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 September 30, 1999
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)
336 Bollay Drive, 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 October 31, 1999
----- -------------------------------
Common Stock, $.01 par value 18,015,696
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page
Item 1. Consolidated Financial Statements
Consolidated balance sheets as of September 30, 1999 and
December 31, 1998...........................................................3
Consolidated statements of operations for the three months ended
September 30, 1999 and 1998 and for the nine months ended
September 30, 1999 and 1998.................................................4
Consolidated statements of cash flows for the nine months ended
September 30, 1999 and 1998.................................................5
Notes to consolidated financial statements ....................................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................................8
PART II. OTHER INFORMATION
Item 3. Qualitative and Quantitative Disclosures About Market Risk.....................15
Item 6. Exhibits and Reports on Form 8-K...............................................15
Signatures.....................................................................16
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
MIRAVANT MEDICAL TECHNOLOGIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1999 1998
-------------------- -------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents............................................... $ 11,317,000 $ 11,284,000
Investments in short-term marketable securities......................... 3,621,000 --
Accounts receivable..................................................... 8,314,000 3,038,000
Prepaid expenses and other current assets............................... 1,726,000 936,000
-------------------- -------------------
Total current assets....................................................... 24,978,000 15,258,000
Property, plant and equipment:
Vehicles................................................................ 28,000 28,000
Furniture and fixtures.................................................. 1,638,000 1,720,000
Equipment............................................................... 5,455,000 5,180,000
Leasehold improvements.................................................. 4,479,000 4,232,000
Capital lease equipment................................................. 184,000 184,000
-------------------- -------------------
11,784,000 11,344,000
Accumulated depreciation................................................ (7,674,000) (5,514,000)
-------------------- -------------------
4,110,000 5,830,000
Investments in affiliates.................................................. 511,000 1,512,000
Loan to affiliate, net of reserve of $2.2 million and $1.8 million at
September 30, 1999 and December 31, 1998, respectively.................. -- --
Patents and other assets................................................... 1,120,000 1,210,000
-------------------- -------------------
Total assets............................................................... $ 30,719,000 $ 23,810,000
==================== ===================
Liabilities and shareholders' equity
Current liabilities:
Accounts payable........................................................ $ 2,881,000 $ 3,541,000
Accrued payroll and expenses............................................ 775,000 583,000
------------------ ----------------
Total current liabilities.................................................. 3,656,000 4,124,000
Long-term debt............................................................. 7,685,000 --
Shareholders' equity:
Common stock, 50,000,000 shares authorized; 18,014,029 and 16,080,054
shares issued and outstanding at September 30, 1999 and
December 31, 1998, respectively....................................... 151,127,000 135,989,000
Notes receivable from officers.......................................... (454,000) (1,525,000)
Deferred compensation................................................... (2,085,000) (2,896,000)
Accumulated other comprehensive loss.................................... (3,965,000) (2,964,000)
Accumulated deficit..................................................... (125,245,000) (108,918,000)
-------------------- -------------------
Total shareholders' equity................................................. 19,378,000 19,686,000
-------------------- -------------------
Total liabilities and shareholders' equity................................. $ 30,719,000 $ 23,810,000
==================== ===================
See accompanying notes.
MIRAVANT MEDICAL TECHNOLOGIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended September 30, Nine months ended September 30,
1999 1998 1999 1998
-------------------- ------------------ ------------------ ------------------
Revenues:
Grants, licensing and royalty income........ $ 2,353,000 $ 3,753,000 $ 10,771,000 $ 5,719,000
-------------------- ------------------ ------------------ -------------------
Total revenues................................. 2,353,000 3,753,000 10,771,000 5,719,000
Costs and expenses:
Research and development.................... 5,833,000 5,798,000 21,486,000 20,708,000
Selling, general and administrative......... 1,981,000 2,497,000 5,846,000 7,333,000
Loss in affiliate........................... 42,000 526,000 370,000 1,921,000
-------------------- ------------------ ------------------ -------------------
Total costs and expenses....................... 7,856,000 8,821,000 27,702,000 29,962,000
Loss from operations........................... (5,503,000) (5,068,000) (16,931,000) (24,243,000)
Interest and other income (expense):
Interest and other income................... 280,000 1,005,000 805,000 3,200,000
Interest expense............................ (164,000) -- (201,000) (1,000)
------------------- ------------------ ---------------- -------------------
Total net interest and other income............ 116,000 1,005,000 604,000 3,199,000
------------------- ------------------ ------------------ -------------------
Net loss....................................... $ (5,387,000) $ (4,063,000) $ (16,327,000) $ (21,044,000)
================== ================== ================ ===================
Net loss per share - basic and diluted......... $ (0.30) $ (0.30) $ (0.92) $ (1.51)
================== ================== ================ ===================
Shares used in computing net loss per share.... 18,007,535 13,724,679 17,683,254 13,976,017
==================== ================== ================== ===================
See accompanying notes.
MIRAVANT MEDICAL TECHNOLOGIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended September 30,
Operating activities: 1999 1998
------------------- ----------------------
Net loss.......................................................... $ (16,327,000) $ (21,044,000)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization.................................. 2,239,000 1,985,000
Amortization of deferred compensation.......................... 1,216,000 1,026,000
Loss on sale of property, plant and equipment.................. 25,000 --
Reserve for loan receivable from affiliate..................... 250,000 1,892,000
Stock awards................................................... 310,000 108,000
Interest on long-term debt..................................... 185,000 --
Changes in operating assets and liabilities:
Accounts receivable......................................... (5,276,000) 502,000
Prepaid expenses and other assets........................... (743,000) (1,072,000)
Accounts payable and accrued payroll and expenses........... (485,000) (1,949,000)
------------------- ----------------------
Net cash used in operating activities............................. (18,606,000) (18,552,000)
Investing activities:
Purchases of marketable securities ............................... (17,514,000) (36,545,000)
Sales of marketable securities ................................... 13,893,000 49,112,000
Investments in affiliates......................................... -- (2,105,000)
Purchases of property, plant and equipment........................ (501,000) (2,531,000)
------------------- ----------------------
Net cash (used in) provided by investing activities............... (4,122,000) 7,931,000
Financing activities:
Proceeds from issuance of Common Stock, less issuance costs....... 18,627,000 3,225,000
Purchases of Common Stock......................................... -- (29,161,000)
Proceeds from long-term debt...................................... 7,500,000 --
(Payments) adjustments of executive officer notes................. 1,088,000 (2,100,000)
Payments of capital lease obligations............................. -- (17,000)
Payments of loan to affiliate..................................... (250,000) (1,026,000)
Payments for price protection under the
Amended Securities Agreement.................................... (4,204,000) --
---------------- --------------------
Net cash provided by (used in) financing activities............... 22,761,000 (29,079,000)
Net increase (decrease) in cash and cash equivalents.............. 33,000 (39,700,000)
Cash and cash equivalents at beginning of period.................. 11,284,000 55,666,000
------------------- ---------------------
Cash and cash equivalents at end of period........................ $ 11,317,000 $ 15,966,000
=================== ======================
Supplemental disclosures:
Cash paid for:
State taxes..................................................... $ 100,000 $ 96,000
=================== ======================
Interest ....................................................... $ -- $ 1,000
=================== ======================
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 September 30, 1999 and for the
three and nine month periods ended September 30, 1999 and 1998, 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, 1998 included in the
Miravant Medical Technologies Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
2. Comprehensive Income (Loss)
For the three months ended September 30, 1999 and 1998, comprehensive loss
amounted to $6.9 million and $7.1 million, respectively. For the nine
months ended September 30, 1999 and 1998, comprehensive loss amounted to
$17.3 million and $24.0 million, respectively. The difference between net
loss and comprehensive loss relates to the change in the unrealized loss
the Company recorded for its available-for-sale securities on its
investment in its affiliate Xillix Technologies Corp. or Xillix.
3. 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.
4. Reclassifications
Certain reclassifications have been made to the 1998 consolidated financial
statements to conform to the periods presented.
5. Shareholders' Equity
In January 1999, the Company and Pharmacia & Upjohn, Inc., and certain
other wholly owned subsidiaries, which collectively and individually are
referred to as Pharmacia & Upjohn in this report, entered into an Equity
Investment Agreement pursuant to which Pharmacia & Upjohn purchased from
the Company 1,136,533 shares of the Company's Common Stock for an aggregate
purchase price of $19.0 million, or $16.71 per share. This price includes a
premium of approximately 20% over the ten-day average per share closing
price of the Common Stock through January 14, 1999. In February 1999, the
Company and Pharmacia & Upjohn entered into a Credit Agreement which will
extend to the Company up to $22.5 million in credit, which is subject to
certain limitations and restrictions, to be used to support the Company's
ophthalmology, oncology and other development programs, as well as for
general corporate purposes. In connection with this credit, Pharmacia &
Upjohn will receive a total of up to 360,000 warrants to purchase shares of
Miravant Common Stock. The exercise price of each warrant will be equal to
140% of the average of the closing bid prices of the Common Stock for the
ten trading days immediately preceding the borrowing request for the
related loan. Under the Credit Agreement, the Company will be required to
meet certain affirmative, negative and financial covenants until the loan
is fully paid off. Additionally, in connection with the Equity Investment
Agreement and the Credit Agreement, in February 1999 the Company and
Pharmacia & Upjohn amended the June 1998 ophthalmology, oncology and
urology development and license agreements to eliminate future cost
reimbursements for oncology and urology and any future milestone payments
in age-related macular degeneration or AMD.
6. Long-Term Debt
During the second quarter of 1999, in accordance with the February 1999
Credit Agreement with Pharmacia & Upjohn, the Company received the first
two quarterly loans for a total of $7.5 million of the available $22.5
million and issued 120,000 warrants to purchase Miravant Common Stock at an
exercise price of $11.87 per warrant share. In addition, in accordance with
the Credit Agreement, the Company issued a promissory note to Pharmacia &
Upjohn for the loan amounts received and issued additional promissory notes
for the related interest due on the outstanding loan balance as of June 30,
1999 and September 30, 1999. The promissory notes mature in June 2004,
subject to certain limitations and restrictions as defined by the Credit
Agreement, and accrue interest at the prime rate which adjusts quarterly
and was 8.0% for the quarter ended September 30, 1999.
7. Subsequent Events
Extension of Guaranty
In October 1999, the Company finalized the extension of its guaranty of a
$7.6 million loan plus accrued interest that a former director has with a
commercial bank, under substantially similar terms and conditions. In
conjunction with the extension to October 31, 2000, the Company increased
its security interest to include substantially all of the personal assets
of the former director, which includes the previously secured Miravant
Common Stock owned by the former director. Additionally, with the extension
of the guaranty of this loan, the former director paid the Company a
transaction fee of $152,000.
Pharmacia & Upjohn
In November 1999, in accordance with the Credit Agreement entered into with
Pharmacia & Upjohn in February 1999, the Company requested the third and
fourth quarterly loans for a total of $7.5 million of the remaining $15.0
million available under the Credit Agreement. Under the terms of the Credit
Agreement and in connection with the loan amounts received, the Company
issued 120,000 warrants to purchase Miravant Common Stock at an exercise
price of $14.83 per warrant share. In addition, the Company received
payment from Pharmacia & Upjohn of $5.6 million related to their
outstanding second quarter reimbursement cost billings.
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 we believe that
our expectations are based on reasonable assumptions, we can give no assurance
that our 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 current stage of development of both Miravant
and our products, the timing and uncertainty of results of both research and
regulatory processes, the extensive government regulation applicable to our
business, the unproven safety and efficacy of our drug and device products, our
significant additional financing requirements, the volatility of our stock
price, the uncertainty of future capital funding, the highly competitive
environment of the international pharmaceutical and medical device industries
and the presence of a number of competitors with significantly greater
financial, technical and other resources and extensive operating histories, our
potential exposure to product liability or recall, uncertainties relating to
patents and other intellectual property, including whether we will obtain
sufficient protection or competitive advantage therefrom, uncertainties relating
to our ability and the ability of our significant vendors and service providers
to successfully complete our Year 2000 initiatives, our dependence upon a
limited number of key personnel and consultants and our significant reliance
upon our collaborative partners for achieving our goals, and other factors
detailed in our Annual Report on Form 10-K for the year ended December 31, 1998.
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), our
proprietary technologies for photodynamic therapy. We have been unprofitable
since our founding and have incurred a cumulative net loss of approximately
$125.2 million as of September 30, 1999. We expect to continue to incur
substantial, and possibly increasing, operating losses for the next several
years due to continued and increased spending on research and development
programs, the funding of preclinical studies, clinical trials and regulatory
activities and the costs of manufacturing and administrative activities.
Our revenues primarily reflect income earned from licensing agreements and
grants. To date, we have received no revenue from the sale of drug products, and
we are not permitted to engage in commercial sales of drugs or devices until
such time, if ever, as we receive requisite regulatory approvals. As a result,
we do not expect to record significant product sales until such approvals are
received.
Until we commercialize our product(s), we expect revenues to continue to be
attributable to licensing agreements and grants. We anticipate 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, our ability to successfully manufacture, market and
distribute our drug and device products and/or the restructuring or
establishment of collaborative arrangements for the manufacturing, marketing and
distribution of some of our products. We anticipate our operating activities
will result in substantial net losses for several more years.
In June 1998, we amended the development and funding provisions of our
previously executed 1995 SnET2 development and license agreements with Pharmacia
& Upjohn, Inc. and some of its subsidiaries, which together are referred to as
Pharmacia & Upjohn in this report. Under the June 1998 amended ophthalmology
agreement, we were to conduct all preclinical studies and U.S. clinical trials
and would be reimbursed by Pharmacia & Upjohn for all out-of-pocket expenses
incurred, provided that the trials were conducted in accordance with the
agreement. Pharmacia & Upjohn was to conduct all international clinical trials
in ophthalmology. We also amended the 1995 oncology, urology and dermatology
development and license agreement to return to us the rights for SnET2 in
dermatology and to provide for the quarterly funding of $2.5 million for eight
quarters for use in our oncology and urology programs. Subsequently, in January
1999, we entered into an Equity Investment Agreement with Pharmacia & Upjohn,
whereby Pharmacia & Upjohn purchased 1,136,533 shares of our Common Stock for an
aggregate purchase price of $19.0 million, which represented the acceleration of
the remaining six $2.5 million quarterly payments for oncology and urology and
two future milestone payments for age-related macular degeneration, or AMD,
under the amended June 1998 ophthalmology, oncology and urology development and
license agreements or June 1998 Agreements. Also, in February 1999, under a
separate Credit Agreement, Pharmacia & Upjohn extended to us up to $22.5 million
in credit, which is subject to certain limitations and requirements, including
interest at a variable rate, in the form of up to six quarterly loans of $3.75
million each to be used to support our ophthalmology, oncology and other
development programs, as well as for general corporate purposes. To date we have
utilized $7.5 million of the line of credit. Additionally, in connection with
the Equity Investment Agreement and the Credit Agreement, in February 1999 we
amended the June 1998 Agreements, referred to in this report as the February
1999 Pharmacia & Upjohn development and license agreements.
During the third quarter of 1998 and in connection with the June 1998
Agreements, we implemented a cost restructuring program designed to focus our
resources on our core development programs, which emphasize large potential
market opportunities and unmet medical needs. Additionally, the program was
designed to utilize the cost reimbursement components of the June 1998
Agreements as well as streamline administrative activities, reduce overhead
costs and eliminate positions that were not central to our core development
programs. In February 1999, based on the February 1999 Pharmacia & Upjohn
development and license agreements, we refined the use of our resources to
utilize the change in cost reimbursement from Pharmacia & Upjohn while
maintaining our development programs. We will continue to evaluate the use of
our resources as our funding provisions change and as opportunities present
themselves.
We are currently conducting clinical trials in oncology and ophthalmology.
In dermatology, we are investigating the development of topical formulations of
our photoselective drugs. Based upon the outcome of these studies and various
economic and development factors, including cost, reimbursement and the
available alternative therapies, we may or may not elect to further develop
PhotoPoint procedures in oncology, ophthalmology, dermatology or in any other
indications.
Year 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Our computer
equipment and software and devices with embedded technology that are
time-sensitive may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, such as:
* A temporary inability to process accounting, payroll, database,
network and software transactions;
* Possible disruption of environmental, lighting, security controls
and other corporate equipment;
* A temporary inability to process clinical and preclincal testing
and data; and
* Loss of telephone and related voicemail and internet messages, in
addition to other similar normal business activities.
We have undertaken various initiatives intended to ensure that our computer
equipment and software will function properly with respect to dates in the Year
2000 and thereafter. The term "computer equipment and software" includes systems
that are commonly thought of as Information Technology or IT systems, including
accounting, data processing and telephone/PBX systems and other miscellaneous
systems. It also includes systems that are not commonly thought of as IT
systems, such as alarm systems, fax machines, air conditioning units, internally
developed software and other miscellaneous systems. We have utilized both
internal and external resources to identify and assess needed Year 2000
remediation. As of September 30, 1999, the Year 2000 identification, assessment,
remediation and testing efforts, which began in February 1998, have been
completed, with the exception of final communication with certain outside
vendors and service providers. The following table describes the Year 2000
initiatives as well as their respective completion dates as of September 30,
1999:
Date
Year 2000 Initiatives Completed
-----------------
Initial IT system identification...................................... 10/98
Initial IT system assessment.......................................... 11/98
Remediation regarding central system issues........................... 6/99
Testing regarding central system issues............................... 8/99
Identification, assessment, remediation and testing regarding desktop
and individual system issues........................................ 6/99
Identification regarding non-IT system issues......................... 10/98
Assessment regarding non-IT system issues............................. 11/98
Remediation regarding non-IT system issues............................ 6/99
Testing regarding non-IT system issues................................ 8/99
In addition, we have substantially completed the process of communicating
with our significant vendors and service providers and strategic partners to
determine the extent to which interfaces with such entities are vulnerable to
Year 2000 issues and whether the products and services utilized by such entities
are Year 2000 compliant. The process will be completed upon the receipt of the
remaining responses from certain vendors and service providers. We do not
anticipate that any of the remaining responses will pose a significant
operational problem for us.
The cost of our Year 2000 efforts, as well as those costs related to Year
2000 issues of third parties, have not been material to date and are not
expected to be greater than $250,000. As of September 30, 1999, we had not
incurred any significant external costs related to our Year 2000 efforts. Other
non-Year 2000 IT efforts have not been materially delayed or impacted by Year
2000 initiatives. We presently believe that the Year 2000 issue will not pose
significant operational problems for us. However, if all Year 2000 issues are
not properly identified, the Year 2000 issue may materially adversely impact our
results of operations or adversely affect our relationships with vendors, or
others. Additionally, the Year 2000 issues of other entities may have a material
adverse impact on our systems or results of operations.
Results of Operations
The following table provides a summary of the Company's revenues for the
three and nine months ended September 30, 1999 and 1998:
Three months ended September 30, Nine months ended September 30,
Consolidated Revenues 1999 1998 1999 1998
- --------------------- ------------------- --------------------- ------------------ ---------------------
Grants and contracts........... $ 209,000 $ 230,000 $ 414,000 $ 568,000
Royalties...................... -- 30,000 143,000 163,000
License........................ 2,144,000 3,493,000 10,214,000 4,988,000
------------------ --------------------- ------------------ ---------------------
Total revenue.................. $ 2,353,000 $ 3,753,000 $ 10,771,000 $ 5,719,000
================== ===================== ================== ======================
Revenues. For the three months ended September 30, 1999, our revenues
decreased to $2.4 million from $3.8 million for the three months ended September
30, 1998. For the nine months ended September 30, 1999, our revenues increased
to $10.8 million from $5.7 million for the same period in 1998.
License revenues of $2.1 million and $10.2 million for the three and nine
months ended September 30, 1999, respectively, represent the specific
reimbursement from Pharmacia & Upjohn of out-of-pocket or direct costs incurred
in preclinical studies and Phase III clinical trials in AMD. These
reimbursements were recorded in accordance with the February 1999 Pharmacia &
Upjohn development and license agreements and will fluctuate from quarter to
quarter depending on the timing and nature of the costs incurred in the AMD
program. License revenues of $3.5 million and $5.0 million for the three and
nine months ended September 30, 1998, respectively, consisted of the first $2.5
million quarterly payment due under the June 1998 Agreements with Pharmacia &
Upjohn and the specific reimbursement for Phase I/II AMD clinical and preclincal
program costs. The future revenues recorded for ophthalmology cost reimbursement
may fluctuate depending on the amount of reimbursable costs incurred and
Pharmacia & Upjohn's level of involvement in the Phase III clinical trials,
which is expected to increase in the future.
The level of license and grant income is likely to fluctuate materially
from period to period and in the future depending on the amount of preclinical
and clinical costs incurred and/or reimbursed, the achievement of milestones and
the extent of development activities under the amended and restated
ophthalmology development and license agreement with Pharmacia & Upjohn and the
amount of grant income awarded and expended. Under the February 1999 Pharmacia &
Upjohn development and license agreements, we will only be reimbursed for the
specific costs for preclinical studies and clinical trials in ophthalmology and
we will no longer be reimbursed for any oncology and urology program costs, as
the quarterly reimbursement payments for these costs were accelerated in
connection with the $19.0 million equity investment made by Pharmacia & Upjohn
under the January 1999 Equity Investment Agreement. No further royalty income is
expected to be received, as the Laserscope license agreement, which provided
royalties on the sale of our previously designed device products, terminated in
April 1999.
Research and Development. For the three months ended September 30, 1999,
research and development expenses of $5.8 million were consistent with the $5.8
million recorded for the three months ended September 30, 1998. For the nine
months ended September 30, 1999, research and development expenses increased to
$21.5 million from $20.7 million for the same period in 1998. Research and
development expenses incurred in 1999 related primarily to:
* The costs associated with drug and device manufacturing and the
screening, treatment and monitoring of qualified individuals
participating in Phase III clinical trials for AMD and Phase I
clinical trials for prostate cancer during 1999;
* Costs for the preparation of the documentation and the collecting
of data for the Phase III clinical trials for AMD and regulatory
filings; and
* The preclinical studies and development work associated with the
development of existing and new drug compounds, formulations and
clinical programs.
Research and development expenses incurred in 1998 primarily related to
similar types of costs incurred for Phase I/II AMD and other oncology clinical
trials.
Future research and development expenses may fluctuate depending on the
impact of our cost restructuring program implemented in September 1998, the
level of Pharmacia & Upjohn's involvement in our Phase III AMD clinical trials,
continued expenses incurred in our preclinical studies and clinical trials in
our ophthalmology, 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 scale-up to expand drug production to commercial levels and the
expansion of our research and development programs, which includes the increased
hiring of personnel, the continued expansion of preclinical studies and clinical
trials and the development of new drug compounds and formulations.
Selling, General and Administrative. For the three months ended September
30, 1999, selling, general and administrative expenses decreased to $2.0 million
from $2.5 million for the three months ended September 30, 1998. For the nine
months ended September 30, 1999, selling, general and administrative expenses
decreased to $5.8 million from $7.3 million for the same period in 1998. The
overall decrease in selling, general and administrative expenses for both the
three and nine months ended September 30, 1999 compared to the same periods in
1998 is primarily due to a decrease in costs and compensation expense associated
with professional services received from financial consultants, attorneys and
public and media relations.
Future selling, general and administrative expenses are expected to remain
consistent due to our September 1998 cost restructuring program. Conditions
which may influence these expenses are the level of support required for
research and development activities, continuing corporate development and
professional services, compensation expense associated with stock options and
warrants and financial consultants and general corporate matters.
Loss in Investment in Affiliate. In connection with the $2.0 million line
of credit we have provided to our affiliate, Ramus Medical Technologies or
Ramus, we have recorded a reserve for the entire $2.0 million outstanding credit
line balance plus accrued interest as of September 30, 1999. The $370,000
expense recorded for the nine months ended September 30, 1999 represents a
reserve for the final amount of borrowings under the credit line plus accrued
interest. The $1.9 million expense recorded for the nine months ended September
30, 1998 represents a reduction, based on 100% of Ramus' losses for the
respective period, of the $2.0 million equity investment made in Ramus in 1996.
The future losses recorded with respect to Ramus will be limited to reserves for
accrued interest, as the line of credit has been fully utilized and reserved for
and the investment balance reduced to zero as of September 30, 1999.
Interest and Other Income. Interest and other income decreased to $805,000
for the nine months ended September 30, 1999 from $3.2 million for the nine
months ended September 30, 1998. The decrease for the nine months ended
September 30, 1999 compared to the same period in 1998 is directly related to
the decrease in the levels of cash and marketable securities earning interest.
The level of future interest and other income will primarily be subject to the
level of cash balances we maintain from period to period.
Interest Expense. Interest expense increased to $201,000 for the nine
months ended September 30, 1999 from $1,000 for the nine months ended September
30, 1998. The increase is directly related to the amount of borrowings under the
February 1999 Credit Agreement with Pharmacia & Upjohn and the warrants issued
in connection with the borrowings. Interest expense will continue to increase in
the future based on the level of borrowings under the Credit Agreement and the
warrants issued in connection with the borrowings.
We do not believe that inflation has had a material impact on our results
of operations.
Liquidity and Capital Resources
Since inception through September 30, 1999, we have accumulated a deficit
of approximately $125.2 million and expect to continue to incur substantial, and
possibly increasing, operating losses for the next several 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, Pharmacia & Upjohn's purchases of Common Stock, a
secondary public offering and credit arrangements. As of September 30, 1999, we
have received proceeds from the sale of equity securities, convertible notes and
credit arrangements of approximately $208.0 million.
In September and October 1997, we entered into a private placement
offering, which was subsequently amended with respect to certain purchasers,
which provided net proceeds to Miravant of approximately $68.2 million. During
1998, under the price protection and repurchase provisions of the related
Securities Purchase Agreements, we issued an additional 2,444,380 shares of
Common Stock, repurchased 337,500 shares of Common Stock for $16.9 million and
repaid $8.6 million. During the first quarter of 1999, we completed our price
protection obligations through the repayment of $4.2 million and the issuance of
688,996 shares Common Stock and 450,000 additional warrants to purchase Common
Stock at an exercise price of $35.00 per share. As such, we have no further
obligation to these purchasers under the price protection or repurchase
provisions of the Securities Purchase Agreements and the amendments thereto.
In December 1997, the Board of Directors authorized a Common Stock
repurchase program allowing for the repurchase of up to 750,000 shares of Common
Stock. This 750,000 share repurchase authorization was in addition to and
superseded the repurchase program authorized in July 1996, which allowed for the
repurchase of up to 600,000 shares of Common Stock. For the nine months ended
September 30, 1999 we had no stock repurchases and for the nine months ended
September 30, 1998 we repurchased stock under the Board authorized repurchase
program and pursuant to the amended Securities Purchase Agreement, which
amounted to 950,000 shares at a cost of $29.2 million. All shares repurchased
were retired. The 750,000 repurchase plan has been fully utilized and no further
repurchase programs have been authorized.
In January 1999, under the Equity Investment Agreement, Pharmacia & Upjohn
purchased 1,136,533 shares of our Common Stock for an aggregate purchase price
of $19.0 million, which represented the acceleration of the remaining oncology
and urology quarterly payments and the two future milestone payments for AMD
under the June 1998 Agreements. Additionally, in accordance with the Credit
Agreement entered into with Pharmacia & Upjohn in February 1999, Pharmacia &
Upjohn will also extend to us up to $22.5 million in credit over the next two
years to be used to support our ophthalmology, oncology and other development
programs, as well as for general corporate purposes. During the second quarter
of 1999, in accordance with the Credit Agreement, we received the first two
quarterly loans for a total of $7.5 million of the available $22.5 million. In
accordance with the Credit Agreement, we have issued a promissory note to
Pharmacia & Upjohn for the loan amounts received and issued additional
promissory notes for the related interest due on the outstanding loan balance as
of June 30, 1999 and September 30, 1999. As of September 30, 1999, we had $15.0
million remaining available to us under the Credit Agreement of which we
requested a draw-down of $7.5 million in November 1999. The promissory notes
mature in June 2004, subject to certain limitations and restrictions as defined
by the Credit Agreement, and accrue interest at the prime rate, which adjusts
quarterly and was 8.0% for the quarter ended September 30, 1999. We will
continue to be able to issue promissory notes for the quarterly interest amounts
due until the year 2001 when the issuance of promissory notes for the quarterly
interest due will be subject to certain restrictions. In addition, under the
terms of the Credit Agreement and in connection with each draw-down, we are
obligated to issue Pharmacia & Upjohn a certain number of warrants based on the
amount borrowed. The exercise price of each warrant will be equal to 140% of the
average of the closing bid prices of the Common Stock for the ten trading days
immediately preceding the borrowing request for the related loan. In connection
with the first two quarterly loans received, we issued warrants to purchase
120,000 shares of Common Stock at an exercise price of $11.87 per warrant share.
In April 1998, we entered into a $2.0 million revolving credit agreement
with our affiliate, Ramus. As of September 30, 1999, we have provided the entire
loan of $2.0 million to Ramus. The loan is due in full in March 2000. In
addition, in accordance with the 1996 equity investment in Ramus, we had an
exclusive option to purchase the remaining shares of Ramus for a specified
amount under certain terms and conditions. We elected not to exercise the
option, which expired March 3, 1999.
In October 1999, we finalized the extension of our guaranty of a $7.6
million loan plus accrued interest that a former director has with a commercial
bank, under substantially similar terms and conditions. In conjunction with the
extension to October 31, 2000, we increased our security interest to include
substantially all of the personal assets of the former director, which includes
the previously secured Miravant Common Stock owned by the former director.
Additionally, with the extension of the guaranty of this loan, the former
director paid us a transaction fee of $152,000.
For the nine months ended September 30, 1999 and 1998, we required cash for
operations of $18.6 million and $18.6 million, respectively. The slight increase
for the nine months ended September 30, 1999 compared to the nine months ended
September 30, 1998 was primarily due to an increase in the amount of costs
incurred which are reimbursed under the February 1999 Pharmacia & Upjohn
development and license agreements, which was offset by the collection of these
funds subsequent to September 30, 1999. For the nine months ended September 30,
1999, net cash provided by our financing activities was $22.8 million as
compared to net cash used by our financing activities of $29.1 million for the
nine months ended September 30, 1998. The increase for the nine months ended
September 30, 1999 is primarily related to Pharmacia & Upjohn's $19.0 million
Equity Investment as well as the $7.5 million provided under the Pharmacia &
Upjohn Credit Agreement. The net cash used in 1998 related primarily to the
repurchases of our Common Stock.
We invested a total of $9.5 million in property and equipment from 1996
through September 30, 1999. During 1998, we entered into a new lease agreement
for an additional facility, for which we have the ability to sublease. We expect
to continue to purchase property and equipment in the future as we continue to
expand our preclinical, clinical and research and development activities as well
as the buildout and expansion of laboratories and office space.
Our future capital funding requirements will depend on numerous factors
including:
* The progress and magnitude of our research and development
programs, including 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 & Upjohn's involvement in our Phase III
AMD clinical trials;
* The cost of manufacturing scale-up and the cost and effectiveness
of commercialization activities and arrangements; and
* Our ability to obtain grants to finance research and development
projects.
Our ability to generate substantial funding to continue our research and
development activities, preclinical studies and clinical trials and
manufacturing, scale-up, administrative activities and additional investment
opportunities is subject to a number of risks and uncertainties and will depend
on numerous factors including:
* Our ability to raise funds in the future through public or
private financings, collaborative arrangements or from other
sources;
* The potential for equity investments, collaborative arrangements,
license agreements or development or other funding programs with
us in exchange for manufacturing, marketing, distribution or
other rights to products developed by us; and
* Our ability to maintain our existing collaborative arrangements.
We can not guarantee that additional funding will be available to us when
needed. If it is not, we will 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.
PART II. OTHER INFORMATION
ITEM 3.QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about our market risk disclosures involves
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements. 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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
See Exhibit Index on page 17.
(b) Reports on Form 8-K.
None.
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: November 12, 1999 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.* [G][4.12]
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).
[G] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 10-Q for the quarter ended 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.