SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-25544
Miravant Medical Technologies
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 77-0222872
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
336 Bollay Drive, Santa Barbara, California 93117
- --------------------------------------------------------------------------------
(Address of principal executive offices, including zip code)
(805) 685-9880
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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 August 6, 2001
----- -----------------------------
Common Stock, $.01 par value 18,660,629
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page
Item 1. Consolidated Financial Statements
Consolidated balance sheets as of June 30, 2001 and
December 31, 2000........................................................ 3
Consolidated statements of operations for the three months
ended June 30, 2001 and 2000 and for the six months ended
June 30, 2001 and 2000................................................... 4
Consolidated statements of cash flows for the six months ended
June 30, 2001 and 2000................................................... 5
Notes to consolidated financial statements................................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................... 9
PART II. OTHER INFORMATION
Item 3. Qualitative and Quantitative Disclosures About Market Risk................. 33
Item 4. Submission of Matters to a Vote of Security Holders........................ 33
Item 6. Exhibits and Reports on Form 8-K........................................... 34
Signatures.....................................................................35
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
MIRAVANT MEDICAL TECHNOLOGIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2001 2000
-------------------- ---------------------
Assets (Unaudited)
Current assets:
Cash and cash equivalents............................................... $ 6,498,000 $ 1,935,000
Investments in short-term marketable securities......................... 6,658,000 18,900,000
Accounts receivable..................................................... 3,347,000 932,000
Inventories............................................................. 253,000 --
Prepaid expenses and other current assets............................... 1,489,000 967,000
-------------------- ---------------------
Total current assets....................................................... 18,245,000 22,734,000
Property, plant and equipment:
Vehicles................................................................ 28,000 28,000
Furniture and fixtures.................................................. 1,401,000 1,649,000
Equipment............................................................... 5,338,000 5,882,000
Leasehold improvements.................................................. 3,381,000 4,538,000
-------------------- ---------------------
10,148,000 12,097,000
Accumulated depreciation................................................ (8,570,000) (9,781,000)
-------------------- ---------------------
1,578,000 2,316,000
Investments in affiliates.................................................. 907,000 859,000
Deferred financing costs................................................... 1,100,000 1,287,000
Patents and other assets................................................... 869,000 831,000
-------------------- ---------------------
Total assets............................................................... $ 22,699,000 $ 28,027,000
==================== =====================
Liabilities and stockholders' deficit
Current liabilities:
Accounts payable........................................................ $ 2,343,000 $ 2,665,000
Accrued payroll and expenses............................................ 734,000 638,000
-------------------- ---------------------
Total current liabilities.................................................. 3,077,000 3,303,000
Long-term liabilities:
Long-term debt.......................................................... 25,785,000 24,794,000
Sublease security deposits.............................................. 94,000 94,000
-------------------- ---------------------
Total long-term liabilities................................................ 25,879,000 24,888,000
Stockholders' deficit:
Common stock, 50,000,000 shares authorized; 18,610,500 and 18,576,503
shares issued and outstanding at June 30, 2001 and December 31, 2000,
respectively........................................................... 159,350,000 158,842,000
Notes receivable from officers.......................................... (702,000) (487,000)
Deferred compensation................................................... (832,000) (1,220,000)
Accumulated other comprehensive loss.................................... (84,000) (132,000)
Accumulated deficit..................................................... (163,989,000) (157,167,000)
-------------------- ---------------------
Total stockholders' deficit................................................ (6,257,000) (164,000)
-------------------- ---------------------
Total liabilities and stockholders' deficit................................ $ 22,699,000 $ 28,027,000
==================== =====================
See accompanying notes.
MIRAVANT MEDICAL TECHNOLOGIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended June 30, Six months ended June 30,
2001 2000 2001 2000
----------------- ----------------- ---------------- ----------------
Revenues:
License-contract research and
development............................ $ 122,000 $ 1,516,000 $ 204,000 $ 2,885,000
Active pharmaceutical ingredient sales.. 2,286,000 -- 2,286,000 --
Royalties............................... 75,000 -- 75,000 --
Grant income............................ -- 35,000 -- 44,000
----------------- ----------------- ---------------- ----------------
Total revenues............................. 2,483,000 1,551,000 2,565,000 2,929,000
Costs and expenses:
Cost of goods sold...................... 128,000 -- 128,000 --
Research and development................ 3,248,000 5,562,000 6,133,000 10,281,000
Selling, general and administrative..... 1,410,000 1,590,000 3,074,000 3,138,000
----------------- ----------------- ---------------- ----------------
Total costs and expenses................... 4,786,000 7,152,000 9,335,000 13,419,000
Loss from operations....................... (2,303,000) (5,601,000) (6,770,000) (10,490,000)
Interest and other income (expense):
Interest and other income............... 222,000 331,000 543,000 599,000
Interest expense........................ (533,000) (508,000) (1,181,000) (888,000)
Gain on sale of property, plant and
equipment.............................. 586,000 -- 586,000 --
------------------ ----------------- ---------------- ----------------
Total net interest and other income
(expense)................................. 275,000 (177,000) (52,000) (289,000)
----------------- ----------------- ---------------- ----------------
Net loss................................... $ (2,028,000) $ (5,778,000) $ (6,822,000) $ (10,779,000)
================= ================= ================= ================
Net loss per share - basic and diluted..... $ (0.11) $ (0.32) $ (0.37) $ (0.59)
================= ================= ================= ================
Shares used in computing net loss per
share..................................... 18,587,799 18,293,720 18,583,478 18,188,597
================= ================= ================= ================
See accompanying notes.
MIRAVANT MEDICAL TECHNOLOGIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30,
Operating activities: 2001 2000
------------------- ----------------------
Net loss.......................................................... $ (6,822,000) $ (10,779,000)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization.................................. 674,000 892,000
Amortization of deferred compensation.......................... 289,000 395,000
Stock awards................................................... 580,000 95,000
Gain on sale of property, plant and equipment.................. (586,000) --
Non-cash interest and amortization of deferred
financing costs on long-term debt............................ 1,184,000 887,000
Changes in operating assets and liabilities:
Accounts receivable......................................... (1,552,000) 4,115,000
Prepaid expenses, inventories and other assets.............. (772,000) (444,000)
Accounts payable and accrued payroll........................ (241,000) (178,000)
------------------- ----------------------
Net cash used in operating activities............................. (7,246,000) (5,017,000)
Investing activities:
Purchases of marketable securities ............................... (3,741,000) (23,395,000)
Proceeds from sales of marketable securities ..................... 15,983,000 6,071,000
Purchases of patents.............................................. (62,000) (26,000)
Purchases of property, plant and equipment........................ (174,000) (219,000)
------------------- ----------------------
Net cash provided by (used in) investing activities............... 12,006,000 (17,569,000)
Financing activities:
Proceeds from issuance of Common Stock, less issuance costs....... 3,000 2,322,000
Proceeds from long-term debt...................................... -- 7,500,000
Issuance of note to officer....................................... (200,000) --
------------------- --------------------
Net cash (used in) provided by financing activities............... (197,000) 9,822,000
Net increase (decrease) in cash and cash equivalents.............. 4,563,000 (12,764,000)
Cash and cash equivalents at beginning of period.................. 1,935,000 19,168,000
------------------- ----------------------
Cash and cash equivalents at end of period........................ $ 6,498,000 $ 6,404,000
=================== ======================
Supplemental disclosures:
Cash paid for:
State taxes..................................................... $ 13,000 $ 4,000
=================== ======================
Interest ....................................................... $ -- $ --
=================== ======================
See accompanying notes.
MIRAVANT MEDICAL TECHNOLOGIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The information contained herein has been prepared in accordance with Rule
10-01 of Regulation S-X. The information at June 30, 2001 and for the three
and six month periods ended June 30, 2001 and 2000, is unaudited. In the
opinion of management, the information reflects all adjustments necessary
to make the results of operations for the interim periods a fair statement
of such operations. All such adjustments are of a normal recurring nature.
Interim results are not necessarily indicative of results for a full year.
For a presentation including all disclosures required by accounting
principles generally accepted in the United States, these financial
statements should be read in conjunction with the audited consolidated
financial statements for the year ended December 31, 2000 included in the
Miravant Medical Technologies Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
2. Inventories
Inventories consist of the following at June 30, 2001:
Raw materials.............................. $ 38,000
Work in process............................ 215,000
----------
Total inventories............................... $ 253,000
==========
3. Comprehensive Loss
For the six months ended June 30, 2001 and 2000, comprehensive loss
amounted to approximately $6.8 million and $10.5 million, respectively. The
difference between net loss and comprehensive loss relates to the change in
the unrealized loss or gain the Company recorded for its available-for-sale
securities on its investment in its affiliate Xillix Technologies Corp.
4. Per Share Data
Basic loss per common share is computed by dividing the net loss by the
weighted average shares outstanding during the period. Diluted earnings per
share reflects the potential dilution that would occur if securities or
other contracts to issue common stock were exercised or converted to common
stock. Since the effect of the assumed exercise of common stock options and
other convertible securities was anti-dilutive, basic and diluted loss per
share as presented on the consolidated statements of operations are the
same.
5. Collaborative Funding Arrangement
In May 2001, the Company and Pharmacia Corporation, or Pharmacia, finalized
a funding arrangement that could provide the Company up to $20.0 million in
funding. The $20.0 million funding consists of the following agreements:
Manufacturing Facility Asset Purchase Agreement, or Asset Purchase
Agreement: Under this agreement, Pharmacia has issued a purchase order to
buy the Company's existing SnET2 active pharmaceutical ingredient, or API,
inventory at cost for $2.2 million. As of June 30, 2001, $2.0 million of
the existing API inventory and $268,000 of newly manufactured API inventory
has been delivered and recorded as API sales. The $2.0 million of the
existing API inventory was previously expensed in research and development
costs in prior periods. Pharmacia has also committed, through another
purchase order, to buy up to an additional $2.8 million of the API which
will be manufactured by the Company through March 2002. Additionally,
Pharmacia agreed to purchase the manufacturing equipment necessary to
produce the API for $863,000, its fair market value as appraised by an
independent appraisal firm. The sale of the API manufacturing equipment
resulted in a gain on sale of property, plant and equipment of $586,000.
Future quantities of the API manufactured and shipped through December 31,
2001, will be paid by Pharmacia directly into an inventory escrow account
within thirty (30) days of receipt. The remaining quantities of the API
purchased by Pharmacia after December 31, 2001 will be paid directly to the
Company within thirty (30) days of receipt. The inventory escrow account
will be released to the Company in full in January 2002. The equipment
escrow account, containing $863,000, will be released in June 2002. The
interest earned by these accounts will accrue to the Company and will also
be available upon the release of each escrow account. The escrow accounts
will secure certain indemnification obligations with respect to the
purchase of the API manufacturing equipment. Management believes such
indemnification obligations are of routine nature and under the Company's
control; therefore, these obligations are not expected to result in a
charge against the funds in escrow. All amounts received into escrow are
recorded as accounts receivable until the amounts are released.
Amended and Restated Credit Agreement, or 2001 Credit Agreement: Under this
agreement, which amends and restates the previous $22.5 million Credit
Agreement entered into with Pharmacia in February 1999, Pharmacia will
provide up to an additional $13.2 million in funding to the Company
beginning in April 2002. The loans available under the 2001 Credit
Agreement are subject to certain conditions and are allocated into two
separate borrowing amounts. Up to $3.2 million will be available to the
Company beginning April 1, 2002. Up to an additional $10.0 million will be
available to the Company beginning July 1, 2002 only if one of the
following criteria has been met: (i) Pharmacia has filed a New Drug
Application with the U.S. Food and Drug Administration for the SnET2
PhotoPoint(TM) PDT, or PhotoPoint photodynamic therapy, for AMD; or (ii)
the SnET2 Phase III clinical trial data meet certain clinical statistical
standards as defined by the clinical trial protocols. The 2001 Credit
Agreement will provide for borrowing requests to be made twice in a quarter
with no more than $5.0 million in total available in each calendar quarter
and any unused amounts will be available to be carried forward. The 2001
Credit Agreement will accrue interest based on the prime rate and, under
conditions similar to those in the original 1999 Credit Agreement,
promissory notes may be issued for the interest due. The amounts available
for borrowing under the 2001 Credit Agreement will be available to the
Company until June 30, 2003. The promissory notes for both principal and
interest mature in June 2004 and, at the Company's option, can be repaid in
the form of Miravant Common Stock only at maturity, subject to certain
limitations and restrictions as defined by the 2001 Credit Agreement. The
promissory notes accrue interest at the prime rate, which was 6.75% at June
30, 2001. The Company will be required to issue one warrant to purchase a
share of Miravant Common Stock for every $62.50 in principal borrowed. The
warrant price will be equal to 140% of the average closing price for the
ten trading days prior to any borrowing request. The Company will also be
subject to certain affirmative and negative financial covenants.
Additionally, as part of the funding arrangement, Pharmacia will assume the
lease obligations and related building property taxes through December 31,
2003 for the Company's API manufacturing facility. The total value of the
rental and property tax payments due through December 31, 2003 is
approximately $950,000 and will be accounted for as a capital contribution
and rent expense, or cost of goods sold, over the lease obligation term.
Additionally, under an operating site license provided by Pharmacia to the
Company, Miravant will be allowed access to and use of the manufacturing
facility and equipment purchased by Pharmacia.
6. Reclassifications
Certain reclassifications have been made to the 2000 consolidated financial
statements to conform to the current period presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This section of our quarterly report on Form 10-Q contains forward-looking
statements, which involve known and unknown risks and uncertainties. These
statements relate to our future plans, objectives, expectations and intentions.
These statements may be identified by the use of words such as "may," "will,"
"should," "potential," "expects," "anticipates," "intends," "plans," "believes"
and similar expressions. These statements are based on our current beliefs,
expectations and assumptions and are subject to a number of risks and
uncertainties and include our statements regarding anticipated SnET2 active
pharmaceutical ingredient, or API, sales, the timing of the completion of the
analysis of our wet age-related macular degeneration, or AMD, clinical trial
results, the focus of our future development activities, the potential funding
and entire borrowings we could receive under the Asset Purchase and 2001 Credit
Agreement with Pharmacia Corporation, or Pharmacia, amounts payable to us under
escrow arrangements with Pharmacia, estimates of our future expenses and
revenues and the sufficiency of our cash to meet our operating expenses. Our
actual results could differ materially from those discussed in these statements
due to such risks and uncertainties as Pharmacia electing not to continue to
pursue the AMD trials or other trials using SnET2, the development of competing
products or technical challenges in pursuing additional applications for our
technology, our failure to satisfy conditions set forth in the Asset Purchase
and 2001 Credit Agreement, the timing and amounts of purchases of the API under
the Asset Purchase Agreement, changes in our strategy that could cause our
selling, general and administrative expenses to increase, and our failure to
receive funds as currently anticipated. See "--Risk Factors" for a discussion of
certain risks, including those relating to our operating losses and our
products, strategic collaborations, risks related to our industry and other
forward-looking statements.
The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto.
General
Since our inception, we have been principally engaged in the research and
development of drugs and medical device products for use in PhotoPoint(TM) PDT,
our proprietary technologies for photodynamic therapy. We have been unprofitable
since our founding and have incurred a cumulative net loss of approximately
$164.0 million as of June 30, 2001. We expect to continue to incur substantial,
and possibly increasing, operating losses for the next few years due to
continued spending on research and development programs, the funding of
preclinical studies, clinical trials and regulatory activities and the costs of
manufacturing and administrative activities. We have entered into a series of
agreements with Pharmacia, our principal strategic partner, to help fund our
development activities and market our products.
Our historical revenues primarily reflect income earned from licensing
agreements, grants awarded, royalties from device product sales, milestone
payments and interest income. We cannot have commercial sales of drugs or
devices until we receive appropriate requisite regulatory approvals. However, we
have begun selling to Pharmacia the SnET2 active pharmaceutical ingredient, or
API. We have manufactured the API and the final drug formulation is manufactured
by an outside company. SnET2 is currently being used in preclinical studies and
Phase III clinical trials for wet age-related macular degeneration, or AMD.
Pharmacia has and will continue to purchase the API through March 2002 in
preparation for a potential commercial drug product approval of SnET2, if
received, and can be used for both the clinical and commercial activities.
We anticipate that future API sales will continue until at least March
2002, which is the date through which Pharmacia has committed to purchase API.
Other future revenues, such as licensing income, milestone payments, royalties
from drug and device sales, if any, and results of operations may continue to
fluctuate significantly depending on, among other factors, the timing and
outcome of applications for regulatory approvals, our or our collaborative
partners' ability to successfully manufacture, market and distribute SnET2 and
related device products, our ability to establish new collaborative
partnerships, the level of participation of our collaborative partners in our
preclinical studies and clinical trials and/or the restructuring or
establishment of collaborative arrangements for the development, manufacturing,
marketing and distribution of some of our future products. We anticipate our
operating activities will result in substantial, and possibly increasing,
operating losses for the next few years.
Pharmacia, with our assistance, is currently conducting the Phase III
clinical trials for the treatment of AMD. These trials were fully enrolled in
December 1999, and these patients are now in the two-year follow-up period for
safety and efficacy evaluation. Pharmacia, which has assumed control of the
clinical and regulatory aspects of SnET2 in ophthalmology and the related Phase
III AMD clinical trials, has elected to continue the clinical trials through to
the conclusion of the two-year follow-up period, which is December 2001. A full
analysis of the safety and efficacy data will be performed by Pharmacia and a
determination of the status of the SnET2 AMD program will likely be made in the
first quarter of 2002.
In our dermatology program, we have developed a topical formulation to
deliver a new photoselective drug through the skin and during the second quarter
of 2001, we initiated a Phase I clinical trial to test this drug for safety. The
clinical trial has been fully enrolled and the patient follow-up has been
completed and currently the data are being analyzed. We will continue to conduct
preclinical studies for this new drug and based upon the results of the Phase I
clinical trial, plan to conduct additional clinical trials. We are also
conducting ongoing preclinical studies of new photoselective drugs for
cardiovascular diseases, including the prevention and treatment of restenosis.
Restenosis is the renarrowing of an artery that commonly occurs after balloon
angioplasty for obstructive coronary artery disease. We are in the process of
formulating a photoselective drug and performing the requisite studies to
prepare for the Investigational New Drug application, or IND, in this disease
area. In ophthalmology, we are continuing the development of next generation
drug compounds for use in AMD or other eye diseases as an individual treatment
or in combination with other therapies. In oncology, we are conducting
preclinical research of our photoselective therapy to destroy abnormal blood
vessels in tumors. We are pursuing this tumor research with some of our new
photoselective drugs and also investigating combination therapies with
PhotoPoint PDT and other types of compounds. Based upon the outcome of these
studies and various economic and development factors, including cost,
collaborative partners, reimbursement and the available alternative therapies,
we may or may not elect to further develop PhotoPoint PDT procedures in
ophthalmology, cardiovascular disease, dermatology, oncology or in any other
indications.
Pharmacia Corporation
Over time we have entered into a number of agreements with Pharmacia to
fund our operations and develop and market SnET2. In January 1999, we entered
into an Equity Investment Agreement whereby Pharmacia purchased 1,136,533 shares
of our Common Stock for an aggregate purchase price of $19.0 million, or $16.71
per share. Also, in February 1999, under a separate Credit Agreement, Pharmacia
extended to us up to $22.5 million in credit. As of June 30, 2001, we have
received the entire $22.5 million available under the 1999 Credit Agreement and
have issued additional promissory notes for interest due for $3.3 million. In
connection with the quarterly loans received under the 1999 Credit Agreement, we
have issued warrants to purchase 360,000 shares of Common Stock at an exercise
price of $11.87 per warrant share for 120,000 shares, $14.83 per warrant share
for 120,000 shares and $20.62 per warrant share for the last 120,000 shares. In
May 2001, we finalized a funding arrangement with Pharmacia that provides us up
to an additional $20.0 million in funding. The $20.0 million funding consists of
the following agreements as described below.
Manufacturing Facility Asset Purchase Agreement, or Asset Purchase
Agreement:
* We received a purchase order from Pharmacia to sell our existing API
inventory at cost for $2.2 million. As of June 30, 2001, $2.0 million
of the existing API inventory has been delivered to Pharmacia and
recorded as revenue;
* Pharmacia committed, through another purchase order, to buy up to an
additional $2.8 million of the API which will be manufactured by us
through March 2002. As of June 30, 2001, we have manufactured and sold
$268,000 of newly manufactured API inventory;
* Pharmacia agreed to purchase the manufacturing equipment necessary to
produce API. The manufacturing equipment was purchased for $863,000,
its fair market value as appraised by an independent appraisal firm;
* The future quantities of the API manufactured and delivered through
December 31, 2001, which we currently estimate to be $2.0 million,
will be paid by Pharmacia directly into an inventory escrow account
within thirty (30) days of receipt. The quantities of the API
purchased by Pharmacia after December 31, 2001, which we currently
estimate to be $800,000, will be paid directly to us within thirty
(30) days of receipt; and
* The inventory escrow account, which we currently estimate will be $4.2
million by December 31, 2001, will be released to us in full in
January 2002. The equipment escrow account, containing $863,000, is
expected to be released in June 2002. The interest earned by these
accounts will accrue to us and will also be available upon the release
of each escrow account. The escrow accounts will secure certain
indemnification obligations with respect to the purchase of the API
manufacturing equipment. Management believes such indemnification
obligations are of a routine nature and under our control; therefore,
these obligations are not expected to result in a charge against the
funds in escrow. All amounts received into escrow are recorded as
accounts receivable until the amounts are released.
Amended and Restated Credit Agreement, or 2001 Credit Agreement:
* Under the 2001 Credit Agreement, which amends and restates the
existing $22.5 million 1999 Credit Agreement, Pharmacia will provide
us up to $13.2 million in funding beginning in April 2002;
* The loans available under the 2001 Credit Agreement are subject to
certain conditions and are allocated into two separate borrowing
amounts:
* Up to $3.2 million will be available to us beginning April 1,
2002;
* Up to an additional $10.0 million will be available to us
beginning July 1, 2002 only if one of the following criteria has
been met: (i) Pharmacia has filed a New Drug Application, or NDA,
with the U.S. Food and Drug Administration, or FDA, for the SnET2
PhotoPoint PDT for AMD; or (ii) the SnET2 Phase III clinical
trial data meet certain clinical statistical standards as defined
by the clinical trial protocols;
* The 2001 Credit Agreement will provide for borrowing requests to be
made twice in a quarter with no more than $5.0 million in total
available in each calendar quarter and any unused amounts will be
available to be carried forward;
* The 2001 Credit Agreement will accrue interest based on the prime rate
and, under conditions similar to those in the original Credit
Agreement, promissory notes may be issued for the interest due. The
amounts available for borrowing under the 2001 Credit Agreement will
be available to us until June 30, 2003;
* The promissory notes for both principal and interest mature in June
2004 and, at our option, can be repaid in the form of our Common Stock
only at maturity, subject to certain limitations and restrictions as
defined by the 2001 Credit Agreement. The promissory notes accrue
interest at the prime rate, which was 6.75% at June 30, 2001;
* We will be required to issue one warrant to purchase a share of
Miravant Common Stock for every $62.50 in principal borrowed. The
warrant price will be equal to 140% of the average closing price for
the ten trading days prior to any borrowing request; and
* We will also be subject to certain affirmative and negative financial
covenants.
Additionally, as part of the funding arrangement, Pharmacia will assume the
lease obligations and related building property taxes through December 31, 2003
for our API manufacturing facility. The total value of the rental and property
tax payments due through December 31, 2003 is approximately $950,000 and will be
accounted for as a capital contribution and rent expense, or cost of goods sold,
over the lease obligation term. Additionally, under an operating site license
provided by Pharmacia to Miravant, we will be allowed access to and use of the
manufacturing facility and equipment purchased by Pharmacia.
Results of Operations
Revenues. For the three months ended June 30, 2001, our revenues increased
to $2.5 million from $1.6 million for the three months ended June 30, 2000. For
the six months ended June 30, 2001, our revenues decreased slightly to $2.6
million from $2.9 million for the same period in 2000.
The increase in revenues for the three months ended June 30, 2001, is
directly related to the sale of the API under the Asset Purchase Agreement with
Pharmacia. Under this agreement, for the three months ended June 30, 2001, we
have recorded $2.0 million for the sale of previously manufactured API and
$268,000 for API manufactured in 2001. For the three and six months ended June
30, 2001, the decrease in license revenues is primarily attributed to the
completion of certain preclinical studies and drug and device activities funded
by Pharmacia to support a possible NDA submission for AMD. In addition, the
consistent decrease of license revenues over these periods has been a result of
the December 1999 transition of the majority of the operations and funding
responsibility of the Phase III AMD clinical trials to Pharmacia. We anticipate
the 2001 license revenue related to the reimbursement of out-of-pocket or direct
costs for AMD, as well as our related expenses, will continue to decrease
compared to last year as we finalize the preclinical studies and our AMD
responsibilities. In addition, for the three and six month periods ended June
30, 2001, the $75,000 recorded as royalty revenue represents the final payment
of royalties under our 1992 license agreement with Laserscope, which provided
royalties on the sale of our previously designed device products. For the six
months ended June 30, 2000, license revenues of $2.9 million consisted of
specific reimbursement of out-of-pocket or direct costs, including half the cost
of device and drug products, incurred in preclinical studies and Phase III
clinical trials in AMD.
The level of our license, API sales and grant income is likely to fluctuate
significantly from period to period and in the future depending on the amount of
reimbursable preclinical and clinical costs incurred and/or reimbursed, the
extent of development activities under our agreements with Pharmacia, any future
collaborative partnership and/or license agreements, the amount of the API
manufactured and delivered to Pharmacia under the Asset Purchase Agreement and
the amount of grant income awarded and expended. We currently do not have any
grant funds available nor have any grants been awarded.
Cost of Goods Sold. In connection with the API sold under the terms of the
Asset Purchase Agreement with Pharmacia, we recorded $128,000 in manufacturing
costs. The amounts recorded as cost of goods sold represent the costs incurred
for only the API manufactured in 2001. In the current period, no costs were
recorded for those costs incurred in prior periods for raw materials and the API
manufactured prior to 2001, as these were expensed as research and development
costs in the periods incurred. As such, the margins realized in the three and
six month periods ended June 30, 2001 are not indicative of the margins expected
to be realized for additional API sold under the Asset Purchase Agreement. As we
continue to manufacture and sell API under the terms of the Asset Purchase
Agreement, we expect cost of goods sold to continue to fluctuate based on the
costs and the quantities of the API manufactured and delivered to Pharmacia.
Research and Development. Our research and development expenses decreased
to $3.2 million for the three months ended June 30, 2001 from $5.6 million for
the same period in 2000. Our research and development expenses decreased to $6.1
million for the six months ended June 30, 2001 from $10.3 million for the same
period in 2000. The overall decrease in research and development expenses for
the three and six month periods ended June 30, 2001 compared to the same period
in 2000 is primarily related to the decrease in costs incurred for the AMD
program in 2001 due to the completion of the majority our responsibilities for
the preclinical studies required to prepare an NDA submission for AMD.
Research and development expenses for the three and six month periods
ended June 30, 2001 consisted primarily of:
* Payroll and related taxes;
* Development work associated with the development of new drug compounds
and formulations for the dermatology and cardiovascular programs;
* Preclinical and clinical programs; and
* Other operating costs.
Research and development expenses for the three and six month periods ended
June 30, 2000 consisted primarily of:
* The preclinical studies required to prepare an NDA submission for AMD;
* Development work associated with the development of new drug compounds
and topical formulations;
* The cost of drug and device products used in AMD clinical trials;
* Preclinical and clinical programs; and
* Payroll and other operating costs.
We expect future research and development expenses may fluctuate depending
on available funds, continued expenses incurred in our preclinical studies and
clinical trials in our ophthalmology, dermatology, cardiovascular, oncology and
other programs, costs associated with the purchase of raw materials and supplies
for the production of devices and drug for use in preclinical studies and
clinical trials, the pharmaceutical manufacturing requirements and expansion of
our research and development programs, which includes the increased hiring of
personnel, the continued expansion of existing or the commencement of new
preclinical studies and clinical trials and the development of new drug
compounds and formulations.
Selling, General and Administrative. Our selling, general and
administrative expenses for the three months ended June 30, 2001 decreased
slightly to $1.4 million from $1.6 million for the three months ended June 30,
2000. Our selling, general and administrative expenses for the six months ended
June 30, 2001 of $3.1 million remained consistent with the $3.1 million incurred
for the six months ended June 30, 2000. Our selling, general and administrative
expenses consist primarily of payroll, taxes and other operating costs. The
slight decrease for the three months ended June 30, 2001 was a result of a
decrease in deferred compensation expense and the reclassification of a portion
of certain overhead costs into the cost of inventory as cost of goods sold.
We expect future selling, general and administrative expenses to remain
consistent with prior years and may fluctuate depending on available funds, and
the support required for research and development activities, continuing
corporate development and professional services, compensation expense associated
with stock options and warrants granted to consultants and expenses for general
corporate matters.
Interest and Other Income. Interest and other income decreased to $222,000
for the three months ended June 30, 2001 from $331,000 for the three months
ended June 30, 2000. Interest and other income decreased slightly to $543,000
for the six months ended June 30, 2001 from $599,000 for the six months ended
June 30, 2000. The fluctuations in interest and other income are directly
related to the levels of cash and marketable securities earning interest and the
rates of interest being earned. The level of future interest and other income
will primarily be subject to the level of cash balances we maintain from period
to period and the interest rates earned. Additionally, in connection with the
Asset Purchase Agreement with Pharmacia, we recorded a $586,000 gain on the sale
of the API manufacturing equipment.
Interest Expense. Interest expense increased to $533,000 for the three
months ended June 30, 2001 from $508,000 for the same period in 2000. Interest
expense increased to $1.2 million for the six months ended June 30, 2001 from
$888,000 for the same period in 2000. The increase for the both the three and
six month periods is directly related to the amount of borrowings under the 1999
Credit Agreement with Pharmacia, which was offset by a decrease in the interest
rate on the borrowings. At June 30, 2001, the outstanding principal and interest
due was $25.8 million as compared to $23.7 million due at June 30, 2000.
Interest expense may fluctuate in the future based on the interest rate related
to the borrowings and the balance of such borrowings.
Liquidity and Capital Resources
Since inception through June 30, 2001, we have accumulated a deficit of
approximately $164.0 million and expect to continue to incur substantial, and
possibly increasing, operating losses for the next few years. We have financed
our operations primarily through private placements of Common Stock and
Preferred Stock, private placements of convertible notes and short-term notes,
our initial public offering, a secondary public offering, Pharmacia's purchases
of Common Stock and credit arrangements. As of June 30, 2001, we have received
proceeds from the sale of equity securities, convertible notes and credit
arrangements of approximately $223.0 million. We do not anticipate achieving
profitability in the next few years, as such we expect to continue to rely on
external sources of financing to meet our cash needs for the foreseeable future.
Under the 1999 Credit Agreement with Pharmacia, we were able to issue
promissory notes for the amounts borrowed until December 2000. Beginning in
2001, we are able to issue promissory notes for the quarterly interest due for
any quarter in which our adjusted net earnings is less than the quarterly
interest due. The ability to issue promissory notes may also be restricted by
certain sales of our equity securities. The promissory notes for both principal
and interest mature in June 2004 and, at our option, can be repaid in the form
of our Common Stock only at maturity, subject to certain limitations and
restrictions as defined by the 1999 Credit Agreement. The promissory notes
accrue interest at the prime rate, which was 6.75% at June 30, 2001. As of June
30, 2001, we have received all six quarterly loans for a total of $22.5 million
available under the 1999 Credit Agreement. In accordance with the 1999 Credit
Agreement, we have issued promissory notes to Pharmacia for the loan amounts
received as well as promissory notes of $3.3 million for the related interest
due on each of the quarterly due dates through June 30, 2001. In connection with
the borrowings received, we have issued warrants to purchase 360,000 shares of
Common Stock at an exercise price of $11.87 per warrant share for 120,000
shares, $14.83 per warrant share for 120,000 shares and $20.62 per warrant share
for 120,000 shares. The warrants to purchase 360,000 shares of Common Stock are
callable by us if the average closing prices of the Common Stock for 30 trading
days, preceding such request, exceeds the related warrant exercise price.
Under the Asset Purchase Agreement with Pharmacia, the inventory escrow
account, which we estimate will be $4.2 million by December 31, 2001, will be
released to us in full in January 2002. The equipment escrow account, containing
$863,000, is expected to be released in June 2002. The interest earned by these
accounts will accrue to us and will also be available upon the release of each
escrow account. The escrow accounts will secure certain indemnification
obligations with respect to the purchase of the API manufacturing equipment.
Under the 2001 Credit Agreement, which amends and restates the existing $22.5
million 1999 Credit Agreement, Pharmacia may provide up to an additional $13.2
million in funding to us beginning in April 2002. The loans available under the
2001 Credit Agreement are subject to certain conditions and are allocated into
two separate borrowing amounts. Up to $3.2 million will be available to us
beginning April 1, 2002. Up to an additional $10.0 million will be available to
us beginning July 1, 2002 only if one of the following criteria has been met:
(i) Pharmacia has filed an NDA with the FDA for the SnET2 PhotoPoint PDT for
AMD; or (ii) the SnET2 Phase III clinical trial data meet certain clinical
statistical standards as defined by the clinical trial protocols.
For the six months ended June 30, 2001 and June 30, 2000 we required cash
for operations of $7.2 million and $5.0 million, respectively. The increase in
cash required for operations for the six months ended June 30, 2001 compared to
the six months ended June 30, 2000 was due primarily to the amount and timing of
the funds received from Pharmacia for reimbursable research and development
costs, the gain recorded on the sale of the API manufacturing equipment to
Pharmacia and the increase in receivables associated with the escrow accounts
with Pharmacia, which was offset by an increase in stock awards issued.
For the six months ended June 30, 2001 net cash provided by investing
activities was $12.0 million and for the six months ended June 30, 2000 net cash
used in investing activities was $17.6 million. For the six months ended June
30, 2001, the amounts provided by investing activities related to the sales of
marketable securities that were used to fund operations and Pharmacia's purchase
of our API manufacturing equipment. For the six months ended June 30, 2000, the
funds used for investing activities were used to purchase investments to
maximize the interest earned on our cash balances and the amounts were based on
an analysis of the funds available for investment.
For the six months ended June 30, 2001, the net cash of $197,000 used in
financing activities was primarily related to the issuance of a note to an
executive officer and for the six months ended June 30, 2000 net cash provided
by investing activities was related to the $7.5 million received from Pharmacia
under the 1999 Credit Agreement and warrant and option exercises.
We invested a total of $7.5 million in property, plant and equipment from
1996 through June 30, 2001, net of the cost basis of the API manufacturing
equipment sold to Pharmacia of $2.1 million. During 1998, we entered into a new
lease agreement for an additional facility, which we subleased in December 1999.
Based on available funds, we may continue to purchase property, plant and
equipment in the future as we expand our preclinical, clinical and research and
development activities as well as the buildout and expansion of laboratories and
office space.
In addition to receiving funds through private and public stock offerings,
we have also received funding through the exercise of warrants and stock
options. Based on the exercise prices, expiration dates and call features
contained in certain warrants, and depending on the market value of our Common
Stock, we may receive additional funding through the exercise of these
outstanding warrants and stock options in the future.
Our future capital funding requirements will depend on numerous factors
including:
* The progress and magnitude of our research and development programs,
preclinical studies and clinical trials;
* The time involved in obtaining regulatory approvals;
* The cost involved in filing and maintaining patent claims;
* Competitor and market conditions;
* Investment opportunities;
* Our ability to establish and maintain collaborative arrangements;
* The level of Pharmacia's involvement in our Phase III AMD clinical
trials;
* The cost of manufacturing, manufacturing scale-up and the cost and
effectiveness of commercialization activities and arrangements;
* The extent and nature of costs reimbursed by current and future
collaborations;
* Our ability to obtain grants to finance research and development
projects; and
* The extent of Pharmacia's sales and marketing efforts and the timing
and amount of drug royalties received.
Based on our current cash and investment balances and the potential funds
and entire borrowings available under the Asset Purchase Agreement and 2001
Credit Agreement with Pharmacia, we anticipate that we have sufficient cash to
fund our operations through December 31, 2002. We are currently in discussions
with certain collaborators and equity investors for potential additional funding
arrangements, none of which are definitive. Our ability to generate substantial
additional funding to continue our research and development activities,
preclinical studies and clinical trials and manufacturing, and administrative
activities and to pursue any additional investment opportunities is subject to a
number of risks and uncertainties and will depend on numerous factors including:
* Our ability to successfully raise funds in the future through public
or private financings, or establish collaborative arrangements or
raise funds from other sources;
* Our requirement to allocate 50% of the net proceeds from public or
private equity financings towards the repayment of the funds received
under the 2001 2Credit Agreement;
* The potential for equity investments, collaborative arrangements,
license agreements or development or other funding programs that are
at terms acceptable to us, in exchange for manufacturing, marketing,
distribution or other rights to products developed by us;
* The amount of funds received from outstanding warrant and stock option
exercises;
* Our ability to maintain our existing collaborative arrangements;
* Our ability to liquidate our equity investments in Ramus, Xillix or
other assets;
* Our requirement to allocate 100% of the net proceeds from the
liquidation of an existing asset towards the repayment of the funds
received under the 001 Credit Agreement; and
* Our ability to collect the loan and accrued interest provided to Ramus
under their credit agreement with us.
We cannot guarantee that additional funding will be available to us now,
when needed, or if at all. If additional funding is not available, we may be
required to scale back our research and development programs, preclinical
studies and clinical trials and administrative activities and our business and
financial results and condition would be materially adversely affected.
RISK FACTORS
Factors Affecting Future Operating Results
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. Our business operations may be impaired by
additional risks and uncertainties that we do not know of or that we currently
consider immaterial. Our business, results of operations or cash flows may be
adversely affected if any of the following risks actually occur. In such case,
the trading price of our Common Stock could decline, and you may lose all or
part of your investment. This report also contains forward-looking statements
that involve risks and uncertainties. Our actual results could differ materially
from those anticipated in the forward-looking statements as a result of certain
factors, including the risks described below and elsewhere in this report.
RISKS RELATED TO OUR BUSINESS
ALL OF OUR PRODUCTS, EXCEPT SNET2, ARE IN AN EARLY STAGE OF DEVELOPMENT AND ALL
OF OUR PRODUCTS, INCLUDING SNET2, MAY NEVER BE SUCCESSFULLY COMMERCIALIZED.
Our products, except SnET2, are at an early stage of development and our
ability to successfully commercialize these products, including SnET2, is
dependent upon:
* Successfully completing our research or product development efforts or
those of our collaborative partners;
* Successfully transforming our drugs or devices currently under
development into marketable products;
* Obtaining the required regulatory approvals;
* Manufacturing our products at an acceptable cost and with appropriate
quality;
* Favorable acceptance of any products marketed; and
* Successful marketing and sales efforts of our corporate partner(s).
We may not be successful in achieving any of the above, and if we are not
successful, our business, financial condition and operating results would be
adversely affected. The time frame necessary to achieve these goals for any
individual product is long and uncertain. Most of our products currently under
development will require significant additional research and development and
preclinical studies and clinical trials, and all will require regulatory
approval prior to commercialization. The likelihood of our success must be
considered in light of these and other problems, expenses, difficulties,
complications and delays.
OUR PRODUCTS, IN PARTICULAR SNET2, MAY NOT SUCCESSFULLY COMPLETE THE CLINICAL
TRIALS PROCESS AND WE MAY BE UNABLE TO PROVE THAT OUR PRODUCTS ARE SAFE AND
EFFICACIOUS.
All of our drug and device products currently under development will
require extensive preclinical studies and clinical trials prior to regulatory
approval for commercial use, which is a lengthy and expensive process. None of
our products have completed testing for efficacy or safety in humans. Some of
the risks and uncertainties related to safety and efficacy testing and the
completion of preclinical studies and clinical trials include:
* Our ability to demonstrate to the Food and Drug Administration, or
FDA, that SnET2 or any of our other products is safe and efficacious;
* Our ability to successfully complete the testing for any of our
compounds within any specified time period, if at all;
* Clinical data reported may change as a result of the continuing
evaluation of patients;
* Data obtained from preclinical studies and clinical trials are subject
to varying interpretations which can delay, limit or prevent approval
by the FDA or other regulatory authorities;
* Problems in research and development, preclinical studies or clinical
trials that will cause us to delay, suspend or cancel clinical trials;
and
* As a result of changing economic considerations, competitive or new
technological developments, market approvals or changes, clinical or
regulatory conditions, or clinical trial results, our focus may shift
to other indications, or we may determine not to further pursue one or
more of the indications currently being pursued.
To date, we have limited experience in conducting clinical trials. We are
relying on Pharmacia and contract research organizations for our wet age-related
macular degeneration, or AMD, clinical trials. We will either need to rely on
third parties, including our collaborative partners, to design and conduct any
required clinical trials or expend resources to hire additional personnel or
engage outside consultants or contract research organizations to administer
current and future clinical trials. We may not be able to find appropriate third
parties to design and conduct clinical trials or we may not have the resources
to administer clinical trials in-house.
Our ability to complete clinical trials is dependent upon the rate of
patient enrollment. Patient enrollment is a function of many factors including:
* The nature of our clinical trial protocols;
* Existence of competing protocols or treatments;
* Size and longevity of the target patient population;
* Proximity of patients to clinical sites; and
* Eligibility criteria for the trials.
There can be no assurance that we will obtain or maintain adequate levels
of patient enrollment in current or future clinical trials. Delays in planned
patient enrollment may result in increased costs, delays or termination of
clinical trials, which could have material adverse effects. In addition, the FDA
may suspend clinical trials at any time if, among other reasons, it concludes
that patients participating in such trials are being exposed to unacceptable
health risks.
There is an approved treatment for AMD and our patients enrolled in our
Phase III AMD clinical trials may choose to drop out of the trial or pursue
alternative treatments. This could result in delays or incomplete clinical trial
data.
Data already obtained from preclinical studies and clinical trials of our
products under development do not necessarily predict the results that will be
obtained from future preclinical studies and clinical trials. A number of
companies in the pharmaceutical industry, including biotechnology companies like
us, have suffered significant setbacks in advanced clinical trials, even after
promising results in earlier trials. The failure to adequately demonstrate the
safety and effectiveness of a product under development could delay or prevent
regulatory approval of the potential product and would materially harm our
business. Our clinical trials may not demonstrate the sufficient levels of
safety and efficacy necessary to obtain the requisite regulatory approval or may
not result in marketable products.
OUR PRODUCTS MAY EXHIBIT ADVERSE SIDE EFFECTS THAT PREVENT THEIR WIDESPREAD
ADOPTION OR THAT NECESSITATE WITHDRAWAL FROM THE MARKET.
Our PhotoPoint(TM) photodynamic therapy, or PhotoPoint PDT, drug and device
products may exhibit undesirable and unintended side effects that may prevent or
limit their commercial adoption and use. One such side effect upon the adoption
of our PhotoPoint PDT drug and device products as potential therapeutic agents
may be a period of photosensitivity for a certain period of time after receiving
PhotoPoint PDT. This period of photosensitivity is dose dependent and typically
declines over time. Currently, this photosensitivity, as it relates to SnET2, is
being considered in the clinical trials. Even upon receiving approval by the FDA
and other regulatory authorities, our products may later exhibit adverse side
effects that prevent widespread use or necessitate withdrawal from the market.
The manifestation of such side effects could cause our business to suffer.
OUR COLLABORATIVE PARTNERS MAY CONTROL ASPECTS OF OUR CLINICAL TRIALS AND
REGULATORY SUBMISSION THAT MAY RESULT IN UNANTICIPATED DELAYS OR TERMINATION OF
OUR DEVELOPMENT EFFORTS CAUSING OUR BUSINESS TO SUFFER.
Our collaborative partners have certain rights to control aspects of our
product and device development and clinical programs. As a result, we may not be
able to conduct these programs in the manner we currently contemplate.
Pharmacia Corporation
We transitioned the majority of the operations of the Phase III AMD
clinical trials to Pharmacia, along with the ophthalmology, Investigational New
Drug application, or IND, and related filings for SnET2. We will continue to be
responsible for the majority of the preclinical studies and some of the drug and
device development and manufacturing necessary for a possible New Drug
Application, or NDA, submission in AMD. In January 2001, we announced that
Pharmacia performed an interim analysis of the 12-month patient data, and has
elected to continue the clinical trials to their 24-month conclusion in December
2001. Subsequently, a full analysis of the safety and efficacy data will be
performed by Pharmacia and a determination of the status of the SnET2 AMD
program will be made. If Pharmacia fails to complete the clinical trials as
agreed upon or fails to file the NDA submission in AMD, we may not be able to
continue our development program as planned and this could materially harm our
business.
Iridex
In May 1996, we entered into a co-development and distribution agreement
with Iridex, a leading provider of semiconductor-based laser systems to treat
eye diseases. The agreement generally provides Miravant with the exclusive right
to co-develop with Iridex light producing devices for use in photodynamic
therapy in the field of ophthalmology. We will conduct clinical trials and make
regulatory submissions with respect to all co-developed devices and Iridex will
manufacture all devices for such trials, with costs shared as set forth in the
agreement. Iridex is currently the sole supplier of the light producing device
used in our AMD clinical trials. We currently have limited capabilities,
experience and personnel to manufacture the AMD light producing device. If
Iridex fails to provide the devices as agreed upon, we may not be able to
continue our development program as planned and this may harm our business.
WE ARE RELYING ON OUR CORPORATE PARTNER, PHARMACIA, TO ASSIST US WITH AND TO
PROVIDE FUNDS TO CO-DEVELOP OUR POTENTIAL OPHTHALMOLOGY PRODUCTS. IF PHARMACIA
FAILS TO PROVIDE US WITH ADEQUATE FINANCIAL AND OPERATIONAL SUPPORT WE COULD
EXPERIENCE DELAYS IN OUR DEVELOPMENT, AND OUR BUSINESS WILL SUFFER.
We are relying on Pharmacia to provide funds and co-develop with us our
potential ophthalmology products. We cannot be certain that Pharmacia will
continue to fund the co-development program. If Pharmacia fails to co-develop
our products or fails to provide funding as required, we may not be able to
continue our development program as we have planned and our business may be
materially harmed.
ACCEPTANCE OF OUR PRODUCTS IN THE MARKETPLACE IS UNCERTAIN, AND FAILURE TO
ACHIEVE MARKET ACCEPTANCE WILL HARM OUR BUSINESS.
Even if approved for marketing, our products may not achieve market
acceptance. The degree of market acceptance will depend upon a number of
factors, including:
* The establishment and demonstration in the medical community of the
safety and clinical efficacy of our products and their potential
advantages over existing therapeutic products and diagnostic and/or
imaging techniques;
* Pricing and reimbursement policies of government and third-party
payors such as insurance companies, health maintenance organizations
and other plan administrators; and
* The possibility that physicians, patients, payors or the medical
community in general may be unwilling to accept, utilize or recommend
any of our products.
If our products are not accepted due to these or other factors our business
will not develop as planned and may be harmed.
OUR BUSINESS IS NOT EXPECTED TO BE PROFITABLE FOR THE FORESEEABLE FUTURE AND WE
WILL NEED ADDITIONAL FUNDS TO CONTINUE OUR OPERATIONS IN THE FUTURE. IF WE FAIL
TO OBTAIN ADDITIONAL FUNDING, WE COULD BE FORCED TO REDUCE OR CEASE OPERATIONS.
We will need substantial additional resources to develop our products. The
timing and magnitude of our future capital requirements will depend on many
factors, including:
* The pace of scientific progress in our research and development
programs;
* The magnitude of our research and development programs;
* The scope and results of preclinical studies and clinical trials;
* The time and costs involved in obtaining regulatory approvals;
* The costs involved in preparing, filing, prosecuting, maintaining and
enforcing patent claims;
* The costs involved in any potential litigation;
* Competing technological and market developments;
* Our ability to establish additional collaborations;
* Changes in existing collaborations;
* Our dependence on others for development and commercialization of our
potential products;
* The cost of manufacturing, marketing and distribution; and
* The effectiveness of our commercialization activities.
Based on our current cash and investment balances and the potential funds
and entire borrowings available under the Asset Purchase Agreement and 2001
Credit Agreement with Pharmacia, we anticipate that we have sufficient cash to
fund our operations through December 31, 2002. We intend to seek any additional
capital needed to fund our operations through new collaborations, the extension
of our existing collaboration or through public or private equity or debt
financings. However, additional financing may not be available on acceptable
terms or at all or may be limited based on our 2001 Credit Agreement with
Pharmacia. Any inability to obtain additional financing would adversely affect
our business and could cause us to reduce or cease operations. Our ability to
obtain borrowings under the 2001 Credit Agreement is conditioned on a number of
events, including events beyond our control, if these events are not realized
then we will not receive the $10.0 million of borrowings and as a result we may
not have the funds needed to fund our operations through December 2002.
OUR 2001 CREDIT AGREEMENT WITH PHARMACIA IS SECURED BY ALL OF OUR ASSETS. IF WE
BECOME UNABLE TO REPAY OUR BORROWINGS OR VIOLATE THE COVENANTS UNDER THE 2001
CREDIT AGREEMENT, PHARMACIA COULD FORECLOSE ON OUR ASSETS.
Under our 2001 Credit Agreement with Pharmacia, pursuant to which Pharmacia
has loaned us $22.5 million and may loan us up to an additional $13.2 million,
all of our assets have been secured by a lien. Our ability to comply with all
covenants and to make scheduled payments or to refinance our obligations with
respect to this indebtedness will depend on our financial and operating
performance, which in turn will be subject to prevailing economic conditions and
certain financial, business and other factors, including factors that are beyond
our control. If our cash flow and capital resources become insufficient to fund
our debt service obligations or we otherwise default under the 2001 Credit
Agreement, Pharmacia could accelerate the debt and foreclose on our assets. As a
result, we could be forced to obtain additional financing at very unfavorable
terms or reduce or cease operations.
WE HAVE A HISTORY OF SIGNIFICANT OPERATING LOSSES AND EXPECT TO CONTINUE TO HAVE
LOSSES IN THE FUTURE, WHICH MAY FLUCTUATE SIGNIFICANTLY. WE MAY NOT ACHIEVE OR
MAINTAIN PROFITABILITY.
We have incurred significant operating losses since our inception in 1989
and, as of June 30, 2001, had an accumulated deficit of approximately $164.0
million. We expect to continue to incur significant, and possibly increasing,
operating losses over the next few years as we continue to incur costs for
research and development, preclinical studies, clinical trials, manufacturing
and general corporate activities. Our ability to achieve profitability depends
upon our ability, alone or with others, to successfully complete the development
of our proposed products, obtain the required regulatory clearances and
manufacture and market our proposed products. No revenues have been generated
from commercial sales of SnET2 and only limited revenues have been generated
from sales of our devices. We do not expect to achieve significant levels of
revenues for the next few years. Our revenues to date have consisted of license
reimbursements, grants awarded, royalties on our devices, API Sales, milestone
payments, payments for our devices, and interest income. Our revenues for the
foreseeable future are expected to consist primarily of revenue related to
license agreements, royalties, interest income and API sales to Pharmacia.
IF WE ARE NOT ABLE TO SUCCESSFULLY MAINTAIN OUR RELATIONSHIP WITH PHARMACIA AND
ESTABLISH COLLABORATIVE AND LICENSING ARRANGEMENTS WITH OTHERS, OUR BUSINESS MAY
BE HARMED.
We have entered into collaborative relationships with certain corporations
and academic institutions for the research and development, preclinical studies
and clinical trials, licensing, manufacturing, sales and distribution of our
products. These collaborative relationships include:
* The License Agreements under which we granted to Pharmacia an
exclusive worldwide license to use, distribute and sell SnET2 for
therapeutic or diagnostic applications in photodynamic therapy for
ophthalmology, oncology and urology;
* Definitive agreements with Iridex, Ramus and Xillix for the
development of devices for use in photodynamic therapy in the fields
of ophthalmology, cardiovascular disease and oncology, respectively;
* Definitive agreement with Fresenius for final drug formulation and
drug product supply;
* Letter agreements with Boston Scientific Corporation, or BSC, and
Cordis for the co-development of catheters for use in photodynamic
therapy;
* Letter agreement with Medicis for the clinical development of
PhotoPoint PDT in dermatology; and
* Letter agreement with Chiron for the early detection and treatment of
lung cancer.
The amount of royalty revenues and other payments, if any, ultimately paid
by Pharmacia globally to Miravant for sales of SnET2 is dependent, in part, on
the amount and timing of resources Pharmacia commits to research and
development, clinical testing and regulatory approval and marketing and sales
activities, which are entirely within the control of Pharmacia. Pharmacia may
not pursue the development and commercialization of SnET2 and/or may not perform
its obligations as expected. We have not yet entered into any definitive
collaborative agreements with BSC, Cordis, Medicis or Chiron. These
collaborations may not culminate in definitive collaborative agreements or
marketable products. Additionally, Iridex, Ramus and Xillix may not continue the
development of devices for use in photodynamic therapy, or such development may
not result in marketable products.
We are currently at various stages of discussions with some of these and
other companies regarding the establishment of collaborations. Our current and
future collaborations are important to us because they allow us greater access
to funds, to research, development or testing resources and to manufacturing,
sales or distribution resources that we would otherwise not have. We intend to
continue to rely on such collaborative arrangements. Some of the risks and
uncertainties related to the reliance on collaborations include:
* Our ability to negotiate acceptable collaborative arrangements,
including those based upon existing letter agreements;
* Future or existing collaborative arrangements may not be successful or
may not result in products that are marketed or sold;
* Collaborative relationships, such as our license and credit agreements
with Pharmacia, may limit or restrict us;
* Collaborative partners are free to pursue alternative technologies or
products either on their own or with others, including our
competitors, for the diseases targeted by our programs and products;
* Our partners may fail to fulfill their contractual obligations or
terminate the relationships described above, and we may be required to
seek other partners, or expend substantial resources to pursue these
activities independently. These efforts may not be successful; and
* Our ability to manage, interact and coordinate our timelines and
objectives with our strategic partners may not be successful.
WE HAVE LIMITED MANUFACTURING AND MARKETING CAPABILITY AND EXPERIENCE AND THUS
RELY HEAVILY UPON THIRD PARTIES.
Prior to our being able to supply drugs for commercial use, our
manufacturing facilities must comply with Good Manufacturing Practices, or GMPs,
approved by the FDA. In addition, if we elect to outsource manufacturing to
third-party manufacturers, these facilities also have to satisfy GMP and FDA
manufacturing requirements. To be successful, our products must be manufactured
in commercial quantities under current GMPs and must be at acceptable costs.
Although we intend to manufacture drugs and devices, we have not yet
manufactured any products in commercial quantities under GMPs and have no
experience in such commercial manufacturing. We are licensed by the State of
California to manufacture SnET2 active pharmaceutical ingredient, or API, at our
Santa Barbara, California facility for clinical trial and other use. We
currently manufacture the API, the process up to the final formulation and
packaging step and have the ability to manufacture light producing devices and
light delivery devices, and conduct other production and testing activities, at
this location. However, we have limited capabilities, personnel and experience
in the manufacture of finished drug product, light producing and light delivery
devices and utilize outside suppliers, contracted or otherwise, for certain
materials and services related to our manufacturing activities. We currently
have the capacity, in conjunction with our manufacturing suppliers Fresenius and
Iridex, to manufacture products at certain commercial levels and will be able to
do so under GMPs with subsequent FDA approval. If we receive an FDA or other
regulatory approval we may need to expand our manufacturing capabilities and/or
depend on our collaborators, licensees or contract manufacturers for the
expanded commercial manufacture of our products. If we expand our manufacturing
capabilities, we will need to expend substantial funds, hire and retain
significant additional personnel and comply with extensive regulations. We may
not be able to expand successfully or we may be unable to manufacture products
in increased commercial quantities for sale at competitive prices. Further, we
may not be able to enter into future manufacturing arrangements with
collaborators, licensees, or contract manufacturers on acceptable terms or at
all. If we are not able to expand our manufacturing capabilities or enter into
additional commercial manufacturing agreements, our business growth could be
limited and could be materially and adversely affected. Fresenius is the sole
manufacturer of the final formulation of SnET2 and Iridex is currently the sole
supplier of the light producing devices used in our AMD clinical trials. Both
currently have commercial quantity capabilities.
We have no direct experience in marketing, distributing and selling
pharmaceutical or medical device products. We will need to develop a sales force
or rely on our collaborators or licensees or make arrangements with others to
provide for the marketing, distribution and sale of our products. We currently
intend to rely on Pharmacia and Iridex for these needs for the AMD project. Our
marketing, distribution and sales capabilities or current or future arrangements
with third parties for such activities may not be adequate for the successful
commercialization of our products.
OUR ABILITY TO ESTABLISH AND MAINTAIN AGREEMENTS WITH OUTSIDE SUPPLIERS MAY NOT
BE SUCCESSFUL AND OUR FAILURE TO DO SO COULD ADVERSELY AFFECT OUR BUSINESS.
We depend on outside suppliers for certain raw materials and components for
our products. Such raw materials or components may not continue to be available
to our standards or on acceptable terms, if at all, and alternative suppliers
may not be available to us on acceptable terms, if at all. Further, we may not
be able to adequately produce needed materials or components in-house. We are
currently dependent on single, contracted sources for certain key materials or
services used by us in our drug development, light producing and light delivery
device development and production operations. Although most of our raw materials
and components are available from various sources, we are currently developing
qualified backup suppliers for each of these resources. We have or will enter
into agreements with these suppliers, which may or may not be successful or
which may encounter delays or other problems. If we encounter delays or other
problems, this may materially adversely affect our business.
WE MAY NOT HAVE ADEQUATE PROTECTION AGAINST PRODUCT LIABILITY OR RECALL.
The testing, manufacture, marketing and sale of human pharmaceutical
products entails significant inherent, industry-wide risks of allegations of
product liability. The use of our products in clinical trials and the sale of
our products may expose us to liability claims. These claims could be made
directly by patients or consumers, or by companies, institutions or others using
or selling our products. The following are some of the risks related to
liability and recall:
* We are subject to the inherent risk that a governmental authority or
third party may require the recall of one or more of our products;
* We have not obtained liability insurance that would cover a claim
relating to the clinical or commercial use or recall of our products;
* In the absence of liability insurance, claims made against us or a
product recall could have a material adverse effect on us;
* If we obtain insurance coverage in the future, this coverage may not
be available at a reasonable cost and in amounts sufficient to protect
us against claims that could have a material adverse effect on our
financial condition and prospects; and
* Liability claims relating to our products or a product recall could
negatively affect our ability to obtain or maintain regulatory
approval for our products.
We have agreed to indemnify certain of our collaborative partners against
certain potential liabilities relating to the manufacture and sale of SnET2 and
PhotoPoint PDT light devices. A successful product liability claim could
materially adversely affect our business, financial condition and results of
operations.
WE MAY FAIL TO ADEQUATELY PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS,
OUR PATENTS AND OUR PROPRIETARY TECHNOLOGY.
Our success will depend, in part, on our and our licensors' ability to
obtain, assert and defend our patents, protect trade secrets and operate without
infringing the proprietary rights of others. The exclusive license relating to
various drug compounds, including our leading drug candidate SnET2, may become
non-exclusive if we fail to satisfy certain development and commercialization
objectives. The termination or restriction of our rights under this or other
licenses for any reason would likely have a material adverse impact on our
business, our financial condition and results of our operations. Although we
believe we should be able to achieve such objectives, we may not be successful.
The patent position of pharmaceutical and medical device firms generally is
highly uncertain. Some of the risks and uncertainties include:
* The patent applications owned by or licensed to us may not result in
issued patents;
* Our issued patents may not provide us with proprietary protection or
competitive advantages;
* Our issued patents may be infringed upon or designed around by others;
* Our issued patents may be challenged by others and held to be invalid
or unenforceable;
* The patents of others may have a material adverse effect on us; and
* Significant time and funds may be necessary to defend our patents.
We are aware that our competitors and others have been issued patents
relating to photodynamic therapy. In addition, our competitors and others may
have been issued patents or filed patent applications relating to other
potentially competitive products of which we are not aware. Further, our
competitors and others may in the future file applications for, or otherwise
obtain proprietary rights to, such products. These existing or future patents,
applications or rights may conflict with our or our licensors' patents or
applications. Such conflicts could result in a rejection of our or our
licensors' applications or the invalidation of the patents. This could have a
material adverse effect on our competitive position. If such conflicts occur, or
if we believe that such products may infringe on our proprietary rights, we may
pursue litigation or other proceedings, or may be required to defend against
such litigation. Such proceedings may materially adversely affect our
competitive position, and we may not be successful in any such proceeding.
Litigation and other proceedings can be expensive and time consuming, regardless
of whether we prevail. This can result in the diversion of substantial
financial, managerial and other resources from other activities. An adverse
outcome could subject us to significant liabilities to third parties or require
us to cease any related research and development activities or product sales.
Some of the risks and uncertainties include:
* We do not have contractual indemnification rights against the
licensors of the various drug patents;
* We may be required to obtain licenses under dominating or conflicting
patents or other proprietary rights of others;
* Such licenses may not be made available on terms acceptable to us, if
at all; and
* If we do not obtain such licenses, we could encounter delays or could
find that the development, manufacture or sale of products requiring
such licenses is foreclosed.
We also seek to protect our proprietary technology and processes in part by
confidentiality agreements with our collaborative partners, employees and
consultants. These agreements could be breached and we may not have adequate
remedies for any breach. Also, our trade secrets may become known or be
independently discovered by competitors. Certain research activities relating to
the development of certain patents owned by or licensed to us were funded, in
part, by agencies of the United States Government. When the United States
Government participates in research activities, it retains certain rights that
include the right to use the resulting patents for government purposes under a
royalty-free license.
We also rely upon unpatented trade secrets, and no assurance can be given
that others will not independently develop substantially equivalent proprietary
information and techniques, or otherwise gain access to our trade secrets or
disclose such technology, or that we can meaningfully protect its rights to its
unpatented trade secrets and know-how.
WE MAY NOT BE ABLE TO ATTRACT AND RETAIN KEY PERSONNEL AND CONSULTANTS.
Our success will depend in large part on our ability to attract and retain
highly qualified scientific, management and other personnel and to develop and
maintain relationships with leading research institutions and consultants. We
are highly dependent upon principal members of our management, key employees,
scientific staff and consultants which we may retain from time to time.
Competition for such personnel and relationships is intense, and we may not be
able to continue to attract and retain such personnel. Our consultants may be
affiliated with or employed by others, and some have consulting or other
advisory arrangements with other entities that may conflict or compete with
their obligations to us. Inventions or processes discovered by such persons will
not necessarily become our property and may remain the property of such persons
or others.
IF OUTSTANDING STOCK OPTIONS AND WARRANTS ARE EXERCISED, THE VALUE OF OUR COMMON
STOCK OUTSTANDING JUST PRIOR TO THE EXERCISE MAY BE DILUTED.
As of August 6, 2001, there were outstanding stock options to purchase
4,513,801 shares of Common Stock, with exercise prices ranging from $0.67 to
$55.50 per share, with a weighted average exercise price of $14.68 per share. In
addition, as of August 6, 2001, there were outstanding warrants to purchase
2,879,000 shares of Common Stock, with exercise prices ranging from $7.00 to
$60.00 per share, with a weighted average exercise price of $24.98 per share. If
the holders exercise a significant number of these securities at any one time,
the market price of the Common Stock could fall and the value of the Common
Stock held by other stockholders may be diluted. The holders of the options and
warrants have the opportunity to profit if the market price for the Common Stock
exceeds the exercise price of their respective securities, without assuming the
risk of ownership. If the market price of the Common Stock does not rise above
the exercise price of these securities, then they will probably not be exercised
and may expire based on their respective expiration dates.
THE PRICE OF OUR COMMON STOCK HAS BEEN AND MAY CONTINUE TO BE VOLATILE.
From time to time and in particular during the last fiscal year, the price
of our Common Stock has been highly volatile. These fluctuations create a
greater risk of capital losses for our stockholders as compared to less volatile
stocks. From June 30, 2000 to June 30, 2001, our Common Stock price, per Nasdaq
closing prices, has ranged from a high of $25.38 to a low of $6.00.
The market prices for our Common Stock, and the securities of emerging
pharmaceutical and medical device companies, have historically been highly
volatile and subject to extreme price fluctuations, which may have a material
adverse effect on the market price of the Common Stock. Extreme price
fluctuations could be the result of the following:
* Future announcements concerning Miravant or our collaborators,
competitors or industry;
* The results of our testing, technological innovations or new
commercial products;
* The results of preclinical studies and clinical trials by us or our
competitors;
* Technological innovations or new therapeutic products;
* Litigation;
* Public concern as to the safety, efficacy or marketability of products
developed by us or others;
* Comments by securities analysts;
* The achievement of or failure to achieve certain milestones; and
* Governmental regulations, rules and orders, or developments concerning
safety of our products.
In addition, the stock market has experienced extreme price and volume
fluctuations. This volatility has significantly affected the market prices of
securities of many emerging pharmaceutical and medical device companies for
reasons frequently unrelated or disproportionate to the performance of the
specific companies. These broad market fluctuations may materially adversely
affect the market price of the Common Stock.
OUR CHARTER AND BYLAWS CONTAIN PROVISIONS THAT MAY PREVENT TRANSACTIONS THAT
COULD BE BENEFICIAL TO STOCKHOLDERS.
Our charter and bylaws restrict certain actions by our stockholders. For
example:
* Our stockholders can act at a duly called annual or special meeting
but they may not act by written consent;
* Special meetings can only be called by our chief executive officer,
president, or secretary at the written request of a majority of our
Board of Directors; and
* Stockholders also must give advance notice to the secretary of any
nominations for director or other business to be brought by
stockholders at any stockholders' meeting.
Some of these restrictions can only be amended by a super-majority vote of
members of the Board and/or the stockholders. These and other provisions of our
charter and bylaws, as well as certain provisions of Delaware law, could prevent
changes in our management and discourage, delay or prevent a merger, tender
offer or proxy contest, even if the events could be beneficial to our
stockholders. These provisions could also limit the price that investors might
be willing to pay for our Common Stock.
In addition, our charter authorizes our Board of Directors to issue shares
of undesignated preferred stock without stockholder approval on terms that the
Board may determine. The issuance of preferred stock could decrease the amount
of earnings and assets available for distribution to our other stockholders or
otherwise adversely affect their rights and powers, including voting rights.
Moreover, the issuance of preferred stock may make it more difficult for another
party to acquire, or may discourage another party from acquiring, voting control
of us.
EFFECTING A CHANGE OF CONTROL OF MIRAVANT WOULD BE DIFFICULT, WHICH MAY
DISCOURAGE OFFERS FOR SHARES OF OUR COMMON STOCK.
Our Board of Directors has adopted a Preferred Stockholder Rights Plan, or
Rights Plan. The Rights Plan may have the effect of delaying, deterring, or
preventing changes in our management or control of Miravant, which may
discourage potential acquirers who otherwise might wish to acquire us without
the consent of the Board of Directors. Under the Rights Plan, if a person or
group acquires 20% or more of our common stock, all holders of rights (other
than the acquiring stockholder) may, upon payment of the purchase price then in
effect, purchase common stock having a value of twice the purchase price. In
April 2001, the Rights Plan was amended to increase the trigger percentage from
20% to 25% as it applies to Pharmacia and excluded shares acquired by Pharmacia
in connection with our 2001 Credit Agreement with Pharmacia, and from the
exercise of warrants held by Pharmacia. In the event that we are involved in a
merger or other similar transaction where Miravant is not the surviving
corporation, all holders of rights (other than the acquiring stockholder) shall
be entitled, upon payment of the then in effect purchase price, to purchase
Common Stock of the surviving corporation having a value of twice the purchase
price. The rights will expire on July 31, 2010, unless previously redeemed.
OUR BUSINESS COULD SUFFER IF WE ARE UNSUCCESSFUL IN INTEGRATING BUSINESS
COMBINATIONS AND STRATEGIC ALLIANCES.
We may expand our operations and market presence by entering into business
combinations, joint ventures or other strategic alliances with other companies.
These transactions create risks, such as the difficulty assimilating the
operations, technology and personnel of the combined companies; the disruption
of our ongoing business, including loss of management focus on existing
businesses and other market developments; problems retaining key technical and
managerial personnel; expenses associated with the amortization of goodwill and
other purchased intangible assets; additional operating losses and expenses of
acquired businesses; the impairment of relationships with existing employees,
customers and business partners; and, additional losses from any equity
investments we might make.
We may not succeed in addressing these risks, and we may not be able to
make business combinations and strategic investments on terms that are
acceptable to us. In addition, any businesses we may acquire may incur operating
losses.
BUSINESS INTERRUPTIONS COULD ADVERSELY AFFECT OUR BUSINESS.
Our operations are vulnerable to interruption by fire, earthquake, power
loss, floods, telecommunications failure and other events beyond our control. We
do not have a detailed disaster recovery plan. Our facilities are all located in
the state of California and are currently subject to electricity blackouts as a
consequence of a shortage of available electrical power. though we do have
back-up electrical generation systems in place, they are for use for a limited
time and in the event these blackouts continue or increase in severity, they
could disrupt the operations of our affected facilities. In addition, we may not
carry adequate business interruption insurance to compensate us for losses that
may occur and any losses or damages incurred by us could have a material adverse
effect on our business.
RISKS RELATED TO OUR INDUSTRY
WE ARE SUBJECT TO UNCERTAINTIES REGARDING HEALTH CARE REIMBURSEMENT AND REFORM.
Our products may not be covered by the various health care providers and
third party payors. If they are not covered, our products may or may not be
purchased or sold as expected. Our ability to commercialize our products
successfully may depend, in part, on the extent to which reimbursement for these
products and related treatment will be available from collaborative partners,
government health administration authorities, private health insurers, managed
care entities and other organizations. These payers are increasingly challenging
the price of medical products and services and establishing protocols and
formularies, which effectively limit physicians' ability to select products and
procedures. Uncertainty exists as to the reimbursement status of health care
products, especially innovative technologies. Additionally, reimbursement
coverage, if available, may not be adequate to enable us to achieve market
acceptance of our products or to maintain price levels sufficient for
realization of an appropriate return on our products.
The efforts of governments and third-party payors to contain or reduce the
cost of healthcare will continue to affect our business and financial condition
as a biotechnology company. In foreign markets, pricing or profitability of
medical products and services may be subject to government control. In the
United States, we expect that there will continue to be federal and state
proposals for government control of pricing and profitability. In addition,
increasing emphasis on managed healthcare has increased pressure on pricing of
medical products and will continue to do so. These cost controls may have a
material adverse effect on our revenues and profitability and may affect our
ability to raise additional capital.
In addition, cost control initiatives could adversely affect our business
in a number of ways, including:
* Decreasing the price we, or any of our partners or licensees, receive
for any of our products;
* Preventing the recovery of development costs, which could be
substantial; and
* Minimizing profit margins.
Further, our commercialization strategy depends on our collaborators. As a
result, our ability to commercialize our products and realize royalties may be
hindered if cost control initiatives adversely affect our collaborators.
FAILURE TO OBTAIN PRODUCT APPROVALS OR COMPLY WITH ONGOING GOVERNMENTAL
REGULATIONS COULD ADVERSELY AFFECT OUR BUSINESS.
The production and marketing of our products and our ongoing research and
development, preclinical studies and clinical trial activities are subject to
extensive regulation and review by numerous governmental authorities in the
United States, including the FDA, and in other countries. All drugs and most
medical devices we develop must undergo rigorous preclinical studies and
clinical trials and an extensive regulatory approval process administered by the
FDA under the Food, Drug and Cosmetic Act, or FDC Act, and comparable foreign
authorities, before they can be marketed. These processes involve substantial
cost and can often take many years. We have limited experience in, and limited
resources available for regulatory activities and we rely on our collaborators
and outside consultants. Failure to comply with the applicable regulatory
requirements can, among other things, result in non-approval, suspensions of
regulatory approvals, fines, product seizures and recalls, operating
restrictions, injunctions and criminal prosecution. To date, none of our product
candidates being developed have been submitted for approval or have been
approved by the FDA or any other regulatory authority for marketing.
Some of the risks and uncertainties relating to United States Government
regulation include:
* Delays in obtaining approval or rejections due to regulatory review of
each submitted new drug, device or combination drug/device application
or product license application, as well as changes in regulatory
policy during the period of product development;
* If regulatory approval of a product is granted, such approval may
entail limitations on the uses for which the product may be marketed;
* If regulatory approval is obtained, the product, our manufacturer and
the manufacturing facilities are subject to continual review and
periodic inspections;
* If regulatory approval is obtained, such approval may be conditional
on the satisfaction of the completion of clinical trials or require
additional clinical trials;
* Later discovery of previously unknown problems with a product,
manufacturer or facility may result in restrictions on such product or
manufacturer, including withdrawal of the product from the market and
litigation; and
* Photodynamic therapy products have been categorized by the FDA as
combination drug-device products. If current or future photodynamic
therapy products do not continue to be categorized for regulatory
purposes as combination products, then:
* The FDA may require separate drug and device submissions; and
* The FDA may require separate approval by regulatory authorities.
Some of the risks and uncertainties of international governmental
regulation include:
* Foreign regulatory requirements governing testing, development,
marketing, licensing, pricing and/or distribution of drugs and devices
in other countries;
* Our drug products may not qualify for the centralized review procedure
or we may not be able to obtain a national market application that
will be accepted by other EU member states;
* Our devices must also meet the new Medical Device Directive effective
in Europe in 1998. The Directive requires that our manufacturing
quality assurance systems and compliance with technical essential
requirements be certified with a CE Mark authorized by a registered
notified body of an EU member state prior to free sale in the EU; and
* Registration and approval of a photodynamic therapy product in other
countries, such as Japan, may include additional procedures and
requirements, nonclinical and clinical studies, and may require the
assistance of native corporate partners.
WE MAY NOT BE ABLE TO KEEP UP WITH RAPID CHANGES IN THE BIOTECHNOLOGY AND
PHARMACEUTICAL INDUSTRIES THAT COULD MAKE SOME OR ALL OF OUR PRODUCTS
NON-COMPETITIVE OR OBSOLETE. COMPETING PRODUCTS AND TECHNOLOGIES MAY MAKE SOME
OR ALL OF OUR PROGRAMS OR POTENTIAL PRODUCTS NONCOMPETITIVE OR OBSOLETE.
Our industry is subject to rapid, unpredictable and significant
technological change. Competition is intense. Well-known pharmaceutical,
biotechnology and chemical companies are marketing well-established therapies
for the treatment of AMD. Doctors may prefer familiar methods that they are
comfortable using rather than try our products. Many companies are also seeking
to develop new products and technologies for medical conditions for which we are
developing treatments. Our competitors may succeed in developing products that
are safer or more effective than ours and in obtaining regulatory marketing
approval of future products before we do. We anticipate that we will face
increased competition as new companies enter our markets and as the scientific
development of PhotoPoint PDT evolves.
We expect that our principal methods of competition with other photodynamic
therapy companies will be based upon such factors as:
* The ease of administration of our photodynamic therapy;
* The degree of generalized skin sensitivity to light;
* The number of required doses;
* The safety and efficacy profile;
* The selectivity of our drug for the target lesion or tissue of
interest;
* The type and cost of our light systems;
* The cost of our drug; and
* The amount reimbursed for the drug and device treatment by third-party
payors.
We cannot give you any assurance that new drugs or future developments in
photodynamic therapy or in other drug technologies will not have a material
adverse effect on our business. Increased competition could result in:
* Price reductions;
* Lower levels of third-party reimbursements;
* Failure to achieve market acceptance; and
* Loss of market share.
Any of the above could have an adverse effect on our business. Further, we
cannot give you any assurance that developments by our competitors or future
competitors will not render our technology obsolete.
WE FACE INTENSE COMPETITION AND TECHNOLOGICAL UNCERTAINTY.
Many of our competitors have substantially greater financial, technical and
human resources than we do, and may also have substantially greater experience
in developing products, conducting preclinical studies or clinical trials,
obtaining regulatory approvals and manufacturing and marketing. Further, our
competitive position could be materially adversely affected by the establishment
of patent protection by our competitors. The existing competitors or other
companies may succeed in developing technologies and products that are more
safe, effective or affordable than those being developed by us or that would
render our technology and products less competitive or obsolete.
We are aware that other companies are marketing or developing certain
products to prevent, diagnose or treat diseases for which we are developing
PhotoPoint PDT. These products, as well as others of which we may not be aware,
may adversely affect the existing or future market for our products. Competitive
products may include, but are not limited to, drugs such as those designed to
inhibit angiogenesis or otherwise target new blood vessels, certain medical
devices, and other photodynamic therapy treatments.
We are aware of various competitors involved in the photodynamic therapy
sector. We understand that these companies are conducting preclinical studies
and/or clinical trials in various countries and for a variety of disease
indications. One company is QLT Inc., or QLT. We understand that QLT's drug
Visudyne has received marketing approval in the United States and certain other
countries for the treatment of AMD. QLT is therefore first to market in this
disease area. We understand that at least two other photodynamic therapy drugs
have received marketing approval in the United States - Photofrin(R) (QLT /
Axcan Pharmaceuticals) for the treatment of certain oncology indications and
Levulan(R) (DUSA Pharmaceuticals / Berlex Laboratories) for the treatment of
actinic keratoses, a dermatological condition. We are aware of other drugs and
devices under development by these and other photodynamic therapy competitors,
such as Pharmacyclics, in disease areas for which we are developing PhotoPoint
PDT. These competitors may develop superior products or reach the market prior
to PhotoPoint PDT and render our products non-competitive or obsolete.
The pharmaceutical industry is subject to rapid and substantial
technological change. Developments by others may render our products under
development or technologies noncompetitive or obsolete, or we may be unable to
keep pace with technological developments or other market factors. Technological
competition in the industry from pharmaceutical and biotechnology companies,
universities, governmental entities and others diversifying into the field is
intense and is expected to increase. These entities represent significant
competition for us. Acquisitions of, or investments in, competing pharmaceutical
or biotechnology companies by large corporations could increase such
competitors' financial, marketing, manufacturing and other resources.
We are a relatively new enterprise and are engaged in the development of
novel therapeutic technologies, specifically photodynamic therapy. As a result,
our resources are limited and we may experience technical challenges inherent in
such novel technologies. Competitors have developed or are in the process of
developing technologies that are, or in the future may be, the basis for
competitive products. Some of these products may have an entirely different
approach or means of accomplishing similar therapeutic, diagnostic and imaging
effects compared to our products. We are aware that one of our competitors in
the market for photodynamic therapy drugs has received marketing approval of a
product for certain uses in the United States and other countries. Our
competitors may develop products that are safer, more effective or less costly
than our products and, therefore, present a serious competitive threat to our
product offerings.
The widespread acceptance of therapies that are alternatives to ours may
limit market acceptance of our products even if commercialized. The diseases for
which we are developing our therapeutic products can also be treated, in the
case of cancer, by surgery, radiation and chemotherapy, and in the case of
atherosclerosis, by surgery, angioplasty, drug therapy and the use of devices to
maintain and open blood vessels. These treatments are widely accepted in the
medical community and have a long history of use. The established use of these
competitive products may limit the potential for our products to receive
widespread acceptance if commercialized.
Our understanding of the market opportunities for our PhotoPoint PDT is
derived from a variety of sources, and represents our best estimate of the
overall market sizes presented in certain disease areas. The actual market size
and market share which we may be able to obtain may vary substantially from our
estimates, and is dependent upon a number of factors, including:
* Competitive treatments, either existing or those that may arise in the
future;
* Performance of our products and subsequent labeling claims; and
* Actual patient population at and beyond product launch.
OUR PRODUCTS ARE SUBJECT TO OTHER STATE AND FEDERAL LAWS, FUTURE LEGISLATION AND
REGULATIONS.
In addition to the regulations for drug or device approvals, we are subject
to regulation under state, federal or other law, including regulations for
worker occupational safety, laboratory practices, environmental protection and
hazardous substance control. We continue to make capital and operational
expenditures for protection of the environment in amounts which are not
material. Some of the risks and uncertainties related to laws and future
legislation or regulations include:
* Our future capital and operational expenditures related to these
matters may increase and become material;
* We may also be subject to other present and possible future local,
state, federal and foreign regulation;
* Heightened public awareness and concerns regarding the growth in
overall health care expenditures in the United States, combined with
the continuing efforts of governmental authorities to contain or
reduce costs of health care, may result in the enactment of national
health care reform or other legislation or regulations that impose
limits on the number and type of medical procedures which may be
performed or which have the effect of restricting a physician's
ability to select specific products for use in certain procedures;
* Such new legislation or regulations may materially adversely affect
the demand for our products. In the United States, there have been,
and we expect that there will continue to be, a number of federal and
state legislative proposals and regulations to implement greater
governmental control in the health care industry;
* The announcement of such proposals may materially adversely affect our
ability to raise capital or to form collaborations; and
* Legislation or regulations that impose restrictions on the price that
may be charged for health care products or medical devices may
adversely affect our results of operations.
We are unable to predict the likelihood of adverse effects which might
arise from future legislative or administrative action, either in the United
States or abroad.
OUR BUSINESS INVOLVES ENVIRONMENTAL RISKS.
We are subject to federal, state, county and local laws and regulations
relating to the protection of the environment. In the course of our business, we
are involved in the handling, storage and disposal of materials that are
classified as hazardous. Our safety procedures for the handling, storage and
disposal of such materials are designed to comply with applicable laws and
regulations. However, we may be involved in contamination or injury from these
materials. If this occurs, we could be held liable for any damages that result,
and any such liability could materially and adversely affect us. Further, the
cost of complying with these laws and regulations may increase materially in the
future.
PART II. OTHER INFORMATION
ITEM 3.QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk related to changes in interest rates. The
risks related to foreign currency exchange rates are immaterial and we do not
use derivative financial instruments. From time to time, we maintain a portfolio
of highly liquid cash equivalents maturing in three months or less as of the
date of purchase. Given the short-term nature of these investments and that our
borrowings outstanding are under variable interest rates, we are not subject to
significant interest rate risk.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 26, 2001, the Company held its Annual Meeting of Stockholders. The
following individuals were elected to the Board of Directors:
Votes Votes
For Withheld
--------------- --------------
Larry S. Barels 15,624,666 19,993
William P. Foley II 15,619,241 25,418
Charles T. Foscue 15,615,386 29,273
Gary S. Kledzik, Ph.D. 15,294,423 350,236
David E. Mai 15,294,683 349,976
Jonah Shacknai 15,623,356 21,303
In addition, the stockholders also approved the following proposals:
Votes Votes Broker
For Against Abstained Non-Votes
-------------- -------------- --------------- ----------------
1. Proposal to ratify the selection of
the Company's independent auditors. 15,628,185 7,042 9,432 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
Number Exhibit
4.1(1) Amendment No. 1 to the Miravant Medical
Technologies Preferred Stock Rights Agreement.
10.1(1) Amended and Restated Credit Agreement dated
May 24, 2001 between the Registrant and
Pharmacia Treasury Services AB.**
10.2(1) Manufacturing Facility Asset Purchase
Agreement dated May 24, 2001 between the
Registrant and Pharmacia & Upjohn Company.
10.3(1) Site Access License Agreement dated May 31,
2001 between the Registrant and Pharmacia &
Upjohn Company.
10.4(1) APA Escrow Agreement dated May 31, 2001
between the Registrant and Pharmacia &
Upjohn Company.
10.5(1) API Escrow Agreement dated May 24, 2001
between the Registrant and Pharmacia &
Upjohn Company.
(1) Incorporated by reference to identically numbered
exhibit to the registrant's Current Report on Form
8-K filed with the Securities and Exchange Commission
on May 31, 2001.
** Confidential treatment has been requested for
certain portions of this exhibit.
(b) Reports on Form 8-K.
Form 8-K dated May 31, 2001, Other Events - Item 5:
announcing that on May 24, 2001, the Company and
Pharmacia Corporation finalized funding arrangements
that could provide the Company up to $20.0 million in
funding.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
Miravant Medical Technologies
Date: August 13, 2001 By: /s/ John M. Philpott
-----------------------
John M. Philpott
Chief Financial Officer
(on behalf of the Company and as
Principal Financial Officer and
Principal Accounting Officer)
Index to Exhibits
Exhibit
Number Exhibit
4.1(1) Amendment No. 1 to the Miravant Medical Technologies Preferred Stock Rights Agreement.
10.1(1) Amended and Restated Credit Agreement dated May 24, 2001 between the
Registrant and Pharmacia Treasury Services AB.**
10.2(1) Manufacturing Facility Asset Purchase Agreement dated May 24, 2001 between the Registrant and Pharmacia & Upjohn Company.
10.3(1) Site Access License Agreement dated May 31, 2001 between the Registrant and Pharmacia & Upjohn Company.
10.4(1) APA Escrow Agreement dated May 31, 2001 between the Registrant and
Pharmacia & Upjohn Company.
10.5(1) API Escrow Agreement dated May 24, 2001 between the Registrant and
Pharmacia & Upjohn Company.
(1)Incorporated by reference to identically numbered exhibit to the registrant's
Current Report on Form 8-K filed with the Securities and Exchange
Commission on May 31, 2001.
** Confidential treatment has been requested for certain portions of this
exhibit.