<PAGE>
SECURITIES AND EXCHANGE COMMISSION Conformed
Washington, D.C. 20549 Copy
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended June 30, 1995
-------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from _______ to _______
Commission file number 0-14879
---------
Cytogen Corporation
--------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 22-2322400
------------------------------- ---------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
600 College Road East, CN 5308, Princeton, NJ 08540-5308
--------------------------------------------------------
(Address of Principal Executive Offices and Zip Code)
Registrant's telephone number, including area code (609) 987-8200
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 10, 1995
---------------------------- ----------------------------
Common Stock, $.01 par value 31,946,101
Warrants to Purchase One Share of Common Stock, 4,023,395
$.01 par value
Contingent Value Rights to Receive a Fraction 4,023,395
of a Share of Common Stock, $.01 par value
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
June 30, 1995
PART I - FINANCIAL INFORMATION
------ ---------------------
Item 1 - Consolidated Financial Statements
------ ---------------------------------
INTRODUCTORY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------
The accompanying consolidated financial statements have been prepared by
the Registrant, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and note disclosure
normally included in annual consolidated financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to those rules and regulations. It is suggested that these
condensed consolidated financial statements be read in conjunction with Cytogen
Corporation's (the "Company" or "Cytogen") audited consolidated financial
statements and notes thereto for the year ended December 31, 1994. In the
opinion of the Registrant, these consolidated financial statements contain all
adjustments necessary to present fairly the financial position of Cytogen as of
June 30, 1995 and December 31, 1994, the results of operations for the quarters
and year-to-date periods ended June 30, 1995 and June 30, 1994, and the cash
flows for the year-to-date periods ended June 30, 1995 and June 30, 1994.
The results of operations for the periods ended June 30, 1995 are not
necessarily indicative of the operating results for the full year.
2
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS June 30, December 31,
1995 1994
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 9,243 $ 7,700
Short term investments 1,321 -
Accounts receivable, net 533 294
Receivable from CytoRad Incorporated - 810
Inventories 2,157 3,159
Other current assets 592 329
-------- --------
Total current assets 13,846 12,292
-------- --------
PROPERTY AND EQUIPMENT:
Leasehold improvements 9,245 9,005
Equipment and furniture 6,076 5,923
-------- --------
15,321 14,928
Less- Accumulated depreciation and amortization (10,106) (9,377)
-------- --------
Net property and equipment 5,215 5,551
-------- --------
OTHER ASSETS
Restricted cash 383 383
Other assets 1,464 1,464
-------- --------
Total Other Assets 1,847 1,847
-------- --------
$ 20,908 $ 19,690
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
(All amounts in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY June 30, December 31,
1995 1994
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 6,741 $ 6,371
Other current liabilities 2,231 2,641
---------- ----------
Total current liabilities 8,972 9,012
---------- ----------
LONG TERM LIABILITIES 4,768 4,310
COMMITMENTS AND CONTINGENCIES
REDEEMABLE COMMON STOCK, 250,000 shares issued
and outstanding, at redemption value 2,000 2,000
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,400,000 shares
authorized - none issued - -
Common stock, $.01 par value, 69,600,000 shares
authorized, 31,696,000 and 24,658,000 shares
issued and outstanding in 1995 and 1994, respectively 317 247
Additional paid-in capital 193,911 159,941
Unrealized gains on investments 28 -
Accumulated deficit (189,088) (155,820)
---------- ----------
Total stockholders' equity 5,168 4,368
---------- ----------
$ 20,908 $ 19,690
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Year-To-Date Period Ended
------------------------- -------------------------
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Product related $ 354 $ 317 $ 728 $ 533
License and contract 458 3 792 47
-------- -------- -------- --------
Total Revenues 812 320 1,520 580
-------- -------- -------- --------
OPERATING EXPENSES:
Research and development 4,878 4,447 10,296 9,118
Selling and marketing 778 1,363 1,720 2,691
Reacquisition of marketing and technology rights - - 19,663 -
General and administrative 1,483 1,250 3,189 2,541
-------- -------- -------- --------
Total Operating Expenses 7,139 7,060 34,868 14,350
-------- -------- -------- --------
LOSS FROM OPERATIONS $ (6,327) $ (6,740) $(33,348) $(13,770)
-------- -------- -------- --------
NON-OPERATING INCOME (EXPENSE)
Gain on investments, net 213 321 376 638
Interest Expense (148) - (296) -
-------- -------- -------- --------
Total Non-Operating Income 65 321 80 638
-------- -------- -------- --------
NET LOSS $ (6,262) $ (6,419) $(33,268) $(13,132)
======== ======== ======== ========
NET LOSS PER COMMON SHARE $ (0.20) $ (0.27) $ (1.11) $ (0.57)
======== ======== ======== ========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 31,923 23,559 29,982 23,163
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Year-To-Date Period Ended
-------------------------
June 30, June 30,
1995 1994
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (33,268) $ (13,132)
--------- ---------
Adjustments to Reconcile Net Loss to Cash Used for
Operating Activities:
Acquisition of Marketing and Technology Rights 19,663 -
Depreciation and Amortization 729 485
Imputed Interest 296 -
Inventory Writedown 1,144 200
Stock Grants 37 87
Amortization of Deferred Charges (18) (66)
Changes in Assets and Liabilities:
Accounts receivable, net (239) (192)
Inventories (142) (161)
Other current assets (263) 404
Other assets - (54)
Accounts payable and accrued liabilities 208 (1,465)
Other liabilities (230) -
--------- ---------
Total adjustments 21,185 (762)
--------- ---------
Net cash used for operating activities (12,083) (13,894)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of CytoRad Incorporated, net 11,009 -
Decrease (Increase) in Short Term Investments (1,293) 2,926
Purchases of Property and Equipment (390) (1,185)
--------- ---------
Net cash provided by investing activities 9,326 1,741
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Common Stock 4,300 10,878
--------- ---------
Net Increase in Cash and Cash Equivalents 1,543 (1,275)
Cash and Cash Equivalents, Beginning of Period 7,700 4,074
--------- ---------
Cash and Cash Equivalents, End of Period $ 9,243 $ 2,799
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 1995 and for the quarters and year-to-date periods
ended June 30, 1995 and June 30, 1994 is unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Consolidation
The consolidated financial statements include the accounts of Cytogen and
its wholly-owned subsidiaries. Intercompany balances and transactions have been
eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash in banks and all
highly-liquid investments with a maturity of three months or less at the time of
purchase.
Short Term Investments
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("FAS No.
115"), effective January 2, 1994. This statement requires the Company to
classify its investment securities as: (1) held for investment purposes (held
to maturity), (2) available for sale and (3) held for trading purposes.
Securities that may be sold in response to changes in interest rates,
changes in prepayment risk, increases in capital requirements or other similar
factors, are classified as available for sale and are carried at fair value.
Differences between an investment's amortized cost and fair value are charged
directly to stockholders' equity, net of income taxes. The cost of securities
sold is determined on a specific identification basis. Gains and losses on
sales of investment securities, if any, are recognized in the statement of
operations upon sale.
At June 30, 1995, the Company's short term investments are classified
under FAS No. 115 as available for sale. Accordingly, a net unrealized gain of
approximately $28,000 has been recorded as a separate component of stockholders'
equity at June 30, 1995.
Inventory
The Company's inventory is primarily related to OncoScint CR/OV, its Food
and Drug Administration ("FDA") approved monoclonal antibody-based imaging agent
for the diagnosis of colorectal and ovarian cancers. Inventory is stated at the
lower of cost or market using the first-in, first-out method and consisted of:
7
<PAGE>
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
----------- --------------
<S> <C> <C>
Raw Materials $ 1,536,000 $ 2,771,000
Work in Process - 49,000
Finished Goods 621,000 339,000
----------- --------------
$ 2,157,000 $ 3,159,000
=========== ==============
</TABLE>
Inventory shown as of June 30, 1995 is net of a $2.1 million reserve. The
Company's raw materials include an investment in monoclonal antibodies for
commercial use, which the Company currently estimates will not be fully used in
the foreseeable future. In July 1993, the Company petitioned FDA for an
extension of the shelf life of monoclonal antibodies. As of June 30, 1995,
approximately $0.9 million of raw materials exceeded the currently authorized
FDA shelf life. Given the uncertainty regarding FDA approval with respect to
raw materials inventory, future inventory writedowns may be required. The
realization of the Company's investment in raw materials inventory is dependent
upon (i) the growth in product sales which, to date, has been slower than
anticipated and (ii) the timing and outcome of FDA's response to the Company's
request to extend the deemed shelf life, which cannot be predicted by the
Company at this time.
Restricted Cash
The Company has entered into equipment lease financing arrangements that
require the issuance of letters of credit that are secured by certain
securities. The aggregate amount of these securities totaled $382,200 and are
segregated and classified as restricted cash in the accompanying consolidated
balance sheets.
Other Assets
Other assets consist of undeveloped real property with a net book value of
$1.3 million, which is valued at the lower of cost or market (see Note 7).
Revenue Recognition
Product related revenues include (i) product sales by the Company to its
customers and its former U.S. and European distributors, Knoll Pharmaceuticals
Company ("Knoll") and Chiron B.V., formerly EuroCetus B.V., successor in
interest to EuroCetus International, N.V. ("Chiron"), respectively, (ii) co-
promotion revenues, which resulted from the sale of commercial product by Knoll
to its customers, and (iii) royalty payments on product sales by Chiron to its
customers. Product sales are recognized upon shipment of finished goods. Co-
promotion revenues were recognized upon the shipment by Knoll of product to its
customers. Royalty revenues were recognized when Chiron shipped product to its
customers. Beginning on July 1, 1994, as a result of the Company's termination
of its relationship with Knoll (see Note 5), product related revenues include
direct product sales by the Company to its U.S. customers, which were $354,000
and $728,000 for the second quarter and year-to-date period of 1995,
respectively. Since July 1, 1994, the Company has not recorded any product
sales to Knoll or
8
<PAGE>
any co-promotion revenues. See Note 7 for discussion of the change in the
Company's relationship with Chiron.
License and contract revenues include milestone payments and fees under
collaborative agreements with third parties, the sale of research services and
materials, and revenues from other miscellaneous sources. Revenues from
milestone payments are recognized when all parties concur that the events
stipulated in the agreement have been achieved. Revenues from cost-plus
contracts are recognized when the costs are incurred.
Reclassifications
Certain reclassifications have been reflected in the 1994 financial
statements to conform with the 1995 presentation.
2. CELLCOR, INC.:
The Company entered into an Agreement and Plan of Merger dated June 15,
1995 with Cellcor, Inc. ("Cellcor") and a wholly-owned subsidiary of Cytogen
(the "Merger Subsidiary"), which provides that, upon the satisfaction or waiver
of certain conditions set forth therein, the Merger Subsidiary will be merged
with and into Cellcor (the "Cellcor Merger"), whereupon Cellcor will become a
wholly-owned subsidiary of Cytogen. At that time, each outstanding share of
Cellcor common stock will be converted into the right to receive .60 shares of
Cytogen common stock and each outstanding share of Cellcor Convertible Preferred
Stock will be converted into the right to receive 218.94 shares of Cytogen
common stock. Hillman Medical Ventures partnerships and certain of their
affiliates (collectively, the "Principal Stockholders") own 50.5% of the Cellcor
common stock and 95.2% of the Cellcor preferred stock. The Principal
Stockholders have agreed to vote such shares in favor of the Cellcor Merger.
In connection with the Cellcor Merger, holders of record of Cellcor common
stock will be granted the non-transferable right to purchase for cash up to an
aggregate of approximately $24 million of Cytogen common stock (the
"Subscription Offering"), subject to adjustment if outstanding Cellcor stock
options are exercised by Cellcor option holders before the Subscription Offering
record date. Each holder of Cellcor common stock will be entitled to purchase
1.118 shares of Cytogen common stock for each share of Cellcor common stock
(rounded down to the nearest whole number) held by such holder at the close of
business on August 17, 1995, the Subscription Offering record date, at a price
of $3.89 per share of Cytogen common stock. Consummation of the Cellcor Merger
is conditioned upon the purchase of at least $12.0 million of the Subscription
Offering. Certain of the Principal Stockholders have committed to purchase
$12.0 million of the shares in the Subscription Offering. These transactions
also remain subject to, among other things, the effectiveness of a registration
statement and a joint proxy statement, which has been filed with the Securities
Exchange Commission (the "SEC"), certain other regulatory approvals, and the
approval of both sets of stockholders. Upon consummation of the Cellcor Merger,
the Company will record a significant charge for acquired research and
development on its statement of operations, which will represent the amount by
which the purchase price exceeds the fair value of net assets acquired from
Cellcor.
9
<PAGE>
3. DUPONT MERCK:
On December 20, 1994, the Company entered into a license agreement (the
"DP/Merck Agreement") with The DuPont Merck Pharmaceutical Company ("DuPont
Merck"). Under the terms of the DP/Merck Agreement, the Company has licensed to
DuPont Merck the Company's manufacturing and marketing rights to Quadramet/TM/
(or Samarium 153 EDTMP) in the U.S., if and when approved for marketing by FDA.
The Company has retained the right to co-promote the product to nuclear medicine
specialists. Quadramet is a cancer therapy agent for treatment of bone pain
associated with bone metastases, for which a New Drug Application ("NDA") was
submitted to FDA on June 13, 1995. The Company acquired the U.S. rights to
Quadramet from The Dow Chemical Company ("Dow") pursuant to a license agreement
in March 1993 and assumed responsibility for the development and
commercialization of the product at that time (see Note 6).
Pursuant to the terms of the DP/Merck Agreement, the Company received from
DuPont Merck an up-front cash payment of $1.0 million in December 1994, $4.0
million in January 1995 for the sale of 908,265 shares of the Company's common
stock to DuPont Merck and $1.3 million in January 1995, of which $333,000 and
$667,000 were recognized as license and contract revenues in the second quarter
and year-to-date period of 1995, respectively, to fund additional clinical
programs to expand the use and marketing of Quadramet. The DP/Merck Agreement
further provides for future payments of up to $2.9 million toward additional
clinical programs, a $2.0 million milestone payment if and when Quadramet
receives FDA approval and royalty payments based on sales, including guaranteed
minimum payments.
4. CYTORAD INCORPORATED:
On November 15, 1994, the Company entered into an Agreement and Plan of
Merger (the "CytoRad Merger Agreement") with CytoRad Incorporated ("CytoRad") to
purchase all of CytoRad's outstanding units, each unit consisting of one share
of the callable common stock of CytoRad and one warrant to purchase one share of
the common stock of the Company at $24.15 per share. Pursuant to the CytoRad
Merger Agreement, on January 20, 1995, the Company commenced an exchange offer
to exchange for each CytoRad unit (a) 1.5 shares of the Company's common stock,
(b) a warrant to acquire one share of the Company's common stock for $8.00 that
expires January 31, 1997 and (c) a contingent value right ("CVR") to receive,
under certain circumstances and at no additional cost, up to one-half share of
the Company's common stock. The CVR will be triggered in the event that the
aggregate trading price of 1.5 shares of the Company's common stock and the new
warrant averages less than $12.00 during the 45 consecutive trading days ending
January 31, 1997. However, the CVR will expire and have no value if the
aggregate trading price for such securities averages $12.00 or more during any
45 consecutive trading days prior to January 31, 1997.
On February 23, 1995, the Company's stockholders approved the issuance of
the Company's securities necessary to effect the acquisition of CytoRad. On
February 24, 1995, the Company announced that it had completed the exchange
offer, pursuant to which approximately 93% of the outstanding CytoRad units were
validly tendered. In addition, the Company announced on February 27, 1995 that
it had completed its acquisition of CytoRad by merging CytoRad with and into a
wholly-owned subsidiary of the Company. Holders of CytoRad common stock who did
not tender their CytoRad units in the exchange offer became
10
<PAGE>
entitled to receive as a result of the merger one and one-half shares of the
Company's common stock and one CVR for each share of CytoRad common stock owned
thereby. As of July 10, 1995, the Company had issued 6,034,335 shares of common
stock, 4,023,395 CVRs and 4,023,395 warrants pursuant to the exchange offer.
Although the 1,605 previously issued Cytogen warrants forming a part of CytoRad
units not tendered in the exchange offer remain outstanding after the merger,
the Company has agreed that such warrants will be exercisable at $8.00 per
warrant share pursuant to the terms of the CytoRad Merger Agreement. As a
result of the merger, the Company reacquired the product rights to the prostate,
ovarian and bladder products it had previously licensed to CytoRad. In
addition, the Company will not recognize any further contract revenues from
CytoRad and $11.7 million of CytoRad's cash and securities, before payment of
certain of the Company's transaction costs, were acquired by the Company. In
the first quarter of 1995, the Company recorded approximately $19.7 million for
reacquisition of technology and marketing rights as a charge to its statement of
operations, representing the amount by which the purchase price exceeded the
fair value of net assets acquired from CytoRad.
5. KNOLL PHARMACEUTICAL COMPANY:
On November 1, 1994, the Company executed a termination agreement with
Knoll (the "Termination Agreement"). Pursuant to the Termination Agreement, the
Company has reacquired from Knoll all U.S. marketing rights (the "U.S. Rights")
to OncoScint CR/OV, which were previously granted to Knoll pursuant to a
License, Supply and Marketing Agreement dated December 19, 1991 (the "Knoll
Agreement"). The Termination Agreement requires the Company to pay to Knoll,
over a four-year period and without interest, $3.0 million to reacquire the U.S.
Rights and $5.0 million of liabilities previously incurred under the terms of
the Knoll Agreement. The payment of these liabilities has been rescheduled as
follows: $3.1 million in 1995, of which $1.0 million was paid in the first
quarter of 1995 and the remaining $2.1 million was paid in July 1995; $1.6
million in 1996; $1.6 million in 1997; and $1.7 million in 1998. In November
1994, the Company recorded a non-recurring charge of $2.4 million for the
reacquisition of the U.S. Rights. Imputed interest of $131,000 and $261,000
relating to the obligation, which was discounted based upon a 10% interest rate,
were recorded for the second quarter and year-to-date period of 1995,
respectively.
In anticipation of the execution of the Termination Agreement, as of May
20, 1994, Knoll ceased its selling efforts, and since that date, the Company's
direct sales force has been the sole marketer in the U.S. of OncoScint CR/OV.
The Company continues to consider, with respect to the marketing of OncoScint
CR/OV in the U.S., the value of maintaining its direct selling efforts, as well
as co-promotion alliances or licensing of all rights to a third party.
6. THE DOW CHEMICAL COMPANY:
In 1993, the Company acquired an exclusive license in the U.S. from Dow
for Quadramet, for which an NDA was submitted to FDA on June 13, 1995. In
connection with this acquisition, the Company issued to Dow warrants to purchase
260,000 shares of the Company's common stock at $12.50 per share. The Company
is required to pay Dow $1.0 millon within 30 days after the filing of an NDA
with FDA for Quadramet. An NDA's filing date has been established by FDA to be
sixty days after FDA receives the NDA as long as the agency does not refuse to
file the application before that date. In addition, the Company will
11
<PAGE>
be required to pay to Dow $4.0 million if and when Quadramet receives FDA
approval. The agreement provides for additional payments by the Company upon
achievement of certain milestones and royalties on net sales of the product once
commercialized, including guaranteed minimum payments.
7. REVENUES FROM MAJOR CUSTOMERS:
Customers who contributed 10% or more of the Company's total product
related, license and contract revenues were as follows:
<TABLE>
<CAPTION>
Quarter Ended Year-To-Date Period
------------------- -------------------
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Customer
--------------
DuPont Merck (See Note 3) 41% - 44% -
Company A 21% - 21% -
Knoll (See Note 5) - 87% - 76%
Chiron - 13% - 17%
</TABLE>
On December 30, 1994, the Company entered into a disengagement agreement
(the "Disengagement Agreement") with Chiron. Pursuant to a Distribution and
License Agreement dated as of October 21, 1989 and as amended on May 18, 1992,
the Company granted to Chiron exclusive marketing and distribution rights in
Europe (the "European Rights") to OncoScint CR/OV, under which no contract and
product related revenues were realized in the second quarter of 1995 compared to
$41,000 recorded for the same period of the prior year. For the comparable
year-to-date periods, contract and product related revenues were $3,000 in 1995
compared to $99,000 in 1994. Under the Disengagement Agreement, the Company
reacquired the European Rights and purchased certain business assets relating to
the European Rights, including existing approvals by the appropriate regulatory
authorities to market OncoScint CR/OV in 12 countries in Europe. This
reacquisition was consummated on February 16, 1995. The resulting liability of
Cytogen to Chiron, which consisted of the reacquisition price of $1.0 million
plus closing costs, was partially offset by a $127,000 receivable from Chiron,
and will be paid over three years and without interest, as follows: $200,000 in
1995, $300,000 in 1996 and $377,181 in 1997. Payment is secured by a mortgage
covering approximately 11 acres of undeveloped real property owned by the
Company in Ewing, New Jersey. This obligation is non-recourse to the Company.
As a result of the reacquisition of the European Rights, the Company recorded a
liability and non-recurring charge of $800,000 in the fourth quarter of 1994.
Imputed interest of $18,000 and $36,000 relating to the obligation, based upon a
10% interest rate, was recorded in the second quarter and year-to-date period of
1995, respectively. The Company intends to secure alternative marketing and
distribution partners for OncoScint CR/OV in Europe and other major markets
outside the U.S. There can be no assurance that Cytogen will be able to
negotiate acceptable marketing alliances, that such alliances will be available
to Cytogen on acceptable terms or that any such relationships, if established,
will be commercially successful. Until the earlier of (i) an agreement with a
new distributor, or (ii) December 31, 1995, Chiron will continue to provide
warehousing and distribution services to the Company.
Company A is a chain of radiopharmacies.
12
<PAGE>
8. REDEEMABLE COMMON STOCK:
In 1989, the Company entered into an agreement (the "Bracco Agreement")
with Bracco Industria Chimica S.p.A. ("Bracco") granting Bracco an exclusive
option to license magnetic resonance imaging enhancement agents using the
Company's linking technology. Pursuant to the terms of the Bracco Agreement, in
1989, Bracco purchased 250,000 shares of the Company's common stock (the
"Shares") at $8.00 per share. The Bracco Agreement provides that if the results
of a feasibility study conducted by the Company do not meet certain
predetermined evaluation criteria, the Company would be obligated to repurchase
the Shares from Bracco for an aggregate purchase price of $2.0 million. The
Bracco Agreement further established a completion date for the feasibility study
of September 29, 1993. The feasibility study was not completed until after that
date. A final report on the findings of the feasibility study, which held that
the evaluation criteria had not been met, was provided to Bracco in March 1994.
In July 1994, Bracco notified the Company of its belief that the Company
has an obligation to redeem the Shares. The Company entered into negotiations
with Bracco to reach an agreement as to the disposition of the Shares. On April
20, 1995, Bracco requested that the Company proceed to redeem the Shares
immediately. It is the Company's position that under the terms of the Bracco
Agreement it does not have an obligation to comply with Bracco's recent request
and has sought an opportunity to discuss the matter further with Bracco. In the
event that the parties fail to reach a negotiated settlement, the Bracco
Agreement provides that all disputes will be resolved through arbitration.
There can be no assurances that negotiations will be successful.
Under the Bracco Agreement, contract revenues of $41,000 were recognized
in the first quarter of 1994. There are no contract revenues from Bracco in
1995. At June 30, 1995, the Company had an outstanding receivable from Bracco
in the amount of $293,000.
9. COMMON STOCK:
In January 1994, the Company sold an aggregate of 2 million shares of
common stock to several European institutions, realizing net proceeds of $9.1
million.
On May 6, 1994, the Company and Fletcher Capital Markets, Inc.
("Fletcher") entered into a revised investment agreement under which (i)
Fletcher purchased 500,000 shares of the Company's common stock at a price of
$3.50 per share totalling $1.7 million, (ii) assignees of Fletcher purchased an
additional 900,000 shares of the Company's common stock in August 1994 at $4.00
per share totalling $3.6 million and (iii) Fletcher received an option (the
"Option") exercisable until August 12, 1995 to purchase that number of shares of
the Company's common stock (the "Option Shares") which, together with the shares
previously purchased, could represent up to 9.9% of the Company's outstanding
common stock on the date of exercise of the Option. The exercise price of the
Option will be equal to 95% of the average daily closing prices during the 60
trading days prior to the date Fletcher elects to exercise the Option. The
shares involved in this transaction were registered pursuant to a registration
statement on Form S-3 filed with the Securities and Exchange Commission on April
6, 1994, as amended.
In July 1995, Fletcher elected to exercise the Option by delivery to the
Company of an
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exercise notice for the purchase of 1,800,000 shares at an aggregate exercise
price of $7,304,400, or $4.058 per share. The Company and Fletcher have agreed
that the purchase and sale of the Option Shares will occur in early August 1995.
The Company and Fletcher have also agreed to amend the Option to extend its term
until November 15, 1995. Under the Option, as amended, Fletcher will have the
right to purchase up to an additional 1,000,000 shares of the Company's common
stock.
On March 28, 1995, the Company entered into a purchase agreement with
Nomura Securities International, Inc. ("Nomura"). Under the terms of the
purchase agreement, Cytogen could sell up to $49.0 million of its common stock
to Nomura for distribution in the public markets in a series of transactions
during a twenty-four month period. Nomura's purchase of Cytogen's stock from
time to time is subject to the satisfaction of certain conditions, including
general market and trading conditions, and will be at the sole discretion of
Nomura. In connection with the purchase agreement, Cytogen has filed an initial
shelf registration statement with the Securities and Exchange Commission to
allow for offerings from time to time of up to $11.0 million of its common
stock. There can be no assurance that the registration statement will become
effective or that Nomura will purchase any stock under the purchase agreement.
See Notes 3, 4 and 10 for information related to the Company's issuance of
common stock in connection with the DP/Merck Agreement, CytoRad merger and
settlement of stockholders litigation, respectively. See Note 8 for discussion
of redeemable common stock.
10. LITIGATION:
On November 18, 1994, final approval was given to the settlement of a
class action securities law suit, which provided for a $1.9 million cash payment
(which includes approximately $900,000 of fees and expenses of plaintiffs'
counsel), the issuance of 197,942 shares of the Company's common stock and an
additional $500,000 payable if the Company has annual earnings per share of
$0.50 or greater during any fiscal year commencing with 1993 through 1996. The
cost of the settlement was recorded as a liability at January 1, 1994.
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<PAGE>
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Background. Historically, the Company's revenues have resulted primarily
from (i) payments received from the sale of research services pursuant to
collaborative agreements, (ii) fees generated from the licensing of its
technology and marketing rights to its products and (iii) product related
revenues on sales of its OncoScint products since 1992 in Western Europe and
since January 1993 in the U.S.
On November 15, 1994, the Company and CytoRad entered into an agreement
for the acquisition of CytoRad by the Company. On February 23, 1995, the
Company's stockholders approved the issuance of the Company's securities
necessary to effect the acquisition of CytoRad and on February 27, 1995, the
Company completed its acquisition of CytoRad by merging CytoRad with and into a
wholly-owned subsidiary of the Company. As a result of the merger, the Company
will not recognize any further contract revenues from CytoRad and $11.7 million
of CytoRad's cash and securities, before payment of certain of the Company's
transaction costs, were acquired by the Company. In addition, in the first
quarter of 1995, the Company recorded a charge to the statement of operations of
$19.7 million for the reacquisition of marketing and technology rights
representing the amount by which the purchase price exceeded the fair value of
net assets acquired from CytoRad.
On December 20, 1994, the Company entered into a license agreement with
DuPont Merck pursuant to which DuPont Merck will have responsibility for
manufacturing and marketing Quadramet in the U.S., if and when approved for
marketing by FDA. The Company has retained the right to co-promote the product
to nuclear medicine specialists. Pursuant to the DP/Merck Agreement, the
Company received from DuPont Merck an up-front cash payment of $1.0 million in
December 1994 and $5.3 million in January 1995, of which $1.3 million was to
fund additional clinical programs to expand the use and marketing of Quadramet.
See Note 3 to the Consolidated Financial Statements.
Beginning July 1, 1994, as a result of the termination of the Company's
relationship with Knoll, product related revenues have included product sales by
the Company to its U.S. customers. See Note 5 to the Consolidated Financial
Statements. Since that date, the Company has not recorded any product sales to
Knoll or any co-promotion revenues. In addition, on December 30, 1994, the
Company entered into a Disengagement Agreement with Chiron to reacquire the
exclusive marketing and distribution rights in Europe previously granted to
Chiron. This reacquisition was consummated on February 16, 1995. See Note 7 to
the Consolidated Financial Statements.
In support of the Company's five-year strategic plan, Cytogen's 1995
operating objectives call for a continued commitment to control spending and the
achievement of sustainable value through: (i) the development and marketing of
existing products, (ii) the leveraging of the Company's core capabilities in
drug discovery, clinical development, regulatory affairs and manufacturing; and
(iii) the pursuit of additional strategic alliances and acquisitions.
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The Company has assigned high priority to the product development and
commercialization programs for Quadramet and ProstaScint. ProstaScint is a
prostate cancer diagnostic imaging product for which a Product License
Application was submitted to and accepted for filing by FDA effective March 13,
1995. The timing and outcome of FDA's decisions regarding Quadramet and
ProstaScint cannot be predicted by the Company at this time. In addition, the
Company is continuing to evaluate, invest in and support the sales and marketing
activities with respect to OncoScint CR/OV. The Company's strategic plan also
supports continued commitment to its "linker" technology through ongoing product
development efforts for cancer therapeutic agents. The Company has also
committed additional resources to its Totally Synthetic Affinity
Reagents\SynGenes program. The Company expects to expand its current product
portfolio through in-licensing complementary products, services and
technologies.
The Company entered into an Agreement and Plan of Merger dated June 15,
1995 with Cellcor and the Merger Subsidiary, which provides that, upon the
satisfaction or waiver of certain conditions set forth therein, the Merger
Subsidiary will be merged with and into Cellcor, whereupon Cellcor will become a
wholly-owned subsidiary of Cytogen. At that time, each outstanding share of
Cellcor common stock will be converted into the right to receive .60 shares of
Cytogen common stock and each outstanding share of Cellcor Convertible Preferred
Stock will be converted into the right to receive 218.94 shares of Cytogen
common stock. Hillman Medical Ventures partnerships and certain of their
affiliates (collectively, the "Principal Stockholders") own 50.5% of the Cellcor
common stock and 95.2% of the Cellcor preferred stock. The Principal
Stockholders have agreed to vote such shares in favor of the Cellcor Merger.
In connection with the Cellcor Merger, holders of record of Cellcor common
stock will be granted the non-transferable right to purchase for cash up to an
aggregate of approximately $24 million of Cytogen common stock (the
"Subscription Offering"), subject to adjustment if outstanding Cellcor stock
options are exercised by Cellcor option holders before the Subscription Offering
record date. Each holder of Cellcor common stock will be entitled to purchase
1.118 shares of Cytogen common stock for each share of Cellcor common stock
(rounded down to the nearest whole number) held by such holder at the close of
business on August 17, 1995, the Subscription Offering record date, at a price
of $3.89 per share of Cytogen common stock. Consummation of the Cellcor Merger
is conditioned upon the purchase of at least $12.0 million of the Subscription
Offering. Certain of the Principal Stockholders have committed to purchase
$12.0 million of the shares in the Subscription Offering. These transactions
also remain subject to, among other things, the effectiveness of a registration
statement and a joint proxy statement, which has been filed with the SEC,
certain other regulatory approvals, and the approval of both sets of
stockholders. Upon consummation of the Cellcor Merger, the Company will record
a significant charge for acquired research and development on its statement of
operations, which will represent the amount by which the purchase price exceeds
the fair value of net assets acquired from Cellcor.
Revenues. Total revenues for the second quarter and year-to-date periods
of 1995 were $812,000 and $1.5 million, respectively, compared to $320,000 and
$580,000 recorded in the same periods of 1994. The increase from prior year
periods is primarily attributable to contract revenues realized from Dupont
Merck in the amounts of $333,000 and $667,000 for the second
16
<PAGE>
quarter and year-to-date period of 1995, respectively, for continued clinical
development of Quadramet.
In the second quarter and year-to-date period of 1995, product related
revenues from the sales of OncoScint CR/OV were $354,000 and $728,000,
respectively, compared to $317,000 and $533,000 recorded for the same periods of
1994. The 1994 product related revenues included a $105,000 reduction for
returns of OncoScint CR/OV inventory because of shelf life expiration.
License and contract revenues for the second quarter and year-to-date
period of 1995 were $458,000 and $792,000, respectively, compared to $3,000 and
$47,000 realized in the same periods of 1994. The increase from prior year
periods is primarily attributable to contract revenues from DuPont Merck. The
1994 license and contract revenues were attributable to Bracco and Chiron.
To date, sales of OncoScint CR/OV in both the U.S. and European markets
have been limited. OncoScint CR/OV is a highly technical product that requires
proficiency in nuclear imaging and a thorough understanding of the information
the scan can provide. Sales of OncoScint CR/OV may be increased through
approval of repeat administration, which is currently pending with FDA. Cytogen
is currently in the process of upgrading its customer service capability to
better support the accurate use of its diagnostic products by nuclear medicine
physicians. Cytogen believes better quality control at the time the image is
actually acquired and greater assistance with the interpretation of the scans
are critical to the marketing and sales of the products. The Company believes
this approach will also be necessary for ProstaScint. There can be no assurance
that this approach will be successful.
In the past, Cytogen relied in large part on third parties to market its
product. In 1994 and the first quarter of 1995, in order to gain control of the
marketing and sales effort, Cytogen terminated its marketing relationship with
its U.S. and European Oncoscint CR/OV marketing partners. Since May 1994,
Cytogen's direct sales force has been the sole marketer of its OncoScint CR/OV
product in the U.S. Cytogen intends to secure alternative marketing and
distribution partners for OncoScint CR/OV in Europe and other major markets
outside the U.S. There can be no assurance that Cytogen will be able to
negotiate acceptable marketing alliances, that such alliances will be available
to Cytogen on acceptable terms or that any such relationships, if established,
will be commercially successful. Cytogen is currently evaluating its product
marketing options in the U.S. and continues to consider the value of maintaining
its direct selling efforts, as well as co-promotion alliances or licensing of
all rights to a third party. There can be no assurance that Cytogen's marketing
strategy will be successful or that product related revenues will increase
markedly.
Operating Expenses. Operating expenses for the second quarter and year-
to-date period of 1995 were $7.1 million and $34.9 million, respectively,
compared to $7.1 million and $14.4 million recorded in the same periods of 1994.
The year-to-date increase from the prior year period is largely attributable to
a one-time non-cash charge of $19.7 million recorded in the first quarter of
1995 for the reacquisition of marketing and technology rights associated with
the CytoRad merger. In addition, current year-to-date operating expenses
included a charge of $1.1 million to research and development expenses for
writedowns of commercial inventory relating
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<PAGE>
to OncoScint CR/OV, compared to $200,000 of inventory writedowns recorded in the
comparable period of 1994. The level of current year operating expenses
principally reflect the Company's continuing objective to control spending and
to focus its efforts on its highest priorities.
Research and development expenses for the second quarter of 1995 were $4.9
million compared to $4.4 million recorded in the same period of the prior year.
These expenses, which principally reflect product development efforts and
support for various ongoing clinical trials, included costs incurred in the
second quarter of 1995 relating to the submission of the NDA for Quadramet, as
well as a $446,000 charge to research and development expenses for writedowns of
commercial inventory relating to OncoScint CR/OV. Year-to-date research and
development expenses in 1995 were $10.3 million compared to $9.1 million
recorded in the same period of the prior year. The increase from the prior
period is primarily attributable to the $1.1 million recorded in 1995 for
inventory writedowns as compared to $200,000 recorded in 1994. In July 1993,
the Company petitioned FDA for shelf-life extension for certain commercial raw
material inventory. The timing and outcome of FDA's response to this request is
uncertain and cannot be predicted by the Company at this time. Given the
quantities of commercial raw material inventory along with the uncertainty of
FDA's response regarding shelf-life extension for this inventory, future
inventory writedowns may be required. See Note 1 to the Consolidated Financial
Statements.
Selling and marketing expenses for the second quarter and year-to-date
period of 1995 were $778,000 and $1.7 million, respectively, compared to $1.4
million and $2.7 million recorded in the same periods of the prior year. The
decrease from the prior year periods is primarily attributable to the reduction
of salaries and employee related expenses that resulted from the restructuring
of the Company's sales force, as well as to reduction of promotional expenses
associated with OncoScint CR/OV.
The $19.7 million charge to reacquire marketing and technology rights on
the statement of operations recorded in the first quarter of 1995 was a one-time
non-cash charge representing the amount by which the purchase price exceeded the
fair value of net assets acquired in connection with the CytoRad merger.
General and administrative expenses for the second quarter and year-to-
date period of 1995 were $1.5 million and $3.2 million, respectively, compared
to $1.3 million and $2.5 million recorded in the same periods of the prior year.
The increase from the prior year periods is primarily attributable to increased
spending for professional and consulting services.
Non-Operating Income/Expense. Net gains on investments for the second
quarter and year-to-date period of 1995 were $213,000 and $376,000,
respectively, compared to $321,000 and $638,000 realized in the comparable prior
year periods. The decrease from the prior year periods is due to the decline of
the average cash and short term investments balance for the respective periods.
Imputed interest expense of $148,000 and $296,000 on liabilities associated with
the Company's termination agreements with Knoll and Chiron were recorded for the
second quarter and year-to-date period of 1995, respectively.
Net Loss. Net loss for the second quarter of 1995 was $6.3 million
compared to a $6.4
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million loss recorded in the same period of 1994. The loss per common share was
$0.20 on 31.9 million average shares outstanding compared to $0.27 on 23.6
million average shares outstanding for the comparable period of 1994.
For the year-to-date period in 1995, the net loss was $33.3 million
compared to a $13.1 million loss recorded in the comparable period of the prior
year. The loss per common share was $1.11 on 30.0 million average shares
outstanding compared to $0.57 on 23.2 million average shares outstanding in
1994. As discussed above, the increase in the net loss and net loss per common
share is primarily attributable to the charge to the statement of operations for
the reacquisition of marketing and technology rights. At June 30, 1995, the
Company had outstanding (i) options to purchase up to 1.7 million shares of
Cytogen common stock under its various stock option award plans with exercise
prices ranging from $2.44 to $17.00 per share; (ii) the Option with Fletcher to
purchase up to 2.0 million shares of Cytogen common stock; (iii) warrants to
purchase 4.3 million shares of Cytogen common stock with exercise prices ranging
from $8.00 to $12.50 per share; and (iv) CVRs to receive, under certain
circumstances, up to 2.0 million shares of Cytogen common stock. The loss per
share calculation stated above does not take into account the shares issuable
upon exercise of such options, warrants and CVRs as their effect is
antidilutive.
Liquidity and Capital Resources
The Company's cash and short term investments as of June 30, 1995 were
$10.6 million, compared to $7.7 million as of December 31, 1994. The cash used
for operating activities and purchases of property and equipment for the first
half of 1995 were $12.1 million and $390,000, respectively, compared to $13.9
million and $1.2 million used in the same periods of 1994. The decreases in
cash used in 1995 compared to the prior year period reflect (i) a larger
reduction of the balances of accounts payable and accrued liabilities
outstanding in 1994, and (ii) a reduction from the 1994 capital expenditures
associated with the project to create additional manufacturing capacity to
produce the antibodies used with ProstaScint.
Historically, the Company's primary sources of cash have been proceeds
from the sale of its stock through public offerings and private placements, the
sale of research services, fees paid under its license agreements, product
related revenues, and interest earned on its cash and short term investments.
In January 1995, the Company received $4.0 million from DuPont Merck for
the sale of 908,265 shares of Cytogen common stock and $1.3 million to fund
additional clinical programs to expand the use and marketing of Quadramet. In
February 1995, as a result of the CytoRad merger, $11.7 million of CytoRad's
cash and securities, before payment of certain of the Company's transaction
costs, were acquired by the Company.
In March 1995, the Company entered into a purchase agreement with Nomura.
Under the terms of the purchase agreement, Cytogen could sell up to $49.0
million of its common stock to Nomura for distribution in the public markets in
a series of transactions during a twenty-four month period. Nomura's purchase
of Cytogen's stock from time to time is subject to the satisfaction of certain
conditions, including general market and trading conditions, and will be at the
sole discretion of Nomura. In connection with the purchase agreement, Cytogen
has filed
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<PAGE>
an initial shelf registration statement with the Securities and Exchange
Commission to allow for offerings from time to time of up to $11.0 million of
its common stock. There can be no assurance that the registration statement
will become effective or that Nomura will purchase any stock under the purchase
agreement.
In June 1995, the Company entered into a merger agreement with Cellcor.
In the Subscription Offering, holders of record of Cellcor common stock will be
granted the non-transferable right to purchase for cash up to an aggregate of
approximately $24 million of Cytogen common stock, subject to adjustment if
outstanding Cellcor stock options are exercised by Cellcor option holders before
August 17, 1995, the Subscription Offering record date, at a price of $3.89 per
share of Cytogen common stock. Consummation of the Cellcor Merger is conditioned
upon the purchase of at least $12.0 million of the Subscription Offering.
Certain of the Principal Stockholders have committed to purchase $12.0 million
of the shares in the Subscription Offering. These transactions also remain
subject to, among other things, the effectiveness of a registration statement
and a joint proxy statement, which has been filed with the SEC, certain other
regulatory approvals and the approval of both sets of stockholders. See Note 2
to the Consolidated Financial Statements.
In July 1995, Fletcher elected to exercise the Option by delivery to the
Company of an exercise notice for the purchase of 1,800,000 shares at an
aggregate exercise price of $7,304,400, or $4.058 per share. The Company and
Fletcher have agreed that the purchase and sale of the Option Shares will occur
in early August 1995. The Company and Fletcher have also agreed to amend the
Option to extend its term until November 15, 1995. Under the Option, as
amended, Fletcher will have the right to purchase up to an additional 1,000,000
shares of the Company's common stock.
The Company has recorded product related revenues from the sales of its
OncoScint Colorectal product in Europe since 1992 and from sales of OncoScint
CR/OV in the U.S. since January 1993. To date, sales have not been significant
and are not expected to become a significant source of cash flow in 1995. In
anticipation of the execution of the Termination Agreement (described below), as
of May 20, 1994, Knoll ceased its selling efforts and since that date, the
Company's direct sales force has been the sole marketer in the U.S. of OncoScint
CR/OV. Beginning July 1, 1994, product related revenues have included direct
product sales by the Company to its U.S. customers. Since that date, the
Company has not recorded any product sales to Knoll or any co-promotion
revenues. The Company is currently evaluating its product marketing options in
the U.S. and continues to consider the value of maintaining its direct selling
efforts, as well as co-promotion alliances or licensing of all rights to a third
party. The Company is currently in the process of upgrading its customer
service capability to better support the marketing and sales of its diagnostic
products. Depending on the success of this approach, significant resources
might be required. There can be no assurance that Cytogen's marketing strategy
will be successful.
On November 1, 1994, the Company executed the Termination Agreement with
Knoll terminating the Knoll Agreement. Pursuant to the Termination Agreement,
the Company has reacquired from Knoll all of the U.S. Rights to OncoScint CR/OV.
The Termination Agreement requires the Company to pay to Knoll, over a four-year
period and without interest, $3.0 million to reacquire the U.S. Rights and $5.0
million of liabilities previously incurred under the terms of the Knoll
Agreement. The payment of these liabilities has been rescheduled as follows:
$3.1 million in 1995, of which $1.0 million was paid in the first quarter of
1995 and the remaining
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$2.1 million was paid in July 1995; $1.6 million in 1996; $1.6 million in 1997;
and $1.7 million in 1998. See Note 5 to the Consolidated Financial Statements.
On December 30, 1994, the Company entered into the Disengagement Agreement
with Chiron to reacquire the European Rights and purchase certain business
assets relating to the European Rights, including existing approvals by the
appropriate regulatory authorities to market OncoScint CR/OV in 12 countries in
Europe. This reacquisition was consummated on February 16, 1995. See Note 7 to
the Consolidated Financial Statements. The resulting liability of Cytogen to
Chiron, which consisted of the reacquisition price of $1.0 million plus closing
costs, was partially offset by a $127,000 receivable from Chiron, and will be
paid over three years and without interest, as follows: $200,000 in 1995,
$300,000 in 1996 and $377,181 in 1997. Payment is secured by a mortgage
covering approximately 11 acres of undeveloped real property owned by the
Company in Ewing, New Jersey. This obligation is non-recourse to the Company.
On November 15, 1994, the Company and CytoRad entered into an agreement
for the acquisition of CytoRad by Cytogen. On February 23, 1995, the Company's
shareholders approved the issuance of the Company's securities necessary to
effect the acquisition of CytoRad and on February 27, 1995, the Company
completed its acquisition of CytoRad by merging CytoRad with and into a wholly-
owned subsidiary of the Company. As a result of the merger, the Company will
not recognize any further contract revenues from CytoRad and $11.7 million of
CytoRad's cash and securities, before payment of certain of the Company's
transaction costs, were acquired by the Company. See Note 4 to the Consolidated
Financial Statements.
In 1993, the Company acquired an exclusive license in the U.S. from Dow
for Quadramet. See Note 6 to the Consolidated Financial Statements. Quadramet
is a cancer therapy agent for treatment of the bone pain associated with bone
metastases, for which an NDA was submitted to FDA on June 13, 1995. Within 30
days after the filing of the NDA, the Company is required to pay to Dow $1.0
million. An NDA's filing date has been established by FDA to be sixty days
after FDA receives the NDA as long as the agency does not refuse to file the
application before that date. In addition, the Company will be required to pay
to Dow $4.0 million if and when Quadramet receives FDA approval. The Company
anticipates using its existing cash and short term investments to pay Dow in
1995. The agreement provides for additional payments by the Company upon
achievement of certain milestones and royalties on net sales of the product once
commercialized, including guaranteed minimum payments.
In December 1994, Cytogen entered into a license agreement with DuPont
Merck. Pursuant to the terms of the DP/Merck Agreement, Cytogen received from
DuPont Merck an up-front cash payment of $1.0 million in December 1994, $4.0
million in January 1995 for the sale to DuPont Merck of 908,265 shares of
Cytogen common stock and $1.3 million in January 1995 to fund additional
clinical programs to expand the use and marketing of Quadramet. The DP/Merck
Agreement further provides for future payments of up to $2.9 million toward
additional clinical programs, a $2.0 million milestone payment if and when
Quadramet receives FDA approval and royalty payments based on sales, including
guaranteed minimum payments.
In September 1989, the Company entered into an agreement with Bracco.
Pursuant to the terms of the Bracco Agreement, in 1989, Bracco purchased 250,000
shares of the Company's common stock (the "Shares") at $8.00 per share. The
Bracco Agreement provides that if the
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<PAGE>
results of a feasibility study conducted by the Company do not meet certain
predetermined evaluation criteria, the Company would be obligated to repurchase
the Shares from Bracco for an aggregate purchase price of $2.0 million. The
Bracco Agreement further established a completion date for the feasibility study
of September 29, 1993. The feasibility study was not completed until after that
date. A final report on the findings of the feasibility study, which held that
the evaluation criteria had not been met, was provided to Bracco in March 1994.
In July 1994, Bracco notified the Company of its belief that the Company has an
obligation to redeem the Shares. The Company entered into negotiations with
Bracco to reach an agreement as to the disposition of the Shares. On April 20,
1995, Bracco requested that the Company proceed to redeem the Shares
immediately. It is the Company's position that under the terms of the Bracco
Agreement it does not have an obligation to comply with Bracco's recent request
and has sought an opportunity to discuss the matter further with Bracco. In the
event that the parties fail to reach a negotiated settlement, the Bracco
Agreement provides that all disputes will be resolved through arbitration.
There can be no assurances that negotiations will be successful. At June 30,
1995, the Company had an outstanding receivable from Bracco in the amount of
$293,000.
Given the trend towards consolidation in both the biotechnology and
pharmaceutical industries, the Company is pursuing opportunities to acquire, in-
license and develop other technologies, products or services to supplement its
existing products and technology. If successful, this strategy may increase
short term expenses or increase long term revenues. While there can be no
assurance that these efforts will be successful, any transaction is likely to
require payments by the Company in either cash or stock in addition to the costs
associated with developing and marketing any product or technology.
The Company's operating and capital requirements, as described above, may
further change depending upon several factors, including: (i) the amount of
resources which the Company devotes to clinical evaluations and the
establishment of manufacturing, marketing and sales capabilities; (ii) results
of preclinical testing, clinical trials and research and development activities;
(iii) competitive and technological developments; (iv) the Company's success in
entering into, and cash flows derived from, new technology licensing, marketing
and research agreements, and product related revenues; and (v) the Company's
success in attracting additional capital.
The Company plans to continue to control spending in 1995 and anticipates
that its existing cash and short term investments balance of $10.6 million at
June 30, 1995, together with the proceeds from the exercise of the Option by
Fletcher, other financing and acquisition opportunities which may become
available (including possible financings with Nomura under the terms of the
purchase agreement and net proceeds from the proposed Subscription Offering)
will be adequate to support the Company's operating activities into the first
half of 1996. The Company anticipates receiving additional funds from DuPont
Merck in accordance with the terms of the DP/Merck Agreement, other license and
contract revenues, product related revenues and interest income, and from the
sales of equity securities as market conditions permit. There can be no
assurance as to the Company's success in obtaining such additional funds or that
such funds, if obtained, will be sufficient to meet the Company's cash
requirements through the time that product related resources are sufficient to
cover the Company's operating expenses.
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PART II - OTHER INFORMATION
------- -----------------
Item 4 - Submission of Matters to the Vote of Security Holders
------
On May 23, 1995, the Company held its annual meeting of stockholders
to (i) elect directors, (ii) consider and act upon a proposal to amend
the Cytogen Corporation 1988 Stock Option Plan for Non-Employee
Directors, (iii) consider and act upon a proposal to adopt the Cytogen
Corporation 1995 Stock Option Plan, (iv) ratify the appointment of
Arthur Andersen LLP as independent public accountants to audit the
Company's books and records for 1995; and (v) transact such other
business as might be brought before the meeting.
The following tables set forth information regarding the number of
votes cast for, against or withheld, abstentions and broker non-votes,
with respect to each matter presented at the meeting. Under the rules
of the NASD, brokers who hold shares in street name for customers who
are beneficial owners of those shares may be prohibited from giving a
proxy to vote shares held for such customers on certain matters
without specific instructions from such customers ("broker non-
votes"). Under Delaware law, abstentions and broker non-votes are
counted as shares represented at the meeting for purposes of
determining the presence or absence of a quorum at a stockholders'
meeting. In determining whether a proposal has received the requisite
number of affirmative votes, abstentions are counted as part of the
voting power present with respect to the proposal and have the same
effect as a vote against the proposal. Broker non-votes are not
counted as part of the voting power present with respect to the
proposal and therefore, have no effect on the outcome of the vote.
(i) Election of Directors:
Against or Broker
Nominee For Withheld Abstentions Non-Votes
------- --- ---------- ----------- ---------
William C. Mills 27,205,697 508,245 0 0
Charles E. Austin 27,160,466 553,576 0 0
Robert F. Hendrickson 27,168,929 545,013 0 0
T. Jerome Madison 27,185,546 528,396 0 0
Thomas J. McKearn 27,183,940 530,002 0 0
Donald E. O'Neill 27,154,533 559,409 0 0
Bruce R. Ross 27,179,004 534,938 0 0
(ii) Amend the Cytogen Corporation 1988 Stock Option Plan for Non-
Employee Directors:
Against or Broker
For Withheld Abstentions Non-Votes
--- ---------- ----------- ---------
14,136,975 1,605,516 417,246 11,554,205
23
<PAGE>
(iii) Adopt the Cytogen Corporation 1995 Stock Option Plan:
Against or Broker
For Withheld Abstentions Non-Votes
--- ---------- ----------- ---------
11,416,370 3,774,603 360,562 12,162,407
(iv) Appointment of Arthur Andersen LLP as independent public
accountants:
Against or Broker
For Withheld Abstentions Non-Votes
--- ---------- ----------- ---------
27,329,557 179,463 204,922 0
(v) No other business was transacted at the meeting.
Item 6 - Exhibits and Reports on Form 8-K
------
(a) Exhibits:
2.1- Agreement and Plan of Merger dated as of June 15, 1995 by and
among Cytogen Corporation, Cellcor Acquisition Corp. (formerly
known as Small-C Acquisition Corp.) and Cellcor, Inc. (1)
2.2- Voting and Subscription Agreement, dated June 15, 1995, among
Cytogen Corporation, Cellcor Acquisition Corp. and the entities
listed on Schedule I thereto (2)
27.1- Financial Data Schedule (submitted to the Securities and
Exchange Commission only in electronic format)
----------------
(1) Filed as an exhibit to Cytogen's Current Report on Form 8-K, filed with
the Securities and Exchange Commission on June 27, 1995, and incorporated
herein by reference.
(2) Filed as Annex B to the Joint Proxy Statement/Prospectus filed with the
Securities and Exchange Commission on July 17, 1995, and incorporated
herein by reference.
(b) Reports on Form 8-K:
During the second quarter of 1995, the Company filed a Form 8-K dated
June 15, 1995 to report on "Item 5. Other Events" regarding the
execution of the Agreement and Plan of Merger by the Company and
Cellcor.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CYTOGEN CORPORATION
Date August 10, 1995 By /s/ T. Jerome Madison
--------------- ----------------------
T. Jerome Madison
Chief Financial Officer
(Authorized Officer and Principal Financial
Officer)
25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1995 AND CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE YEAR-TO-DATE PERIOD ENDED JUNE 30, 1995 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 9,243,000
<SECURITIES> 1,321,000
<RECEIVABLES> 1,059,000
<ALLOWANCES> (526,000)
<INVENTORY> 2,157,000
<CURRENT-ASSETS> 592,000
<PP&E> 15,321,000
<DEPRECIATION> (10,106,000)
<TOTAL-ASSETS> 20,908,000
<CURRENT-LIABILITIES> 8,972,000
<BONDS> 0
<COMMON> 317,000
0
0
<OTHER-SE> 4,851,000
<TOTAL-LIABILITY-AND-EQUITY> 20,908,000
<SALES> 728,000
<TOTAL-REVENUES> 1,520,000
<CGS> 0
<TOTAL-COSTS> 1,781,000
<OTHER-EXPENSES> 33,087,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 296,000
<INCOME-PRETAX> (33,268,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (33,268,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33,268,000)
<EPS-PRIMARY> (1.11)
<EPS-DILUTED> 0
</TABLE>
