid
on preferred shares $(24,831)
MARCH 1994:
Common shares issued for cash less
offering costs of $865,826 2,805,600 3,927,074
JANUARY-JUNE 1995:
Common shares repurchased
with cash (253,800) (190,029)
JULY 1995-JUNE 1996:
Common shares issued for cash 608,697 1,229,670
Common shares repurchased with cash (18,600) (12,693)
Common shares warrants and options
granted for services 356,000
NET LOSS (8,064,471)
--------- --------- ---------- ---------- ---------- --------------
BALANCE AT JUNE 30, 1996 -- $ -- $8,269,560 10,834,575 $93,972 $ (8,089,302)
<FN>
See notes to financial statements. (Continued)
</FN>
4
BIOTIME, INC.
(A Development Stage Company)
STATEMENTS OF SHAREHOLDERS' EQUITY
Series A Convertible
(Continued) Preferred Shares Common Shares Deficit
-------------------- ------------------------ Accumulated
Number of Number of Contributed During
Shares Amount Shares Amount Capital Development Stage
--------- --------- ----------- ---------- ---------- -----------------
JULY 1996-JUNE 1997:
Common shares issued for cash less
offering costs of $170,597 849,327 5,491,583
Common shares issued for cash
(exercise of options and warrants) 490,689 1,194,488
Common shares warrants and options
granted for service 105,000
JULY 1997-JUNE 1998:
Common shares issued for cash
(exercise of options) 337,500 887,690
Common shares warrants and options
granted for service 38,050
Common shares issued for services 500 6,250
JULY 1998-DECEMBER 1998:
Common shares issued for cash
(exercise of options and warrants) 84,000 395,730
Common shares options granted for services 50,000
Common shares issued for
services 1,500 18,750
NET LOSS (2,094,478)
--------- --------- ---------- ----------- --------- ----------------
BALANCE AT DECEMBER 31, 1998 -- -- 10,033,076 19,022,116 93,972 (16,731,336)
Common shares issued for cash (less
offering costs of $128,024) 751,654 7,200,602
Common shares issued for cash and
exchange for 2,491 common shares which
were canceled (exercise of options) 65,509 199,810
Common shares issued for services 792 9,900
Common shares warrant donated (Note 4) 552,000
Common shares issued for cash (exercise
of warrant) 40,000 20,000
Options granted for services 195,952
NET LOSS (5,479,884)
--------- --------- ---------- ------------ --------- ----------------
BALANCE AT DECEMBER 31, 1999 -- -- 10,891,031 27,200,380 93,972 (22,211,220)
Common Shares issued for services -
unaudited 16,934 149,799
Exercise of Options - unaudited 45,000 45,000
Exercise of Warrants (less issuance
cost of $36,176) - unaudited 389,094 714,774
Options granted for services -
unaudited 82,065
NET LOSS - unaudited (3,874,663)
--------- --------- ---------- ------------ --------- ----------------
BALANCE AT SEPTEMBER 30, 2000-unaudited -- $ -- 11,342,059 $28,192,018 $ 93,972 $ (26,085,883)
========= ========= ========== ============ ========= ================
<FN>
See notes to financial statements. (Concluded)
</FN>
6
BIOTIME, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended Period from Inception
September 30, (November 30, 1990)
2000 1999 to September 30, 2000
------------- --------------- -------------------
OPERATING ACTIVITIES:
Net loss $ (3,874,663) $ (4,032,121) $ (26,085,883)
Adjustments to reconcile net loss to net
cash used in operating activities:
Deferred Revenue - (187,500) (1,000,000)
Depreciation 56,130 41,727 332,777
Cost of Donation - warrants - 552,000 552,000
Cost of Services - options and warrants 231,864 163,120 1,029,766
Supply Reserves - - 200,000
Changes in operating assets and liabilities:
Research and development supplies on hand - - (200,000)
Prepaid expenses and other current
assets 69,711 43,406 (37,574)
Deposits and other assets - 50,800 (9,900)
Accounts payable (481,597) 250,361 113,915
License fee receivables - - -
Deferred revenue - 1,000,000
------------ ------------ ------------
Net cash used in operating activities (3,998,555) (3,118,207) (24,080,068)
------------ ------------ ------------
INVESTING ACTIVITIES:
Sale of investments - - 197,400
Purchase of short-term investments - - (9,946,203)
Redemption of short-term investments - - 9,946,203
Purchase of equipment and furniture (33,402) (125,228) (562,277)
------------ ------------ ------------
Net cash used in investing activities (33,402) (125,228) (364,877)
------------ ------------ ------------
FINANCING ACTIVITIES:
Issuance of preferred shares for cash - - 600,000
Preferred shares placement costs - - (125,700)
Issuance of common shares for cash - 7,328,626 23,701,732
Common shares placement costs (36,177) (128,024) (2,216,497)
Net proceeds from exercise of common share options
and warrants 795,952 215,850 4,656,040
Contributed capital - cash - - 77,547
Dividends paid on preferred shares - - (24,831)
Repurchase Common Shares - - (202,722)
------------ ------------ ------------
Net cash provided by financing activities 759,775 7,416,452 26,465,569
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH (3,272,182) 4,173,017 2,020,624
EQUIVALENTS
CASH AND CASH EQUIVALENTS:
At beginning of period 5,292,806 2,429,014 --
----------- ------------ ------------
At end of period $ 2,020,624 $ 6,602,031 $ 2,020,624
=========== ============ ============
<FN>
(Continued)
</FN>
7
BIOTIME, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended Period from Inception
September 30, (November 30, 1990)
2000 1999 to September 30, 2000
------------ ------------ ---------------------
NONCASH FINANCING AND
INVESTING ACTIVITIES:
Receipt of contributed equipment $ 16,425
Issuance of common shares
in exchange for shares of
common stock of Cryomedical
Sciences, Inc. in a stock-for-stock
transaction $ 197,400
Granting of options and warrants for services $ 82,065 $ 138,498 $ 845,067
Issuance of common shares in exchange for services $ 149,799 9,900 $ 192,199
Granting of warrant for donation $ 552,000 $ 552,000
<FN>
See notes to financial statements. (Concluded)
</FN>
8
BIOTIME, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
1. GENERAL AND DEVELOPMENT STAGE ENTERPRISE
General - BioTime, Inc. (the Company) was organized November 30, 1990
as a California corporation. The Company is a biomedical organization,
currently in the development stage, which is engaged in the research
and development of synthetic plasma expanders, blood volume substitute
solutions, and organ preservation solutions, for use in surgery, trauma
care, organ transplant procedures, and other areas of medicine.
The balance sheet as of September 30, 2000, the statements of
operations for the three months and nine months ended September 30,
2000 and 1999 and the period from inception (November 30, 1990) to
September 30, 2000, the statement of shareholders' equity for the nine
month period ended September 30, 2000, and the statements of cash flows
for the nine months ended September 30, 2000 and 1999 and the period
from inception (November 30, 1990) to September 30, 2000 have been
prepared by the Company without audit. In the opinion of management,
all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial position, results of
operations, shareholders' equity and cash flows at September 30, 2000
and for all periods presented have been made. The balance sheet as of
December 31, 1999 is derived from the Company's audited financial
statements as of that date. The results of operations for the period
ended September 30, 2000 are not necessarily indicative of the
operating results anticipated for the full year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted as permitted by
regulations of the Securities and Exchange Commission. Certain
previously furnished amounts have been reclassified to conform with
presentations made during the current periods. It is suggested that
these interim condensed financial statements be read in conjunction
with the annual audited financial statements and notes thereto included
in the Company's Form 10-K for the year ended December 31, 1999.
Certain Significant Risks and Uncertainties - The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Such management estimates include certain accruals.
Actual results could differ from those estimates.
The Company's operations are subject to a number of factors that can
affect its operating
9
results and financial condition. Such factors include but are not
limited to the following: the results of clinical trials of the
Company's products; the Company's ability to obtain United States Food
and Drug Administration and foreign regulatory approval to market its
products; competition from products manufactured and sold or being
developed by other companies; the price of and demand for Company
products; the Company's ability to obtain additional financing and the
terms of any such financing that may be obtained; the Company's ability
to negotiate favorable licensing or other manufacturing and marketing
agreements for its products; the availability of ingredients used in
the Company's products; and the availability of reimbursement for the
cost of the Company's products (and related treatment) from government
health administration authorities, private health coverage insurers and
other organizations.
Development Stage Enterprise - Since inception, the Company has been
engaged in research and development activities in connection with the
development of synthetic plasma expanders, blood volume substitute
solutions and organ preservation products. The Company has limited
operating revenues and has incurred operating losses of $26,061,052
from inception to September 30, 2000. The successful completion of the
Company's product development program and, ultimately, achieving
profitable operations is dependent upon future events including
maintaining adequate capital to finance its future development
activities, obtaining regulatory approvals for the products it develops
and achieving a level of revenues adequate to support the Company's
cost structure.
2. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," (SFAS 133) which establishes accounting and
reporting standards for derivative instruments and for hedging
activities. SFAS 133 requires that entities recognize all derivatives
as either assets or liabilities and measure those instruments at fair
value. The Company is currently assessing the effect that adoption of
this statement will have. However, based on progress to date, the
Company does not expect adoption to have a material impact on the
Company's financial position, results of operations or cash flows. The
Company is currently required to adopt SFAS 133 in the first quarter of
the fiscal year ending December 31, 2001.
In December 1999 the Securities and Exchange Commission (SEC) released
Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial
Statements" which summarizes certain of the staff's views in applying
generally accepted accounting principles to revenue recognition in
financial statements. In addition, on October 13, 2000, the SEC issued
a Frequently Asked Questions ("FAQ") document which clarified and
elaborated on the SEC Staff's views regarding revenue recognition. The
Company will adopt this statement in the fourth quarter of its year
ending December 31, 2000. Management does not expect any material
impact as a result of adopting the guidelines of this standard.
10
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, Accounting for Certain Transactions Involving
Stock Compensation (FIN 44), that clarifies guidance for certain issues
related to the application of APB Opinion No. 25, Accounting for Stock
Issued to employees (APB 25). Management does not believe that FIN 44
will have a material impact on accounting for future instruments.
3. LICENSE AGREEMENT
In April 1997, BioTime and Abbott Laboratories ("Abbott") entered into
an Exclusive License Agreement (the "License Agreement") under which
BioTime granted to Abbott an exclusive license to manufacture and sell
BioTime's proprietary blood plasma volume expander solution Hextend in
the United States and Canada for certain therapeutic uses.
Under the License Agreement, Abbott has paid the Company $2,500,000 of
license fees based upon achievement of specified milestones. Up to
$37,500,000 of additional license fees will be payable based upon
annual net sales of Hextend at the rate of 10% of annual net sales if
annual net sales exceed $30,000,000 or 5% if annual net sales are
between $15,000,000 and $30,000,000. Abbott's obligation to pay license
fees on sales of Hextend will expire on the earlier of January 1, 2007
or, on a country by country basis, when all patents protecting Hextend
in the applicable country expire or any third party obtains certain
regulatory approvals to market a generic equivalent product in that
country.
In addition to the license fees, Abbott will pay the Company a royalty
on annual net sales of Hextend. The royalty rate will be 5% plus an
additional .22% for each increment of $1,000,000 of annual net sales,
up to a maximum royalty rate of 36%. Abbott's obligation to pay
royalties on sales of Hextend will expire in the United States or
Canada when all patents protecting Hextend in the applicable country
expire and any third party obtains certain regulatory approvals to
market a generic equivalent product in that country.
The Company will recognize such revenues in the quarter in which the
sales report is received, rather than the quarter in which the sales
took place, as the Company does not have sufficient sales history to
accurately predict quarterly sales. Revenues for the nine months ended
September 30, 2000 include royalties on sales made by Abbott during the
three months ended June 30, 2000. Royalties on sales made during the
third quarter of 2000 will not be recognized by the Company until the
fourth quarter of fiscal year 2000. Royalties on sales made during the
quarter ended June 30, 2000 and the third quarter of fiscal 2000 were
not material to BioTime's financial results.
Abbott has agreed that the Company may convert Abbott's exclusive
license to a non- exclusive license or may terminate the license
outright if certain minimum sales and royalty payments are not met. In
order to terminate the license outright, BioTime would pay a
termination fee in an amount ranging from the milestone payments made
by Abbott to an amount equal to three times prior year net sales,
depending upon when termination occurs. Management believes that the
probability of payments of any termination fee by the Company is
remote.
11
4. SHAREHOLDERS' EQUITY
The Board of Directors of the Company adopted the 1992 Stock Option
Plan (the "Plan") during September 1992. The Plan was approved by the
shareholders at the 1992 Annual Meeting of Shareholders on December 1,
1992. Under the Plan, as amended, the Company has reserved 1,800,000
common shares for issuance under options granted to eligible persons.
No options may be granted under the Plan more than ten years after the
date the Plan was adopted by the Board of Directors, and no options
granted under the Plan may be exercised after the expiration of ten
years from the date of grant.
Under the Plan, options to purchase common shares may be granted to
employees, directors and certain consultants at prices not less than
the fair market value at date of grant for incentive stock options and
not less than 85% of fair market value for other stock options. These
options expire five to ten years from the date of grant and may be
fully exercisable immediately, or may be exercisable according to a
schedule or conditions specified by the Board of Directors or the
Option Committee. As of September 30, 2000, 504,500 shares were
available for future grants under the Option Plan; and options to
purchase 461,000 had been granted and were outstanding at exercise
prices ranging from $1.00 to $18.25. Of the options granted to
consultants, options to purchase 60,000 common shares vest upon
achievement of certain milestones. The Company is amortizing into
compensation the estimated fair value of such options ($354,791 at
September 30, 2000), subject to remeasurement at the end of each
reporting period, over the period estimated to achieve such milestones
(one to two years). Compensation expense recognized on these options
during the nine months ended September 30, 2000 was approximately
$30,066 and was recorded as research and development expense.
During April 1998, the Company entered into a financial advisory
services agreement with Greenbelt Corp. The agreement provided for an
initial payment of $90,000 followed by an advisory fee of $15,000 per
month that was paid quarterly. On August 11, 2000, the Board of
Directors approved the renewal of this agreement for a period of twelve
months ending March 31, 2001, but instead of cash compensation
Greenbelt Corp. will receive 30,000 common shares in four quarterly
installments of 7,500 shares each. The value of the quarterly
installments will be recognized in the quarter they are earned. Under
the agreement, upon the request of Greenbelt Corp., the Company will
file a registration statement to register the shares for public sale.
5. NET INCOME PER SHARE
Basic earnings (loss) per share excludes dilution and is computed by
dividing net income (loss) by the weighted average number of common
shares outstanding during the period. Diluted earnings (loss) per share
reflects the potential dilution from securities and other contracts
which are exercisable or convertible into common shares. Diluted
earnings (loss) per share for the three months ended September 30, 2000
and the nine months ended September 30, 2000 exclude any effect from
such securities as their inclusion would be antidilutive. As a
12
result, there is no difference between basic and diluted calculations
of loss per share for all periods presented.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Since its inception in November 1990, the Company has been engaged
primarily in research and development activities. The Company has not yet
generated significant operating revenues, and as of September 30, 2000 the
Company had incurred a cumulative net loss of $26,061,052. The Company's ability
to generate substantial operating revenue depends upon its success in developing
and marketing or licensing its plasma volume expanders and organ preservation
solutions and technology for medical use.
Most of the Company's research and development efforts have been
devoted to the development of the Company's first three blood volume replacement
products: Hextend, PentaLyte, and HetaCool. By testing and bringing all three
products to the market, BioTime can increase its market share by providing the
medical community with solutions to match patients' needs.
The Company's first product, Hextend(R), is a physiologically balanced
blood plasma volume expander, for the treatment of hypovolemia. Hypovolemia is a
condition often associated with blood loss during surgery or from injury.
Hextend maintains circulatory system fluid volume and oncotic pressure and keeps
vital organs perfused during surgery. Hextend, approved for large-volume use in
major surgery, is the only blood plasma volume expander that contains
hetastarch, buffer, multiple electrolytes and glucose. Hextend is designed to
compete with and to replace flawed older products such as albumin and other
colloid solutions, as well as crystalloid solutions, that have been used to
maintain fluid volume and blood pressure during surgery. Hextend is also
completely sterile to avoid risk of infection. BioTime estimates that Hextend
has now been successfully used to treat more than 25,000 patients undergoing
surgery. Physicians who have used Hextend in surgery have reported good results
and a number of benefits, including reduced hospital stays in certain cases and
a noticeable reduction in edema due to a reduced use of crystalloid solutions.
Health insurance reimbursements and HMO coverage generally include the cost of
Hextend used in surgical procedures.
Hextend is being sold in the United States by Abbott Laboratories under
an exclusive license from the Company. Abbott also has the right to sell Hextend
in Canada, where an application for marketing approval is pending. BioTime has
retained all rights to manufacture, sell or license Hextend and other products
in all other countries. Abbott also has a right to obtain licenses to
13
manufacture and sell other BioTime products. See Note 3 of Notes to Financial
Statements for more information about the license granted to Abbott
Laboratories.
Under its License Agreement with the Company, Abbott will report sales
of Hextend and pay the Company the royalties and license fees due on account of
such sales within 90 days after the end of each calendar quarter. The Company
will recognize such revenues in the quarter in which the sales report is
received, rather than the quarter in which the sales took place. Revenues for
the three months ended September 30, 2000 include royalties on sales made by
Abbott during the three months ended June 30, 2000. Royalties on sales made
during the third quarter of 2000 will not be recognized by the Company until the
fourth quarter of fiscal year 2000. Hextend sales are still in the ramp-up
phase, and royalties on sales made during the three months ended June 30, 2000
and during the three months ended September 30, 2000 were not material to
BioTime's financial results. Total royalties earned on sales of Hextend during
the current fiscal year will be reported in the Company's annual report on Form
10-K.
Because Hextend is a surgical product, sales will be determined by
anesthesiologists, surgeons practicing a variety of specialties, and hospital
pharmacists. Abbott's marketing strategy is designed to reach this target
customer base through sales calls and an advertising campaign focused on the
physiological basis of using a plasma-like substance to replace lost blood
volume and the ability of Hextend to support vital physiological processes at
high volume use.
As part of the marketing program, Abbott and the Company are financing
a number of medical studies comparing patient outcomes and costs of treatment of
patients receiving Hextend compared to other products during surgery. As these
studies are completed, the results will be presented at medical conferences and
articles will be written for publication in medical journals. In response to
positive findings from these studies and physician satisfaction from Hextend's
clinical use, Abbott Laboratories has intensified its marketing effort. The
Company is also aware of independent studies that are being conducted by
physicians and hospitals, who may publish their findings in medical journals.
The outcome of the planned medical studies and timing of the publication of the
results could have an effect on the growth of demand for Hextend and sales by
Abbott. Upcoming major medical conferences at which Hextend will be featured are
the 54th Postgraduate Assembly of the New York State Society of
Anesthesiologists, and the American Society of Hospital Pharmacists, both to be
held in December 2000, and the Society for Clinical Care Medicine to be held in
February 2001.
Abbott is also working with hospitals to have Hextend added to hospital
formularies, and has obtained or is seeking formulary committee approval at
several hundred hospitals. Inclusion on hospital formularies is important
because it enables physicians to obtain Hextend without the need to special
order it. Obtaining formulary approval generally takes several months and
requires diligent efforts by the sales force who not only provide Hextend to the
hospital but also can provide the formulary committee with necessary information
showing that the product is safe and effective. To facilitate product
acceptance, substantial quantities of Hextend were introduced into hospitals at
no charge. While this may cause a delay in revenues from product sales, it is
often effective in obtaining market penetration. The Company expects Hextend
sales to grow as the number of hospital formularies that have approved Hextend
increases, and as surgeons and
14
anaesthesiologists become more familiar with the benefits that can be attained
for their patients by using Hextend in the operating room.
Abbott has concentrated on establishing Hextend as the standard plasma
volume expander at prominent teaching hospitals and leading medical centers,
such as Duke University Medical Center in Durham, North Carolina and
Columbia-Presbyterian Medical Center in New York, New York which have switched
to Hextend from 6% hetastarch in saline.
The Company has completed a Phase I clinical trial of PentaLyte
involving a small number of subjects and is presently compiling the test data
for submission to the FDA. BioTime plans to test PentaLyte for the treatment of
hypovolemia in surgery. PentaLyte contains a lower molecular weight hydroxyethyl
starch than Hextend, and is more quickly metabolized. PentaLyte is designed for
use when short lasting volume expansion is desirable.
The Company is also continuing to develop solutions for low temperature
surgery. A number of physicians have reported using Hextend to treat hypovolemia
under mild hypothermic conditions during cardiac surgery. Additional surgeries
have been performed at deeper hypothermic temperatures. In one case, a cancer
patient was operated on under deep hypothermic conditions in which the heart was
arrested and most of the blood replaced with Hextend. Once a sufficient amount
of data from successful low temperature surgery has been compiled, the Company
plans to seek permission to use Hextend as a complete replacement for blood
under near-freezing conditions. BioTime currently plans to market Hextend for
complete blood volume replacement at very low temperatures under the registered
trade mark "HetaCool(R)" after FDA approval is obtained.
In order to commence clinical trials for regulatory approval of new
products or new therapeutic uses of products, it will be necessary for the
Company to prepare and file with the FDA an Investigational New Drug Application
("IND") or an amendment to expand a previous filing. Filings with foreign
regulatory agencies will be required to commence clinical trials overseas. The
Company intends to enter global markets through licensing agreements with
overseas pharmaceutical companies. By licensing its products abroad, the Company
will avoid the capital costs and delays inherent in acquiring or establishing
its own pharmaceutical manufacturing facilities and establishing an
international marketing organization. A number of pharmaceutical companies in
Europe, Asia and other markets around the world have expressed their interest in
obtaining licenses to manufacture and market the Company's products. The Company
is continuing to meet with representatives of interested companies and is
approaching agreement to license its products in certain parts of the world. In
addition, the Company is discussing an arrangement with a leading producer of
the hydroxyethyl starch used in Hextend through which the Company would obtain a
source of supply of that ingredient and assistance in regulatory matters for
approval of Hextend for the European market.
The Company is also pursuing a global clinical trial strategy, the goal
of which is to permit the Company to obtain regulatory approval for its products
as quickly and economically as practicable. For example, the United States Phase
III clinical trials of Hextend involved 120 patients and were completed in less
than 12 months. Although regulatory requirements vary from country to country,
the Company may be able to file applications for foreign regulatory approval of
its products
15
based upon the results of the United States clinical trials. The Company's
application to market Hextend in Canada has been found acceptable for review as
a New Drug Submission by the Canadian Health Protection Branch (HPB), and the
Company is now awaiting completion of HPB's review of that application. During
the third quarter, the Company filed its first application for approval in a
European Union member nation, Sweden. Regulatory approvals for countries that
are members of the European Union may be obtained through a mutual recognition
process. If approvals can be obtained in the requisite number of member nations,
then the Company would be permitted to market Hextend in all 16 member nations.
In addition to developing clinical trial programs, the Company plans to
continue to provide funding for its laboratory testing programs at selected
universities, medical schools and hospitals for the purpose of developing
additional uses of Hextend, PentaLyte, HetaCool, and other new products, but the
amount of research that will be conducted at those institutions will depend upon
the Company's financial status. Because the Company's research and development
expenses, clinical trial expenses, and production and marketing expenses will be
charged against earnings for financial reporting purposes, management expects
that losses from operations will continue to be incurred for the foreseeable
future.
Hextend(R) and PentaLyte(R) are registered trademarks, and HetaCool(TM) is a
trademark, of BioTime.
Results of Operations
Revenues
From inception (November 30, 1990) through September 30, 2000, the
Company recognized $2,500,000 of license fee revenues. For the three months
ended September 30, 2000, and September 30, 1999, no license fee revenue based
on milestones or product sales was earned or recognized. All license fees based
upon milestones under the Abbott License Agreement were earned during prior
periods. For the nine months ended September 30,2000, no license fee revenue
based on product sales was earned or recognized. For the nine months ended
September 30, 1999, the Company recognized revenues of $1,037,500, as certain
license fee milestones were achieved. See Note 3 to the accompanying financial
statements.
Operating Expenses
From inception (November 30, 1990) through September 30, 2000, the
Company incurred $19,269,621 of research and development expenses, including
salaries, supplies and other related expense items. Research and development
expenses were $847,035 for the three months ended September 30, 2000, compared
to $1,957,094 for the three months ended September 30, 1999. The difference is
attributable to a decrease in compensation expense recognized for the value of
certain consultants' options, and completion of a European clinical trial in the
third quarter 1999. Research and development expenses decreased to $2,687,112
for the nine months ended September 30, 2000, from $3,769,100 for the nine
months ended September 30, 1999. Research and development expenses include
laboratory study expenses, European clinical trial expenses, salaries,
preparation of additional
16
regulatory applications in the United States and Europe, manufacturing of
solution for trials, and consultants' fees. It is expected that research and
development expenses will increase as the Company commences new clinical studies
of its products in the United States and Europe.
From inception (November 30, 1990) through September 30, 2000, the
Company incurred $11,049,289 of general and administrative expenses. General and
administrative expenses were $438,654 for the three months ended September 30,
2000, compared to $383,913 for the three months ended September 30, 1999. The
increase is attributable to an increase in compensation expense recognized for
the value of certain consultants' shares issued for services. See Note 4 to the
accompanying financial statements. General and administrative expenses decreased
to $1,362,835 for the nine months ended September 30, 2000, from $1,496,865 for
the nine months ended September 30, 1999. The decrease is primarily attributable
to a reduction in personnel costs. General and administrative expenses include
salaries, consultants' fees, and general operating expenses.
Interest and Other Income
From inception (November 30, 1990) through September 30, 2000, the
Company generated $1,757,858 of interest and other income. For the three months
ended September 30, 2000, the Company generated $60,734 of interest and other
income, compared to $86,419 for the three months ended September 30, 1999. The
interest and other income generated decreased to $175,284, for the nine months
ended September 30, 2000, from $196,344 for the nine months ended September 30,
1999. The decrease in interest and other income in 2000 is attributable to a
decrease in interest earned on cash and cash equivalents, which was only
partially offset by royalties earned on product sales.
Liquidity and Capital Resources
Since inception, the Company has primarily financed its operations
through the sale of equity securities and licensing fees, and at September 30,
2000 the Company had cash and cash equivalents of approximately $2,000,000. The
Company expects that its cash on hand will be sufficient to finance its
operations for approximately the next ten months, but it will have to curtail
the pace of its product development efforts and other operations unless its cash
resources increase through a growth in revenues or additional equity investment.
Accordingly, additional funds are required for the successful completion of the
Company's product development activities. The Company has not received
significant royalties and licensing fees from the sale of Hextend. Although the
Company will continue to seek licensing fees from pharmaceutical companies for
licenses to manufacture and market the Company's products abroad, it is likely
that additional sales of equity or debt securities will be required to meet the
Company's short-term capital needs. Sales of additional equity securities could
result in the dilution of the interests of present shareholders. During
September 2000 the Company received $750,951.42 through the exercise of warrants
to purchase 389,094 common shares by Greenbelt Corp, and $45,000 through the
exercise of stock options by Ronald S. Barkin, President of the Company.
Greenbelt Corp. has informed the Company that it intends to exercise an
additional 77,818 warrants at $1.93 each before December 31, 2000, and 77,818
warrants at $2.35 before March 31, 2001, subject to market conditions. These
investments will increase the Company's cash position by $150,190.28 and
$182,874.18 in the last quarter of 2000 and the first quarter of 2001
respectively.
17
The amount of license fees and royalties that may be earned through the
licensing and sale of the Company's products, as well as the future availability
and terms of equity and debt financings, is uncertain. The unavailability or
inadequacy of financing or revenues to meet future capital needs could force the
Company to modify, curtail, delay or suspend some or all aspects of its planned
operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company did not hold any market risk sensitive instruments as of September
30, 2000, December 31, 1999, or September 30, 1999.
18
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit
Exhibit
Numbers Description
- ------- -----------
3.1 Articles of Incorporation, as Amended.+
3.3 By-Laws, As Amended.#
4.1 Specimen of Common Share Certificate.+
10.1 Lease Agreement dated July 1, 1994 between the Registrant and Robert
and Norah Brower, relating to principal executive offices of the
Registrant.*
10.2 Employment Agreement dated June 1, 1996 between the Company and
Paul Segall.++
10.3 Employment Agreement dated June 1, 1996 between the Company and
Hal Sternberg.++
10.4 Employment Agreement dated June 1, 1996 between the Company and
Harold Waitz.++
10.5 Employment Agreement dated June 1, 1996 between the Company and
Judith Segall.++
10.6 Employment Agreement dated June 1, 1996 between the Company and
Victoria Bellport.++
10.7 Intellectual Property Agreement between the Company and Paul Segall.+
10.8 Intellectual Property Agreement between the Company and Hal Sternberg.+
10.9 Intellectual Property Agreement between the Company and Harold Waitz.+
10.10 Intellectual Property Agreement between the Company and Judith Segall.+
10.11 Intellectual Property Agreement between the Company and
Victoria Bellport.+
10.12 Agreement between CMSI and BioTime Officers Releasing Employment
Agreements, Selling Shares, and Transferring Non-Exclusive License.+
10.13 Agreement for Trans Time, Inc. to Exchange CMSI Common Stock for
BioTime, Inc. Common Shares.+
10.14 1992 Stock Option Plan, as amended.##
10.15 Employment Agreement dated April 1, 1997 between the Company and
Ronald S. Barkin.^
19
10.16 Intellectual Property Agreement between the Company and
Ronald S. Barkin.^
10.17 Addenda to Lease Agreement between the Company and Donn Logan.+++
10.18 Amendment to Employment Agreement between the Company and
Paul Segall.^^
10.19 Amendment to Employment Agreement between the Company and
Hal Sternberg.^^
10.20 Amendment to Employment Agreement between the Company and
Harold Waitz.^^
10.21 Amendment to Employment Agreement between the Company and
Judith Segall.^^
10.22 Amendment to Employment Agreement between the Company and
Victoria Bellport.^^
10.23 Amendment to Employment Agreement between the Company and
Ronald S. Barkin.^^
10.24 Exclusive License Agreement between Abbott Laboratories and
BioTime, Inc.(Portions of this exhibit have been omitted pursuant to a
request for confidential treatment).###
10.25 Modification of Exclusive License Agreement between Abbott Laboratories
and BioTime, Inc.(Portions of this exhibit have been omitted pursuant
to a request for confidential treatment).^^^
27 Financial Data Schedule**
+Incorporated by reference to the Company's Form 10-K for the fiscal year ended
June 30, 1998.
+ Incorporated by reference to Registration Statement on Form S-1, File Number
33-44549 filed with the Securities and Exchange Commission on December 18, 1991,
and Amendment No. 1 and Amendment No. 2 thereto filed with the Securities and
Exchange Commission on February 6, 1992 and March 7, 1992, respectively.
# Incorporated by reference to Registration Statement on Form S-1, File Number
33-48717 and Post-Effective Amendment No. 1 thereto filed with the Securities
and Exchange Commission on June 22, 1992, and August 27, 1992, respectively.
* Incorporated by reference to the Company's Form 10-K for the fiscal year ended
June 30, 1994.
++ Incorporated by reference to the Company's Form 10-K for the fiscal year
ended June 30, 1996.
^ Incorporated by reference to the Company's Form 10-Q for the quarter ended
March 31, 1997.
## Incorporated by reference to Registration Statement on Form S-8, File Number
333-30603 filed with the Securities and Exchange Commission on July 2, 1997.
20
^ ^ Incorporated by reference to the Company's Form 10-Q for the quarter ended
March 31, 1999.
### Incorporated by reference to the Company's Form 8-K, filed April 24, 1997.
+++ Incorporated by reference to the Company's Form 10-K for the fiscal year
ended December 31, 1998.
^^^ Incorporated by reference to the Company's Form 10-Q for the quarter ended
June 30, 1999.
** Filed herewith.
(b) Reports on Form 8-K
The Company did not file any reports of Form 8-K for the three months ended
September 30, 2000.
21
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.
BIOTIME, INC.
/s/ Paul Segall
Date: November 14, 2000 ---------------------------------
Paul Segall
Chief Executive Officer
/s/ Victoria Bellport
Date: November 14, 2000 ---------------------------------
Victoria Bellport
Chief Financial Officer
22