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, 1998
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
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(Exact name of Registrant as specified in its charter)
Delaware 77-0222872
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
7408 Hollister Avenue, Santa Barbara, California 93117
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(Address of principal executive offices, including zip code)
(805) 685-9880
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(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 July 31, 1998
----- ----------------------------
Common Stock, $.01 par value 13,980,683
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page
----
Item 1. Consolidated Financial Statements
Consolidated balance sheets as of June 30, 1998 and
December 31, 1997..........................................................3
Consolidated statements of operations for the three months ended
June 30, 1998 and 1997, and for the six months ended
June 30, 1998 and 1997.....................................................4
Consolidated statements of cash flows for the six months ended
June 30, 1998 and 1997.....................................................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 4. Submission of Matters to a Vote of Security Holders.............................14
Item 5. Other Information...............................................................14
Item 6. Exhibits and Reports on Form 8-K................................................14
Signatures......................................................................15
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
MIRAVANT MEDICAL TECHNOLOGIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1998 1997
------------------ ------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents............................................... $ 26,909,000 $ 55,666,000
Investments in short-term marketable securities......................... 26,596,000 27,796,000
Accounts receivable..................................................... 473,000 1,833,000
Prepaid expenses and other current assets............................... 550,000 772,000
------------------ ------------------
Total current assets....................................................... 54,528,000 86,067,000
Property, plant & equipment:
Vehicles................................................................ 28,000 28,000
Furniture and fixtures.................................................. 1,705,000 1,578,000
Equipment............................................................... 4,274,000 3,752,000
Leasehold improvements.................................................. 4,059,000 3,071,000
Capital lease equipment................................................. 184,000 184,000
------------------ ------------------
10,250,000 8,613,000
Accumulated depreciation and amortization............................... 4,129,000 2,886,000
------------------ ------------------
6,121,000 5,727,000
Investments in affiliates.................................................. 4,476,000 895,000
Loan to affiliate, net of reserve of $500,000 at June 30, 1998............. -- --
Patents and other assets................................................... 987,000 342,000
------------------ ------------------
Total assets............................................................... $ 66,112,000 $ 93,031,000
================== ==================
Liabilities and shareholders' equity
Current liabilities:
Accounts payable........................................................ $ 3,883,000 $ 4,290,000
Accrued payroll and expenses............................................ 724,000 1,022,000
Current portion of capital lease obligations............................ 5,000 21,000
------------------ ------------------
Total current liabilities.................................................. 4,612,000 5,333,000
Shareholders' equity:
Common stock, 50,000,000 shares authorized;
14,056,172 and 13,952,847 shares
issued and outstanding at June 30, 1998 and
December 31, 1997, respectively........................................ 164,129,000 170,451,000
Notes receivable from officers.......................................... (1,178,000) --
Deferred compensation................................................... (3,616,000) (1,899,000)
Accumulated deficit..................................................... (97,835,000) (80,854,000)
------------------ ------------------
Total shareholders' equity................................................. 61,500,000 87,698,000
------------------ ------------------
Total liabilities and shareholders' equity................................. $ 66,112,000 $ 93,031,000
================== ==================
See accompanying notes.
MIRAVANT MEDICAL TECHNOLOGIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended June 30, Six months ended June 30,
1998 1997 1998 1997
------------------- ----------------- ----------------- -----------------
Revenues:
Grants, licensing and royalty income........ $ 1,331,000 $ 433,000 $ 1,966,000 $ 724,000
----------------- ----------------- ----------------- -----------------
1,331,000 433,000 1,966,000 724,000
Costs and expenses:
Research and development.................... 8,346,000 4,364,000 14,664,000 8,230,000
Selling, general and administrative......... 2,535,000 2,006,000 5,582,000 4,270,000
Loss in investment in affiliate............. 441,000 240,000 895,000 472,000
------------------- ----------------- ----------------- -----------------
Total costs and expenses....................... 11,322,000 6,610,000 21,141,000 12,972,000
Loss from operations........................... (9,991,000) (6,177,000) (19,175,000) (12,248,000)
Interest and other income (expense):
Interest and other income................... 927,000 443,000 2,195,000 1,079,000
Interest expense............................ -- (2,000) (1,000) (4,000)
------------------- ----------------- ---------------- -----------------
Total interest and other income................ 927,000 441,000 2,194,000 1,075,000
------------------- ----------------- ----------------- -----------------
Net loss....................................... $ (9,064,000) $ (5,736,000) (16,981,000) $ (11,173,000)
=================== ================= ================ =================
Net loss per share - basic and diluted......... $ (0.64) $ (0.46) (1.20) $ (0.90)
=================== ================= ================ =================
Shares used in computing net loss per share.... 14,104,004 12,365,451 14,102,940 12,368,328
=================== ================= ================= =================
See accompanying notes.
MIRAVANT MEDICAL TECHNOLOGIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30,
Operating activities: 1998 1997
------------------- -----------------------
Net loss.......................................................... $ (16,981,000) $ (11,173,000)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization.................................. 1,309,000 450,000
Amortization of deferred compensation.......................... 1,507,000 611,000
Reserve for loan receivable from affiliate..................... 500,000 --
Changes in operating assets and liabilities:
Accounts receivable......................................... 1,360,000 1,593,000
Prepaid expenses and other assets........................... (489,000) (676,000)
Accounts payable and accrued payroll and expenses........... (705,000) (138,000)
------------------- -----------------------
Net cash used in operating activities............................. (13,499,000) (9,333,000)
Investing activities:
Purchases of marketable securities ............................... (8,700,000) (25,727,000)
Sales of marketable securities ................................... 9,900,000 25,000,000
Investments in affiliates......................................... (2,105,000) 472,000
Purchases of property, plant and equipment........................ (1,637,000) (586,000)
------------------- -----------------------
Net cash used in investing activities............................. (2,542,000) (841,000)
Financing activities:
Proceeds from issuance of Common Stock, less issuance costs....... 2,930,000 612,000
Purchases of Common Stock......................................... (13,952,000) (4,316,000)
Payments of executive officer notes............................... (1,178,000) --
Payments of loan to affiliate..................................... (500,000) --
Payments of capital lease obligations............................. (16,000) (22,000)
Payments of long term obligations................................. -- (28,000)
------------------- -----------------------
Net cash used in financing activities............................. (12,716,000) (3,754,000)
Net decrease in cash and cash equivalents......................... (28,757,000) (13,928,000)
Cash and cash equivalents at beginning of period.................. 55,666,000 31,498,000
------------------- -----------------------
Cash and cash equivalents at end of period........................ $ 26,909,000 $ 17,570,000
=================== =======================
Supplemental disclosures:
Cash paid for:
State taxes..................................................... $ 111,000 $ 80,000
=================== =======================
Interest ....................................................... $ 1,000 $ 5,000
=================== =======================
Non-cash investing activities:
Investment in affiliate from issuance of Common Stock............ $ 1,476,000 $ --
=================== =======================
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, 1998, and for the
three and six month periods ended June 30, 1998 and 1997, 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 generally accepted accounting principles, these financial
statements should be read in conjunction with the audited consolidated
financial statements for the year ended December 31, 1997 included in the
Miravant Medical Technologies Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
2. Accounting Policies
Investments in Affiliates
Investments in affiliates, owned more than 20% but not in excess of 50%,
where the Company is not deemed to be able to exercise controlling
influence, are recorded under the equity method. Investments in
affiliates, owned less than 20% where the Company is not deemed to be able
to exercise controlling influence, are recorded under the cost method.
Under the equity method, investments are carried at acquisition cost and
adjusted for the proportionate share of the affiliates' earnings or
losses. Under the cost method, investments are carried at acquisition cost
and written down only to the extent dividends received are in excess of
cumulative share of earnings or if a significant decline in the market
value of the investment is determined to be other than temporary.
In December 1996, the Company purchased a 33% equity interest in Ramus
Medical Technologies ("Ramus") for $2 million. The Company has recorded
100% of Ramus' loss to the extent of the investment made by the Company.
Under the accounting policy noted above, the investment in Ramus has been
fully offset by their losses as of June 30, 1998 and was $895,000 at
December 31, 1997.
3. Investments in Affiliates
In June 1998, the Company purchased a 9% equity interest in Xillix
Technologies Corp. ("Xillix") for $5 million. The investment was made in
the form of $3 million in cash and $2 million in restricted Miravant
Common Stock at a premium price to current market. The investment recorded
in the consolidated financial statements of $4.5 million represents cash
of $3 million and the fair market value on the date of the agreement of
58,909 shares of Common Stock of $25.06 per share or $1.5 million. The
investment will be accounted for under the cost method. In conjunction
with the investment, the Company also entered into an exclusive strategic
alliance agreement with Xillix to co-develop proprietary systems
incorporating PhotoPoint(TM) and Xillix's fluorescence imaging technology
for diagnosing and treating early stage cancer and pre-malignant tissues.
The agreement provides that both companies will own co-developed products
and will share the research and development costs associated with the
development program. Xillix will receive drug royalty payments from
Miravant based on the sale of the Company's drugs used in conjunction with
the co-developed technology.
4. Loan to Affiliate
In April 1998, the Company entered into a revolving credit agreement with
its affiliate, Ramus, pursuant to which the Company, at the request of
Ramus, shall from time to time make loans to Ramus in an aggregate
outstanding principal amount not exceeding at any one time $2 million. The
unpaid principal amount of the loans, which are to be used to fund Ramus'
clinical trial and operating costs, accrues interest at a variable rate
(7.35% as of June 30, 1998) based on the Company's bank rate, and matures
approximately one and a half years after the completion by Ramus of its
first surgical implant in a human involving coronary artery bypass surgery
in a formally conducted clinical trial. The loans are evidenced by a
promissory note, the balance of which shall be convertible under certain
circumstances at the option of the Company into shares of Ramus stock.
Additionally, under the terms of the revolving credit agreement and upon
the occurrence of specified milestones, the Company issued a warrant to
purchase 10,000 shares of the Company's Common Stock to the Chief
Executive Officer of Ramus at a price equal to the average closing price
of the Common Stock over the twenty consecutive trading days immediately
prior to the date of issuance. As of June 30, 1998, Ramus had borrowed
$500,000 under the revolving credit agreement. The Company has established
a reserve for the entire outstanding balance of the loan receivable at
June 30, 1998.
5. Shareholders' Equity
Effective June 30, 1998, the Company entered into an Amendment Agreement
with the purchasers of 900,000 shares under the Securities Purchase
Agreement dated September 22, 1997. Included among the provisions of the
Amendment Agreement is a change in the price protection provisions which
originally required the Company to issue additional shares or pay cash to
the purchasers to the extent that the 30 day average closing price of the
Company's Common Stock prior to September 22, 1998 was less than the
original $50.00 per share purchase price. Under the Amendment Agreement,
the Company's obligation under the price protection provisions relating to
the 900,000 shares is now spread out over an eight month period beginning
August 1, 1998 and ending March 1, 1999, and is determined by the
difference between the original purchase price and the 30 day average
closing bid price of the Common Stock on the first day of each month
beginning August 1 and ending March 1 (each a "measurement date"). The
total number of additional shares that can be issued to fulfill this price
protection obligation has been limited to 900,000 shares with any
remaining balance to be paid in cash. Additionally, the Company also has
the option to repurchase all or a part of the purchasers' shares at the
original closing price of $50.00 per share and thus eliminate all of the
purchasers' rights, including the price protection provisions, under both
the Amendment Agreement and the Securities Purchase Agreement.
Under the Amendment Agreement, the exercise price of the original warrants
issued to these purchasers under the Securities Purchase Agreement has
been reduced to $35.00 and under certain limited circumstances, the
Company has the right to redeem the warrants. Furthermore, the lock-up
agreement was amended to provide that, if the Company does not repurchase
the Common Stock, 1/8th of the shares and original warrant shares will be
released from the lock up on each measurement date. In addition, if the
Company does not repurchase all of the purchasers' original 900,000 shares
within sixty (60) days of the closing of the Amendment Agreement, the
Company has agreed to issue an additional 450,000 warrants to the
purchasers at an exercise price of $35.00 per share within five business
days of March 1, 1999 or the earlier termination of the lock-up agreement.
6. Per Share Data
The Company has adopted Statement of Financial Accounting Standards No.
128 "Earnings per Share" ("SFAS No. 128"), which supersedes Accounting
Principles Board Opinion No. 15 and which is effective for all periods
ending after December 31, 1997. SFAS No. 128 replaced the presentation of
primary and fully diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings per
share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share and reflects the potential
dilution that would occur if securities or other contracts to issue common
stock were exercised or converted to common stock. Common stock equivalent
shares from stock options and warrants have been excluded from this
computation as their effect is antidilutive. All previously stated
earnings per share amounts conform to the new SFAS No. 128 requirements.
Basic loss per common share for the quarters ended June 30, 1998 and 1997
were computed by dividing the net loss by the weighted average shares
outstanding during the period in accordance with SFAS No. 128. Since the
effect of the assumed exercise of stock options and other convertible
securities was antidilutive, basic and diluted loss per share as presented
on the consolidated statements of operations are the same.
7. Subsequent Events
Common Stock Purchase Commitment
On July 28, 1998, in accordance with the Amendment Agreement dated June
30, 1998, the Company repurchased the 225,000 shares subject to the price
protection provisions of the Amendment Agreement for both the August 1 and
September 1, 1998 measurement dates. This repurchase eliminated the
Company's obligation to issue additional shares or pay cash under the
amended price protection provisions with respect to the repurchased
shares. Although the Company maintains the right, it is under no
obligation nor has it notified the parties of its intent to repurchase any
or all of the remaining shares. The repurchased shares will be retired by
the Company.
Lease Commitment
In July 1998, the Company entered into a lease for approximately 27,400
square feet of primarily office space. The current base rent for this
lease is approximately $34,250 per month. The lease expires in October
2003 and provides for rent to be adjusted annually based on increases in
the consumer price index. The lease also provides the Company with the
ability to sublet all or a portion of the property. The leased property is
located in a business park and is subject to a master lease.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto. This Quarterly Report on
Form 10-Q may be deemed to include forward looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 that involve risk and uncertainty, including financial,
clinical, business environment and trend projections. Although Miravant Medical
Technologies (the "Company") believes that its expectations are based on
reasonable assumptions, it can give no assurance that its goals will be
achieved. The important factors that could cause actual results to differ
materially from those in the forward looking statements herein include, without
limitation, the early stage of development of both the Company and its products,
the timing and uncertainty of results of both research and regulatory processes,
the extensive government regulation applicable to the Company's business, the
unproven safety and efficacy of the Company's drug and device products, the
Company's significant additional financing requirements, the uncertainty of
future capital funding, the highly competitive environment of the international
pharmaceuticals and medical device industries and the presence of a number of
competitors with significantly greater financial, technical and other resources
and extensive operating histories, the Company's potential exposure to product
liability or recall, uncertainties relating to patents and other intellectual
property, including whether the Company will obtain sufficient protection or
competitive advantage therefrom, the Company's dependence upon a limited number
of key personnel and consultants, the Company's significant reliance upon its
collaborative partners for achieving its goals, and other factors detailed in
the Company's report on Form 10-K for the year ended December 31, 1997.
General
Since its inception, the Company has been principally engaged in the
research and development of drugs and medical device products for use in
PhotoPoint, the Company's proprietary technologies for photodynamic therapy. The
Company has been unprofitable since its founding and has incurred a cumulative
net loss of approximately $97.8 million as of June 30, 1998. The Company expects
to continue to incur substantial and increasing operating losses for the next
several years due to continued and increased spending on research and
development programs, the funding of preclinical and clinical testing and
regulatory activities and the costs of manufacturing, marketing, sales,
distribution and administrative activities.
The Company's revenues generally primarily reflect income earned from
licensing agreements, grants and license royalties from the sale of medical
device products. For the quarter ended June 30, 1998, the Company's revenues
were generated from clinical reimbursements, royalties from device licensing
agreements and revenue from grants. To date, the Company has received no revenue
from the sale of drug products, and the Company is not permitted to engage in
commercial sales of drugs or devices until such time, if ever, as the Company
receives requisite regulatory approvals. As a result, the Company does not
expect to record significant product sales until such approvals are received.
Until the Company commercializes its product(s), the Company expects
revenues to continue to be attributable to licensing agreements, grants and
license royalties from the sale of medical device products. The Company
anticipates that future revenues and results of operations may continue to
fluctuate significantly depending on, among other factors, the timing and
outcome of applications for regulatory approvals, the continued support from its
collaborative partners, the Company's ability to successfully manufacture,
market and distribute its drug and device products and/or the establishment of
collaborative arrangements for the manufacturing, marketing and distribution of
its products. The Company anticipates its operating activities will result in
substantial net losses for several more years.
The Company is currently conducting clinical trials in oncology and
ophthalmology. In dermatology, the Company is investigating topical formulations
of its photoselective drugs. Based upon the outcome of these studies and various
economic and development factors, including cost, reimbursement and the
available alternative therapies, the Company may or may not elect to further
develop PhotoPoint procedures in oncology, ophthalmology, dermatology or in any
other indications.
In June 1998, the Company and Pharmacia & Upjohn, Inc. ("Pharmacia &
Upjohn") amended the development and funding provisions of their previously
executed Purlytin(TM) license agreements discussed below. Under the amended
ophthalmology agreement, the Company will conduct all preclinical and U.S.
clinical trials and will be reimbursed by Pharmacia & Upjohn for all
out-of-pocket expenses incurred, provided that the trials are conducted in
accordance with the agreement. Pharmacia & Upjohn will conduct all international
clinical trials in ophthalmology. Under the amended agreement for the fields of
oncology and urology, the Company will conduct all preclinical and clinical
trials and will receive up to $20 million over the next two years, to be paid
quarterly, for the reimbursement of direct and indirect costs incurred and the
achievement of specified milestones. Under both of the amended agreements,
Pharmacia & Upjohn will also pay the Company royalties on product sales.
The Company has awarded, and may award in the future, stock options
that vest upon the achievement of certain milestones. Under Accounting
Principles Board Opinion No. 25 ("APB No. 25"), such options are accounted for
as variable stock options. As such, until the milestone is achieved (but only
after it is determined to be probable), deferred compensation is recorded in an
amount equal to the difference between the fair market value of the Common Stock
on the date of determination less the option exercise price and is adjusted from
period to period to reflect changes in the market value of the Common Stock.
Deferred compensation, as it relates to a particular milestone, is amortized
over the period between when achievement of the milestone becomes probable and
when the milestone is estimated to be achieved. Amortization of deferred
compensation could result in significant additional compensation expense being
recorded in future periods based on the market value of the Common Stock from
period to period.
Effective June 21, 1996, the Compensation Committee of the Board of
Directors adjusted the future vesting periods of variable stock options covering
400,000 shares of Common Stock. These variable stock options were adjusted to
change the vesting periods to specific dates as opposed to the original vesting
periods which were based upon the achievement of milestones; no change was made
to the exercise prices of these variable stock options. This change in the
vesting periods provides for the options to be accounted for as non-variable
options and therefore alleviates the impact of deferred compensation fluctuating
in future periods based on changes in the per share market value from period to
period. As of June 30, 1998, options covering 302,500 shares with an exercise
price of $34.75 per share have vested and options covering 75,000 shares have
been canceled. The remaining unvested shares will vest in the years 1998 through
2000.
In December 1997, the Company provided equity loans to certain
executive officers to be used to exercise options to acquire the Company's
Common Stock and pay for the related option exercise price and payroll taxes.
The notes accrue interest at a fixed rate, are payable in five years and are
collateralized by the underlying shares acquired upon exercise. Under APB No. 25
and related interpretations, such notes are required to be accounted for as
deferred compensation. The deferred compensation is determined as the difference
between the fair market value of the Common Stock on the date of exercise less
the option exercise price. As of June 30, 1998, the deferred compensation will
be amortized over the five-year term of the notes at $135,000 per quarter.
Results of Operations
The following table provides a summary of the Company's revenues for
the three and six months ended June 30, 1998 and 1997:
Three months ended June 30, Six months ended June 30,
1998 1997 1998 1997
----------------- ------------------ ----------------- -----------------
Consolidated Revenues
- ---------------------
Grants and contracts........... $ 197,000 $ -- $ 338,000 $ --
Royalties...................... 84,000 58,000 133,000 124,000
License........................ 1,050,000 375,000 1,495,000 600,000
----------------- ----------------- ----------------- -----------------
Total revenue................. $ 1,331,000 $ 433,000 $ 1,966,000 $ 724,000
================= ================= ================= =================
Revenues. For the three months ended June 30, 1998, revenues increased
to $1.3 million from $433,000 for the three months ended June 30, 1997. Total
revenues for the six months ended June 30, 1998 increased to $2.0 million as
compared to $724,000 for the same period in 1997. The increase in revenues for
both the three and six month periods ending June 30, 1998 is related to an
increase in license revenues which represents the billing for the specific
reimbursement of clinical costs in connection with the license agreement entered
into in July 1995 with Pharmacia & Upjohn. In addition, the Company recorded
$197,000 and $338,000 for the three and six month periods ended June 30, 1998,
respectively, associated with two on-going grants initially received in the
third quarter of 1997. There were no active grants or grant revenue recorded
during the first six months of 1997. Under the amended license agreements
entered into in June 1998 with Pharmacia and Upjohn, the Company anticipates
recording license income for the specific reimbursement of clinical costs
throughout 1998 and beyond. The level of such license, grant and royalty income
is likely to fluctuate materially from period to period and in the future
depending on the amount of clinical costs incurred and/or reimbursed, the
achievement of milestones and the extent of development activities under the
amended Pharmacia & Upjohn license agreements, the amount of grant income
awarded and expended and the amount of device products sold by Laserscope,
pursuant to a license agreement entered into in 1992 which provides royalties
from the sale of the Company's previously designed device products.
Research and Development. The Company's research and development
expenses for the three months ended June 30, 1998 increased to $8.3 million from
$4.4 million for the three months ended June 30, 1997. Research and development
expenses for the six months ended June 30, 1998 increased to $14.7 million from
$8.2 million for the six months ended June 30, 1997. The increase in research
and development expenses relates primarily to costs associated with the
screening, treatment and monitoring of qualified individuals participating in
clinical trials, the preparation of the documentation for clinical trials, and
the preclinical work associated with the development of existing and new
compounds, formulations and clinical programs. In addition, research and
development expenses continue to increase in conjunction with the Company's
progression through the various stages of preclinical and clinical trials and
the increased costs associated with the purchase of raw materials and supplies
for the production of clinical devices and drugs for use in these trials. The
Company anticipates future research and development expenses to increase as the
Company continues its clinical trials in ophthalmology and oncology and expands
its research and development programs, which includes the increased hiring of
personnel and continued expansion of preclinical and clinical testing. See
"--General."
Selling, General and Administrative. The Company's selling, general and
administrative expenses for the three months ended June 30, 1998 increased to
$2.5 million from $2.0 million for the three months ended June 30, 1997. Total
selling, general and administrative costs for the first six months of 1998
increased to $5.6 million as compared to $4.3 million for the same period in
1997. The increase in selling, general and administrative expenses for both the
three and six month periods ending June 30, 1998 as compared to the same periods
in 1997 are a result of (i) the increase in costs associated with professional
services received from financial consultants, attorneys, and public and media
relations and (ii) payroll and overhead costs due to the addition of
administrative and corporate personnel. The Company expects future selling,
general and administrative expenses to continue to grow as a result of the
increased support required for research and development activities, continuing
corporate development and professional services, compensation expense associated
with stock options and financial consultants and general corporate matters, as
well as the other factors described above.
Loss in Investment in Affiliate. For the three months ended June 30,
1998 and 1997, the Company recorded as expense $441,000 and $240,000,
respectively, in connection with its investment in Ramus in December 1996. For
the six months ended June 30, 1998 the Company recorded $895,000 as expense
related to Ramus as compared to $472,000 for the six months ended June 30, 1997.
The amounts recorded as expense in 1998 and 1997 represent the full amount of
the affiliate's losses for the respective periods to the extent of the
investment made in Ramus. Ramus' losses from operations are expected to be
ongoing throughout 1998 and beyond, and the level of such losses are expected to
fluctuate depending on research and development activities and preclinical and
clinical trial progress. However, as the investment in Ramus has been completely
reduced as of June 30, 1998, under the equity method of accounting, the Company
will not record any further losses incurred by Ramus unless additional
investments are made.
Interest and Other Income. For the three months ended June 30, 1998,
net interest and other income increased to $927,000 compared to net interest and
other income of $441,000 for the three months ended June 30, 1997. Total net
interest and other income for the six months ended June 30, 1998 increased to
$2.2 million as compared to $1.1 million for the same period in 1997. The
increase in net interest and other income for both the three and six month
periods in 1998 resulted primarily from the investment of proceeds received from
the Company's private equity offering in September 1997. Additionally, for the
six month period in 1998, the Company also recorded as other income $152,000 as
a transaction fee for the guaranty of a loan to one of its directors. The
transaction fee was paid in the form of the Company's Common Stock which will be
retired.
The Company does not believe that inflation has had a material impact
on its results of operations.
Liquidity and Capital Resources
Since inception through June 30, 1998, the Company has accumulated a
deficit of approximately $97.8 million and expects to continue to incur
substantial and increasing operating losses for the next several years. The
Company has financed its operations primarily through private placements of
common and preferred stock, private placements of convertible notes and short
term notes, its initial public offering, Pharmacia & Upjohn's purchase of Common
Stock and a secondary public offering. As of June 30, 1998, the Company had
received proceeds from the sale of equity securities and convertible notes of
approximately $181.5 million. The Company has available a $1.0 million bank line
of credit which has a variable rate of interest based on the bank's lending rate
(7.35% as of June 30, 1998), which expires on January 31, 1999, and is
collateralized by the Company's cash balances. The credit agreement subjects the
Company to certain customary restrictions, including a prohibition on the
payment of dividends. The Company presently has no outstanding borrowings under
the bank line of credit.
In connection with the licensing agreement with Pharmacia & Upjohn, the
Company has recorded as license income the reimbursement of clinical costs of
$1.5 million for the six months ended June 30, 1998. Under the amended license
agreements entered into with Pharmacia & Upjohn in June 1998, the Company
anticipates recording license income for the specific reimbursement of clinical
costs throughout the remainder of 1998 and beyond.
In June 1998, the Company purchased a 9% equity interest in Xillix. The
investment was made in the form of $3 million cash and $2 million in restricted
shares of the Company's Common Stock valued at a premium to market. The shares
(58,909) had a fair market value of $1.5 million on the date the investment was
made. In addition to the investment, the Company entered into a strategic
alliance agreement with Xillix to co-develop proprietary systems incorporating
the technology of each company and to share the research and development costs.
Under the revolving credit agreement entered into in April 1998 with
its affiliate, Ramus, the Company has provided Ramus with $500,000 of the $2
million credit limit as of June 30, 1998. At the request of Ramus, the Company
will continue, from time to time, to provide Ramus with additional amounts under
this agreement.
For the first six months of 1998, the Company required cash for
operations of approximately $13.5 million compared to $9.3 million for the same
period in 1997. The increase in cash used in operations was primarily due to an
increase in operating activities associated with the continued expansion of
preclinical and clinical testing, the increase in research and development
programs and personnel, the reduction of accounts payable and the increase in
general corporate activities. For the first six months of 1998, the Company
required cash from its financing activities of approximately $12.7 million as
compared to $3.8 million for the same period in 1997. The increase is primarily
related to the repurchase by the Company of its Common Stock as well as the
issuance of executive equity notes during the first three months of 1998. This
increase was partially offset by proceeds received from the exercise of options
and warrants.
The Company invested a total of $1.6 million in property, plant and
equipment during the first six months of 1998 compared to $586,000 during the
same period in 1997. The increase is directly related to costs incurred for the
expansion of the Company's laboratory and office space as well as the purchase
of equipment for this space. The Company expects to continue to purchase
property and equipment in the future as it expands its preclinical, clinical and
research and development activities. Since inception, the Company has entered
into capital lease agreements for approximately $184,000 of equipment,
consisting primarily of laboratory equipment. The Company expects to continue to
lease equipment from time to time as needed, when and if financing resources
become available at acceptable terms to the Company.
The Company's capital funding requirements will depend on numerous
factors, including the progress and magnitude of the Company's research and
development programs and preclinical testing and clinical trials, the time
involved in obtaining regulatory approvals, the cost involved in filing and
maintaining patent claims, technological advances, competitor and market
conditions, the ability of the Company to establish and maintain collaborative
arrangements, the cost of manufacturing scale-up and the cost and effectiveness
of commercialization activities and arrangements.
The Company may require substantial funding to continue its research
and development activities, preclinical and clinical testing and manufacturing,
marketing, sales, distribution and administrative activities. Additionally,
under the Amendment Agreement dated June 30, 1998 to the Company's Securities
Purchase Agreement dated September 22, 1997, the Company may be required to
expend substantial funds to fulfill its obligations under the price protection
provisions. Furthermore, the Company may expend significant additional cash
resources to repurchase shares of it Common Stock under the Common Stock
repurchase program previously approved by the Company's Board of Directors and
if it exercises its option to repurchase its shares under the Amendment
Agreement. The Company has raised funds in the past through the public or
private sale of securities, and may raise funds in the future through public or
private financings, collaborative arrangements or from other sources. The
success of such efforts will depend in large part upon continuing developments
in the Company's preclinical and clinical testing. The Company continues to
explore and, as appropriate, enter into discussions with other companies
regarding the potential for equity investment, collaborative arrangements,
license agreements or development or other funding programs with the Company in
exchange for manufacturing, marketing, distribution or other rights to products
developed by the Company. However, there can be no assurance that discussions
with other companies will result in any investments, collaborative arrangements,
agreements or funding, or that the necessary additional financing through debt
or equity financing will be available to the Company on acceptable terms, if at
all. Further, there can be no assurance that any arrangements resulting from
these discussions will successfully reduce the Company's funding requirements.
If additional funding is not available to the Company when needed, the Company
will be required to scale back its research and development programs,
preclinical and clinical testing and administrative activities and the Company's
business and financial results and condition would be materially adversely
affected.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 10, 1998, the Company held its Annual Meeting of Stockholders. The
following individuals were elected to the Board of Directors:
Votes Votes
For Withheld
--------------- ---------------
Charles T. Foscue 10,875,964 23,848
Gary S. Kledzik, Ph.D. 10,875,964 23,848
David E. Mai 10,875,964 23,848
Donald K. McGhan 10,430,731 469,081
Raul E. Perez, M.D. 10,877,526 22,286
Jonah Shacknai 10,877,526 22,286
In addition, the shareholders also approved the following proposal:
Votes Votes Broker
For Against Abstained Non-Votes
-------------- -------------- -------------- ----------------
1. Proposal to ratify the selection of
the Company's independent auditors. 10,882,997 1,315 15,500 0
ITEM 5. OTHER INFORMATION
Notice of any shareholder proposal intended to be presented at
the Company's 1999 Annual Meeting of Shareholders that is not
submitted to the Company pursuant to SEC Rule 14a-8 will be
considered untimely if not received by the Company on or
before March 24, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
See Exhibit Index on page 16.
(b) Reports on Form 8-K.
Form 8-K dated June 30, 1998, Other Events - Item 5:
announcing that the Company had amended the
Securities Purchase Agreement dated September 22,
1997.
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, 1998 By: /S/ John M. Philpott
------------------------
John M. Philpott
Chief Financial Officer and Controller
(on behalf of the Company and as
Principal Financial Officer and
Principal Accounting Officer)
INDEX TO EXHIBITS
Incorporating
Exhibit Reference
Number Description (if applicable)
- ------ ----------- ---------------
3.1 Certificate of Amendment of the Restated Certificate of Incorporation of the Registrant
filed with the Delaware Secretary of State on September 12, 1997. [E][3.1]
3.2 Certificate of Amendment of the Restated Certificate of Incorporation of the Registrant [C][3.11]
filed with the Delaware Secretary of State on July 24, 1995.
3.3 Restated Certificate of Incorporation of the Registrant filed with the Delaware Secretary [B][3.1]
of State on December 14, 1994.
3.4 Certificate of Amendment of the Certificate of Incorporation of the Registrant filed with [A][3.2]
the Delaware Secretary of State on March 17, 1994.
3.5 Certificate of Amendment of the Certificate of Incorporation of the Registrant filed with [A][3.3]
the Delaware Secretary of State on October 7, 1992.
3.6 Certificate of Amendment of the Certificate of Incorporation of the Registrant filed with [A][3.4]
the Delaware Secretary of State on November 21, 1991.
3.7 Certificate of Amendment of the Certificate of Incorporation of the Registrant filed with [A][3.5]
the Delaware Secretary of State on September 27, 1991.
3.8 Certificate of Amendment of the Certificate of Incorporation of the Registrant filed with [A][3.6]
the Delaware Secretary of State on December 20, 1989.
3.9 Certificate of Amendment of the Certificate of Incorporation of the Registrant filed with [A][3.7]
the Delaware Secretary of State on August 11, 1989.
3.10 Certificate of Amendment of the Certificate of Incorporation of the Registrant filed with [A][3.8]
the Delaware Secretary of State on July 13, 1989.
3.11 Certificate of Incorporation of the Registrant filed with the Delaware Secretary of State [A][3.9]
on June 16, 1989.
3.12 Amended and Restated Bylaws of the Registrant. [E][3.12]
4.1 Specimen Certificate of Common Stock. [B][4.1]
4.2 Form of Convertible Promissory Note. [A][4.3]
4.3 Form of Indenture. [A][4.4]
4.4 Special Registration Rights Undertaking. [A][4.5]
4.5 Undertaking Agreement dated August 31, 1994. [A][4.6]
4.6 Letter Agreement dated March 10, 1994. [A][4.7]
4.7 Form of $10,000,000 Common Stock and Warrants Offering Investment Agreement. [A][4.8]
4.8 Form of $55 Common Stock Purchase Warrant. [D][4.1]
4.9 Form of $60 Common Stock Purchase Warrant. [D][4.2]
4.10 Form of $35 Amended and Restated Common Stock Purchase Warrant. [F][4.1]
4.11 Form of Additional $35 Common Stock Purchase Warrant. [F][4.2]
4.12 Warrant to Purchase 10,000 Shares of Common Stock between the Registrant and Charles S.
Love.*
10.1 Amended and Restated Development and Commercial Supply Agreement dated June 8, 1998
between the Registrant and Pharmacia & Upjohn Co.*
10.2 Amended and Restated Development and License Agreement dated June 8, 1998 between the
Registrant and Pharmacia & Upjohn S.p.A.*
10.3 Amended and Restated Ophthalmology Development and License Agreement dated June 8, 1998
between the Registrant and Pharmacia & Upjohn AB.*
10.4 Right of First Refusal Agreement dated June 8, 1998 between the Registrant and Pharmacia &
Upjohn, Inc.*
10.5 Credit Agreement dated April 1, 1998 between the Registrant and Ramus Medical
Technologies.*
10.6 Convertible Promissory Note dated April 1, 1998 between the Registrant and Ramus Medical
Technologies.*
10.7 Strategic Alliance Agreement dated June 2, 1998 between the Registrant and Xillix
Technologies Corp.*
10.8 Subscription Agreement relating to the Registrant's Common Stock dated June 2, 1998
between the Registrant and Xillix Technologies Corp.
10.9 Subscription Agreement relating to Xillix's Common Stock dated June 2, 1998 between the
Registrant and Xillix Technologies Corp.
11.1 Statement regarding computation of net loss per share.
27.1 Financial Data Schedule.
- -------------------------------------------
[A] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Registration Statement on Form S-1
(File No. 33-87138).
[B] Incorporated by reference from the exhibit referred to in brackets
contained in Amendment No. 2 to the Registrant's Registration
Statement on Form S-1 (File No. 33-87138).
[C] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 10-Q for the quarter ended June
30, 1995, as amended on Form 10-Q/A dated December 6, 1995 (File No.
0-25544).
[D] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Registration Statement on Form S-3
(File No. 333-39905).
[E] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 10-Q for the quarter ended
September 30, 1997 (File No. 0-25544).
[F] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 8-K dated June 30, 1998 (File No.
0-25544).
* Confidential portions of this exhibit have been deleted and filed
separately with the Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934.