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 March 31, 1998
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. 9,935,579 common
shares, no par value, as of May 11, 1997.
1
PART 1--FINANCIAL INFORMATION
Item 1. Financial Statements
BIOTIME, INC,
(A Development Stage Company)
CONDENSED BALANCE SHEETS
(Unaudited)
March 31, June 30,
ASSETS 1998 1997
-------------- ----------------
CURRENT ASSETS
Cash and cash equivalents $ 5,145,634 $ 7,811,634
Research and development supplies on hand - 100,000
Prepaid expenses and other current assets 231,986 259,109
-------------- ----------------
Total current assets 5,377,150 8,170,743
EQUIPMENT, Net of accumulated depreciation of $177,346 and $139,241 188,119 92,609
OTHER ASSETS 19,422 34,422
-------------- ----------------
TOTAL ASSETS $ 5,584,691 $ 8,297,774
============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 268,991 $ 249,168
Accrued compensation - 175,000
Deferred revenue - current portion 500,000 900,000
-------------- ----------------
Total current liabilities 768,991 1,324,168
DEFERRED REVENUE 62,500 437,500
-------------- ----------------
Total liabilities 831,491 1,761,668
-------------- ----------------
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 25,000,000 shares; issued
and outstanding 9,935,579 and 9,609,579 18,534,076 17,625,646
Contributed Capital 93,972 93,972
Deficit accumulated during development stage (13,874,848) (11,183,512)
-------------- ----------------
Total shareholders' equity 4,753,200 6,536,106
-------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,584,691 $ 8,297,774
============== ================
<FN>
See notes to condensed financial statements.
</FN>
2
BIOTIME, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended Period from Inception
March 31, March 31, (November 30, 1990)
1998 1997 1998 1997 to March 31, 1998
---------------- ------------ ------------- --------------- -------------------
REVENUE:
License Fee 125,000 -- 775,000 -- 837,500
--------------- ------------ ------------- --------------- -----------------
EXPENSES:
Research and development $ (878,422) $ (392,237) $ (2,420,970) $ (1,310,062) $ (9,330,323)
General and administrative (390,904) (174,673) (1,281,244) (769,656) (6,511,565)
--------------- ------------ ------------- --------------- ----------------
Total expenses (1,269,326) (566,910) (3,702,214) (2,079,718) (15,841,888)
--------------- ------------ ------------- --------------- ----------------
INTEREST AND OTHER INCOME: 72,788 46,628 235,878 86,593 1,154,371
--------------- ------------ ------------- --------------- ----------------
NET LOSS $ (1,071,538) $ (520,282) $ (2,691,336) $ (1,993,125) $ (13,850,017)
=============== ============ ============= =============== ================
BASIC LOSS PER SHARE $ (0.11) $ (0.06) $ (0.27) $ (0.23) $ (2.01)
=============== ============ ============= =============== ================
DILUTED LOSS PER SHARE $ (0.11) $ (0.06) $ (0.27) $ (0.23) $ (2.01)
=============== ============ ============= =============== ================
COMMON AND EQUIVALENT
SHARES USED IN COMPUTING
PER SHARE AMOUNTS:
BASIC 9,919,079 9,206,862 9,796,406 8,633,730 6,891,738
=============== ============ ============= =============== ================
DILUTED 9,919,079 9,206,862 9,796,406 8,633,730 6,891,738
=============== ============ ============= =============== ================
<FN>
See notes to condensed 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 1,312,761 $ 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 (24,831)
on preferred shares
MARCH 1994:
Common shares issued for cash less
offering costs of $865,826 2,805,600 3,927,074
NET LOSS SINCE INCEPTION (3,721,389)
--------- --------- ---------- ---------- --------- -----------
BALANCE AT JUNE 30, 1994 -- $ -- 7,933,266 $9,451,627 $ 93,972 $(3,746,220)
<FN>
See notes to condensed financial statements. (Continued)
</FN>
4
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 AT JUNE 30, 1994 -- $ -- 7,933,266 $ 9,451,627 $ 93,972 $ (3,746,220)
Common shares repurchased
with cash (253,800) (190,029)
NET LOSS (2,377,747)
--------- --------- ---------- --------- --------- -------------
BALANCE AT JUNE 30, 1995 -- $ -- 7,679,466 $ 9,261,598 $ 93,972 $ (6,123,967)
Common shares issued for
cash (exercise of options and warrants) 496,521 1,162,370
Common shares issued for cash
(lapse of recision) 112,176 67,300
Common shares repurchased
with cash (18,600) (12,693)
Common shares warrants and options
granted for services -- 356,000
NET LOSS (1,965,335)
--------- --------- ---------- ---------- --------- -------------
BALANCE AT JUNE 30, 1996 -- $ -- 8,269,563 $10,834,575 $ 93,972 $ (8,089,302)
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
NET LOSS (3,094,210)
--------- --------- ---------- ---------- --------- -------------
BALANCE AT JUNE 30, 1997 -- $ -- 9,609,579 $17,625,646 $ 93,972 $(11,183,512)
Common Shares issued for cash
(exercise of options) - unaudited 325,500 874,130
Common shares warrants and options
granted for service - unaudited 28,050
Common shares issued for services-
unaudited 500 6,250
NET LOSS - unaudited (2,691,336)
--------- --------- ---------- ----------- -------- -------------
BALANCE AT MARCH 31, 1998 - unaudited -- $ -- 9,935,579 $18,534,076 $ 93,972 $(13,874,848)
========= ========= ========= =========== ======== =============
<FN>
See notes to condensed financial statements. (Concluded)
</FN>
5
BIOTIME, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended Period from Inception
March 31, (November 30, 1990)
1998 1997 to March 31, 1998
------------ ------------- --------------------
OPERATING ACTIVITIES:
Net loss $(2,691,336) $ (1,993125) $(13,850,017)
Adjustments to reconcile net loss to net
cash used in operating activities:
Deferred Revenue (375,000) (437,500)
Depreciation 38,106 30,451 177,347
Cost of Services - options and warrants 56,825 190,685 495,781
Supply Reserves 100,000 50,000 200,000
Changes in operating assets and liabilities:
Research and development supplies on hand -- -- (200,000)
Prepaid expenses and other current
assets 4,597 (30,243) (202,265)
Deposits 15,000 -- (19,422)
Accounts payable 19,823 (27,358) 268,991
Accrued compensation 175,000 -- --
Deferred revenue (400,000) -- 1,000,000
------------ ------------ -------------
Net cash used in operating activities (3,406,985) (1,779,590) (12,567,085)
----------- ------------ -------------
INVESTING ACTIVITIES:
Sale of investments -- -- 197,400
Purchase of short-term investments -- -- (9,946,203)
Redemption of short-term investments -- -- 9,934,000
Purchase of equipment and furniture (133,615) (9,119) (349,040)
----------- ------------ -------------
Net cash used in investing activities (133,615) (9,119) (163,843)
----------- ------------ -------------
FINANCING ACTIVITIES:
Issuance of preferred shares for cash -- -- 600,000
Preferred shares placement costs -- -- (125,700)
Issuance of common shares for cash -- 5,662,180 16,373,106
Net proceeds from exercise of common share options
and warrants 874,130 1,194,488 3,230,988
Common shares placement costs -- (165,647) (2,052,296)
Contributed capital - cash -- -- 77,547
Dividends paid on preferred shares -- -- (24,831)
Repurchase Common Shares -- -- (202,722)
----------- ------------ ------------
Net cash provided by (used in) financing activities 874,130 6,691,021 17,876,092
----------- ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (2,666,470) 4,902,312 5,145,164
CASH: AND CASH EQUIVALENTS:
At beginning of period 7,811,634 2,443,121 --
----------- ------------ ------------
At end of period $ 5,145,164 $ 7,345,433 $ 5,145,164
=========== ============ ============
<FN>
(Continued)
</FN>
6
BIOTIME, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended Period from Inception
March 31, (November 30, 1990)
1998 1997 to March 31, 1998
------- ------- -------------------
NONCASH FINANCING AND
INVESTING ACTIVITIES:
$ 16,425
Receipt of contributed equipment
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 28,050 105,000 496,750
<FN>
See notes to condensed financial statements. (Concluded)
</FN>
7
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 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 March 31, 1998, the statements of operations
for the three and nine months ended March 31, 1998 and 1997 and the
period from inception (November 30, 1990) to March 31, 1998, the
statement of shareholders' equity for the nine month period ended March
31, 1998, and the statements of cash flows for the nine months ended
March 31, 1998 and 1997 and the period from inception (November 30,
1990) to March 31, 1998 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
finanical position, results of operations, shareholders' equity and
cash flows at March 31, 1998 and for all periods presented have been
made. The balance sheet as of June 30, 1997 is derived from the
Company's audited financial statements as of that date.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting priniciples 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 curent 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 June 30, 1997.
The preparation of the Company's financial statements in conformity
with generally accepted accounting principles necessarily 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 balance sheet dates and the reported amounts of
revenues and expenses for the periods presented. Actual amounts may
differ from such estimates.
The results of operations for the periods ended March 31, 1998 and 1997
are not necessarily indicative of the operating results anticipated for
the full year.
8
Certain Significant Risks and Uncertainties - The Company's operations
are subject to a number of factors that can affect its operating
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 ("FDA") 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 any
Company products that are ultimately sold; 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 not had any
significant operating revenues and has incurred operating losses of
$13,832,267 from inception to March 31, 1998. 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 sales adequate to support the Company's cost
structure.
2. RECENTLY ISSUED ACCOUNTING STANDARDS
During June 1997, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income"(SFAS 130), which requires that an enterprise
report the change in its net assets from nonowner sources by major
components and as a single total. The Board also issued Statements of
Financial Accounting Standards No. 131, "Disclosures about Segments of
an Enterprise and Related Information" (SFAS 181), which establishes
annual and interim reporting standards for an enterprise's operating
segments and related disclosures about its products, services,
geographic areas, and major customers. Adoption of these statements
will not impact the Company's consolidated financial position, results
of operations or cash flows, and any effect will be limited to the form
and content of its disclosures. Both statements are effective for the
Company for the year ending June 30, 1999.
3. SHAREHOLDERS' EQUITY
In September 1996, the Company entered into an agreement with an
individual to act as an advisor to the Company. In exchange for
services, as defined, to be rendered by the advisor through September
1999, the Company issued warrants, with five year terms, to purchase
120,000 common shares at a price of $6.25 per share. Warrants for
75,000 common shares
9
vested and became exercisable and transferable when issued; warrants
for the remaining 45,000 common shares vest ratably through September
1997 and become exercisable and transferable as vesting occurs. The
weighted-average grant-date fair value for the warrants is $1.50 per
share. The estimated value of the services to be performed is $60,000
and that amount has been capitalized and is being amortized over the
three year term of the agreement.
During September 1995, the Company entered into an agreement with a
firm to act as its financial advisor. In exchange for financial
consulting services associated in part with a plan to secure additional
capital, the Company issued to the financial advisor warrants to
purchase 304,168 Common Shares at a price of $1.97 per share, and the
Company agreed to issue additional warrants to purchase up to an
additional 608,336 Common Shares at a price equal to the greater of (a)
150% of the average market price of the Common Shares during the three
months prior to issuance and (b) $2 per share (as adjusted for the
Company's subscription rights distribution during January 1997 and
payment of a stock dividend during October 1997). The additional
warrants were issued in equal quarterly installments over a two year
period, beginning October 15, 1995. The Company may terminate the
financial advisory agreement on 30 days notice. The exercise price and
number of Common Shares for which the warrants may be exercised are
subject to adjustment to prevent dilution in the event of a stock
split, combination, stock dividend, reclassification of shares, sale of
assets, merger or similar transaction. As of June 30, 1997, the total
number of warrants to purchase common shares issued was 825,000. The
warrants are exercisable at the following prices: 456,252 at $1.97 per
share; 76,042 at $2.41 per share; 76,042 at $9.88 per share; 76,042 at
$9.64 per share; 76,042 at $10.73 per share; and 75,042 at $16.11 per
share. As of July 15, 1997, warrants to purchase an additional 76,042
shares were issued and are exercisable at a price of $14.07 per share.
The weighted-average grant-date fair value for the warrants is $1.10
per share. The total value of the services to be performed in exchange
for the warrants, estimated to be $300,000, was capitalized in fiscal
1996 and was amortized over the two year term of the agreement. During
April 1998, the Company entered into a new financial advisory services
agreement, which provides for an initial payment of $90,000 followed by
an advisory fee of $15,000 per month that will be paid quarterly. The
agreement will expire on March 31, 2000, but either party may terminate
the agreement earlier upon 30 days prior written notice.
The Board of Directors of the Company adopted the 1992 Stock Option
Plan (the "Plan") in September 1992, which 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 nonstatutory 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. During the quarter ended
10
March 31, 1998, options to purchase a total of 5,000 common shares were
issued to consultants at a price of $12.688 per share. The estimated
fair value of the services totaled $17,750 and was recognized in the
period. At March 31, 1998, 624,000 shares were available for future
grants under the Option Plan; and options to purchase 541,500 shares
have been granted and were outstanding at exercise prices ranging from
$0.66 to $18.25.
In June 1994, the Board of Directors authorized management to
repurchase up to 600,000 of the Company's common shares at market price
at the time of purchase. As of March 31, 1998, 272,400 shares have been
repurchased and retired. No shares have been repurchased since August
28, 1995.
4. LICENSE AGREEMENT
In April 1997, BioTime and Abbott Laboratories ("Abbott") entered into
an Exclusive License Agreement (the "License Agreement") under which
BioTime has 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 agreed to pay the Company up to
$40,000,000 in license fees; of which $1,000,000 due upon signing of
the License Agreement (the "signing payment"), and $400,000 due upon
the achievement of a patent claims milestone (the "patent payment")
have been received; an additional $1,100,000 will become payable in
installments upon the achievement of specific milestones (the
"milestone payments") pertaining to the filing and approval of a New
Drug Application for Hextend and the commencement of sales of the
product. 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 $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.
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.
11
Abbott's exclusive license also may terminate, without the payment of
termination fees by the Company, if Abbott fails to market Hextend.
Management believes that the probability of payments of any termination
fee by the Company is remote.
As of March 31, 1998, the Company received $1,400,000 from Abbott under
the License Agreement, and has deferred recognition of $562,500,
related to the signing payment. The Company will recognize the
remaining deferred revenue related to the signing payment over the
estimated development period (two years). Further milestone payments
will be recognized as achieved. Additional license fees and royalty
payments will be recognized as the related sales are made and reported
as earned to the Company by Abbott.
5. NET INCOME PER SHARE
During February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" (SFAS 128). The Company adopted SFAS 128 in the second quarter
of fiscal 1998 and restated earnings per share (EPS) data for prior
periods to conform with current presentation.
SFAS 128 replaces current EPS reporting requirements and requires a
dual presentation of basic and diluted EPS. Basic EPS excludes dilution
and is computed by dividing net income (loss) by the weighted average
number of common shares outstanding during the period. Diluted EPS
reflects the potential dilution from securities and other contracts
which are exercisable or convertible into common shares.
Diluted EPS is computed by dividing net income (loss) by the weighted
average number of common shares that would have been outstanding during
the period assuming the issuance of common shares for all dilutive
potential common shares outstanding. As a result of operating losses,
there is no difference between the basic and diluted calculations of
EPS.
6. STOCK SPLIT
On October 30, 1997, the Company effected a three-for-one stock split
by distributing to its shareholders of record on October 9, 1997 two
additional shares for each share owned by them. All share and per share
data have been restated to reflect the stock split for all periods
presented herein.
12
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
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 March 31, 1998 the Company
had incurred a cumulative net loss of $13,832,267. 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(R), PentaLyte(R), and HetaCool(TM). Hextend, PentaLyte and
HetaCool are similar formulations, except that Hextend and HetaCool use a high
molecular weight hetastarch whereas PentaLyte uses a medium molecular weight
pentastarch. The hetastarch is retained in the blood longer than the
pentastarch, which may make Hextend and HetaCool the products of choice when a
larger volume of plasma expander or a blood substitute for low temperature
surgery is needed or where the patient's ability to regenerate his/her own blood
proteins after surgery is compromised. PentaLyte, with pentastarch, would be
eliminated from the blood faster than Hextend and HetaCool and might be used
when less plasma expander is needed or where the patient is more capable of
quickly regenerating lost blood proteins. By testing and bringing both Hextend
and PentaLyte to the market, BioTime can increase its market share by providing
the medical community with solutions to match patients' needs.
On March 31, 1998, the Company completed the submission of its New Drug
Application (NDA) to the FDA, seeking approval to market Hextend in the United
States. The chemistry, manufacturing and control data for the NDA was submitted
to the FDA during December 1997. The NDA includes data from the Company's Phase
III clinical trials, in which the primary endpoints were successfully met. An
important goal of the Hextend development program was to produce a product that
can be used in multi-liter volumes to treat patients who have lost a large
volume of blood during surgery or as a result of injury. An average of 1.6
liters of Hextend was used in the clinical trials, and volumes ranging from two
to five liters were used in some of the higher blood loss cases. The Company
believes that the low incidence of adverse events related to blood clotting in
the Hextend patients demonstrates that Hextend may be safely used in large
amounts. However, the FDA will make its own evaluation of the clinical trial
data and there is no assurance that the FDA will approve the Company's NDA.
On April 23, 1997, BioTime and Abbott Laboratories entered into a
License Agreement under which BioTime has granted to Abbott an exclusive license
to manufacture and sell Hextend
13
in the United States and Canada for all therapeutic uses other than those
involving hypothermic surgery, or the replacement of substantially all of a
patient's circulating blood volume. BioTime has retained all rights to
manufacture, sell or license Hextend and other products in all other countries.
Under the License Agreement, Abbott has agreed to pay BioTime up to
$40,000,000 in license fees based upon product sales and the achievement of
certain milestones, and to provide assistance to BioTime in connection with the
Company's Phase III clinical trials of Hextend. So far, Company has received
$1,650,000 of license fee milestone payments, including a payment of $250,000
during May 1998 for achieving the milestone of filing an NDA for Hextend. In
addition to the license fees, Abbott will pay BioTime a royalty on annual net
sales of Hextend. The royalty rate will be 5% plus an additional .22% for each
$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. Abbott has also agreed to manufacture
Hextend for sale by BioTime in the event that Abbott's exclusive license is
terminated prior to expiration.
During January 1998, Abbott notified the Company that Abbott is
exercising their rights pursuant to Paragraph 11(b) of the License Agreement and
will supply BioTime with batches of PentaLyte, characterization and stability
studies and other regulatory support needed for BioTime to file for an IND and
to conduct clinical studies. Abbott's actions preserve its rights to obtain an
exclusive license for PentaLyte in the United States and Canada.
The Company intends to enter global markets through licensing
agreements with overseas pharmaceutical companies. 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 and representatives of certain of those companies are
continuing to meet and discuss potential agreements. 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.
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 based upon the results of the United States clinical trials. If the
Canadian Bureau of Pharmaceutical Assessment and the European Medicines
Evaluation Agency ("EMEA") determine that applications for approval of Hextend
can be filed without the need to conduct additional clinical trials, the Company
will proceed on that basis. Otherwise, additional clinical trials may be
required. Approval by the EMEA would permit the Company to market Hextend in all
sixteen European Union member nations.
14
Representatives of the Company and Nihon Pharmaceutical Company, Ltd.
("Nihon") recently met in Japan to discuss the development of BioTime products
for the Japanese market, and the development of a clinical trial program to
obtain Japanese regulatory approval. Nihon and the Company previously signed a
letter of intent to negotiate a licensing agreement to manufacture and market
BioTime products in Japan. Nihon is a subsidiary of Takeda Chemical Industries,
Japan's largest pharmaceutical manufacturer.
The Company plans to conduct a pilot study of the use of Hextend to
treat hypovolemia in geriatric patients undergoing high blood loss surgery. This
new clinical trial will be a double blind study designed to compare Hextend with
a hetastarch in saline solution and is intended to confirm and expand upon the
results of the United States Phase III trials. This pilot study may be used to
design larger scale trials that may be needed to obtain regulatory approval in
Western Europe. Approximately 60 patients 65 years of age or older will be
studied. The geriatric population generally experiences a higher degree of
inter-operative and post-operative mortality and morbidity than younger patients
undergoing similar major surgery. The Company believes that in a study involving
a small number of patients the advantages of Hextend will most clearly and
consistently be seen when this high risk patient group is studied. The Company
has submitted a Clinical Trials Exemption ("CTX") notification to the Department
of Health, Medicines Control Agency of the United Kingdom for permission to
conduct the study. Approval of the CTX is expected to be received within 60 days
after filing. After approval of the CTX, the trial will be conducted at the
University College London Hospitals in Middlesex, England, where it has been
approved by the institutional review board.
In order to commence clinical trials for regulatory approval of new
products, such as PentaLyte and HetaCool, or new therapeutic uses of Hextend 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 the
present IND for additional Hextend studies. Filings with foreign regulatory
agencies will be required to commence clinical trials over-seas. The cost of
preparing those regulatory filings and conducting those clinical trials is not
presently determinable, but could be substantial. It will be necessary for the
Company to obtain additional funds in order to complete any clinical trials that
may begin for its new products or for new uses of Hextend.
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.
15
Results of Operations
Revenues
From inception (November 30, 1990) through March 31, 1998, the Company
recognized $837,500 of license fee revenues. For the three months ended March
31, 1998, the Company had total revenues of $125,000, comprised of amortization
of deferred license fees from the $1,000,000 signing payment received under the
License Agreement with Abbott. At March 31, 1998 the Company has deferred
recognition of $562,500 of the signing payment (See Note 4 to the accompanying
financial statements). The Company did not earn any license fee income during
the three months ended March 31, 1997 or the nine months ended March 31, 1997,
as the Company did not have any license agreements in effect during those
periods.
Operating Expenses
From inception (November 30, 1990) through March 31, 1998, the Company
incurred $9,312,573 of research and development expenses, including salaries,
supplies and other related expense items. Research and development expenses were
$860,672 for the three months ended March 31, 1998, compared to $392,237 for the
three months ended March 31, 1997. Research and development expenses increased
to $2,403,220 for the nine months ended March 31, 1998, from $1,310,062 for the
nine months ended March 31, 1997. The increase in research and development
expenses is attributable primarily to completion of the Phase III clinical
trials, compilation of data and preparation and submission of an NDA. It is
expected that research and development expenses will increase in the future as
the Company commences additional clinical trials of Hextend in the United States
and abroad, and commences clinical studies of other products.
From inception (November 30, 1990) through March 31, 1998, the Company
incurred $6,511,565 of general and administrative expenses. General and
administrative expenses were $390,904 for the three months ended March 31, 1998,
compared to $174,673 for the three months ended March 31, 1997. General and
administrative expenses increased to $1,281,244 for the nine months ended March
31, 1998, from $769,656 for the nine months ended March 31, 1997. The increase
is primarily attributable to increased personnel costs, and an increase in the
general operations of the Company.
Interest and Other Income
From inception (November 30, 1990) through March 31, 1998, the Company
generated $1,154,371 of interest and other income. For the three months ended
March 31, 1998, the Company generated $72,788 of interest and other income,
compared to $46,628 for the three months ended March 31, 1997. The interest and
other income generated increased to $235,878 for the nine months ended March 31,
1998, from $86,593 for the nine months ended March 31, 1997. The increase in
interest income is attributable to an increase in cash and cash equivalents from
the Company's subscription rights offering completed on February 5, 1997, and
cash received under the Abbott License Agreement.
Liquidity and Capital Resources
Since inception, the Company has primarily financed its operations
through the sale of equity securities and licensing fees, and at March 31, 1998,
the Company had cash and cash equivalents of $5,145,634. Management believes
that additional funds will be required for the successful completion of the
Company's product development activities. The Company plans to obtain financing
for its future operations through through the licensing of its products to
pharmaceutical companies, and/or additional sales of equity or debt securities.
16
Under its License Agreement with Abbott, the Company has received
$1,400,000 of license fees and milestone payments for signing the agreement and
achieving a milestone pertaining to the allowance of certain patent claims
pending. On May 12, 1998, a $250,000 license fee payment was received for the
submission of the NDA for Hextend. Up to an additional $850,000 of license
payments under the License Agreement will become payable in installments upon
the achievement of specific milestones pertaining to the approval of the NDA for
Hextend and the commencement of sales of the product. Additional license fees
and royalties will become payable based upon product sales.
License fees and royalties will also be sought from Abbott or other
pharmaceutical companies for United States and Canadian licenses of new products
and uses of Hextend that are not covered by Abbott's license, and for licenses
to manufacture and market the Company's products abroad.
The future availability and terms of equity and debt financings, and
the amount of license fees and royalties that may be earned through the
licensing and sale of the Company's products cannot be predicted. 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.
Statements contained 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. See Note 1 to Financial Statements and the "Risk Factors" discussed
in the Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1997.
Item 3. Quantative and Qualitative Disclosures About Market Risk
Not Applicable - The disclosures are not required for the current fiscal year.
17
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
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.+
18
10.14 1992 Stock Option Plan, as amended.+++
10.15 Employment Agreement dated April 1, 1997 between the Company and Ronald
S. Barkin.^
10.16 Intellectual Property Agreement between the Company and Ronald S.
Barkin.^
27 Financial Data Schedule**
= Incorporated by reference to the Company's Form 10-K for the fiscal year ended
June 30, 1997.
+ 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 Registration Statement on Form S-8, File Number
333-30603 filed with the Securities and Exchange Commission on July 2, 1997.
^ Incorporated by reference to the Company's Form 10-Q for the quarter ended
March 31, 1997.
** Filed herewith.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K for the three months ended
March 31, 1998.
19
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/ Ronald S. Barkin
Date: May 11, 1998 ---------------------------
Ronald S. Barkin
President
/s/ Victoria Bellport
Date: May 11, 1998 ----------------------------
Victoria Bellport
Chief Financial Officer
20