<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 September 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:
<TABLE>
<CAPTION>
Class Outstanding at November 7,1995
- ------------------------------ -----------------------------------------
<S> <C>
Common Stock, $.01 par value 36,601,092
Warrants to Purchase One Share of Common Stock, 4,023,495
$.01 par value
Contingent Value Rights to Receive a Fraction 4,023,495
of a Share of Common Stock, $.01 par value
</TABLE>
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
September 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
September 30, 1995 and December 31, 1994, the results of operations for the
quarters and year-to-date periods ended September 30, 1995 and September 30,
1994, and the cash flows for the year-to-date periods ended September 30, 1995
and September 30, 1994.
The results of operations for the periods ended September 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 September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 10,029 $ 7,700
Short term investments 1,261 -
Accounts receivable, net 198 294
Receivable from CytoRad Incorporated - 810
Inventories 2,121 3,159
Other current assets 704 329
------------- ------------
Total current assets 14,313 12,292
------------- ------------
PROPERTY AND EQUIPMENT:
Leasehold improvements 9,276 9,005
Equipment and furniture 6,130 5,923
------------- ------------
15,406 14,928
Less- Accumulated depreciation and
amortization (10,478) (9,377)
------------- ------------
Net property and equipment 4,928 5,551
------------- ------------
OTHER ASSETS
Restricted cash 383 383
Other assets 1,464 1,464
------------- ------------
Total Other Assets 1,847 1,847
------------- ------------
$ 21,088 $ 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 September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 3,174 $ 6,371
Other current liabilities 2,135 2,641
------------- ------------
Total current liabilities 5,309 9,012
------------- ------------
LONG TERM LIABILITIES 3,130 4,310
------------- ------------
COMMITMENTS AND CONTINGENCIES (See Note 10)
REDEEMABLE COMMON STOCK, 0 and 250,000
shares issued and outstanding in 1995
and 1994, respectively, at redemption value - 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, 34,413,000 and
24,658,000 shares issued and outstanding
in 1995 and 1994, respectively 344 247
Additional paid-in capital 205,268 159,941
Unrealized gains on investments 29 -
Accumulated deficit (192,992) (155,820)
------------- ------------
Total stockholders' equity 12,649 4,368
------------- ------------
$ 21,088 $ 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
----------------------------- ----------------------------
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Product related $ 347 $ 397 $ 1,075 $ 930
License and contract 2,445 - 3,237 47
------------- ------------- ------------- -------------
Total Revenues 2,792 397 4,312 977
------------- ------------- ------------- -------------
OPERATING EXPENSES:
Research and development 4,526 5,497 14,822 14,616
Selling and marketing 652 1,342 2,371 4,032
Reacquisition of marketing and technology rights - - 19,663 -
General and administrative 1,512 1,768 4,702 4,310
------------- ------------- ------------- -------------
Total Operating Expenses 6,690 8,607 41,558 22,958
------------- ------------- ------------- -------------
LOSS FROM OPERATIONS $ (3,898) $ (8,210) $ (37,246) $ (21,981)
------------- ------------- ------------- -------------
NON-OPERATING INCOME (EXPENSE)
Gain on investments, net 142 212 518 850
Interest expense (148) - (444) -
------------- ------------- ------------- -------------
Total Non-Operating Income (Expense) (6) 212 74 850
------------- ------------- ------------- -------------
NET LOSS $ (3,904) $ (7,998) $ (37,172) $ (21,131)
============= ============= ============= =============
NET LOSS PER COMMON SHARE $ (0.12) $ (0.33) $ (1.20) $ (0.90)
============= ============= ============= =============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 33,013 24,259 30,998 23,536
============= ============= ============= =============
</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
-----------------------------
September 30, September 30,
1995 1994
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (37,172) $ (21,131)
------------- -------------
Adjustments to Reconcile Net Loss to Cash Used
for
Operating Activities:
Acquisition of Marketing and Technology
Rights 19,663 -
Depreciation and Amortization 1,101 728
Imputed Interest 444 -
Inventory Writedown 1,144 1,052
Stock Grants 43 102
Amortization of Deferred Charges (27) (99)
Changes in Assets and Liabilities:
Accounts receivable, net (197) (426)
Inventories (106) (444)
Other current assets (375) 426
Other assets - (53)
Accounts payable and accrued
liabilities (2,870) 167
Other liabilities (2,103) -
------------- -------------
Total adjustments 16,717 1,453
------------- -------------
Net cash used for operating activities (20,455) (19,678)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Cash Acquired in CytoRad Acquisition (See
Note 4) 10,514 -
Decrease ( Increase) in Short Term Investments (1,232) 5,146
Purchases of Property and Equipment (475) (2,113)
------------- -------------
Net cash provided by investing activities 8,807 3,033
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Common Stock 14,309 14,442
Redemption of Common Stock (332) -
------------- -------------
Net cash provided by financing activities 13,977 14,442
------------- -------------
Net Increase (Decrease) in Cash and Cash
Equivalents 2,329 (2,203)
Cash and Cash Equivalents, Beginning of Period 7,700 4,074
------------- -------------
Cash and Cash Equivalents, End of Period $ 10,029 $ 1,871
============= =============
</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 September 30, 1995 and for the quarters and year-to-date
periods ended September 30, 1995 and September 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 September 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 $29,000 has been recorded as a separate component of stockholders'
equity at September 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>
September 30, December 31,
1995 1994
-------------- -------------
<S> <C> <C>
Raw Materials $ 1,472,000 $ 2,771,000
Work in Process - 49,000
Finished Goods 649,000 339,000
-------------- -------------
$ 2,121,000 $ 3,159,000
============== =============
</TABLE>
Inventory shown as of September 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 September 30, 1995,
approximately $934,000 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 $383,000 and are
segregated and classified as restricted cash in the accompanying consolidated
balance sheets.
Other Assets
Other assets consist primarily 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 $347,000
and $1.1 million for the third 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, as amended, with Cellcor, Inc. ("Cellcor") and a wholly-owned subsidiary
of Cytogen (the "Merger Subsidiary"), which provided that, Cellcor would be
merged with and into the Merger Subsidiary (the "Cellcor Merger"), whereupon the
separate corporate existence of Cellcor would cease and the Merger Subsidiary
would change its name to Cellcor, Inc.. At the effective time of the Cellcor
Merger, each outstanding share of Cellcor common stock was converted into the
right to receive .60 shares of Cytogen common stock and each outstanding share
of Cellcor Convertible Preferred Stock was converted into the right to receive
218.94 shares of Cytogen common stock. Hillman Medical Ventures partnerships
and certain of their affiliates (collectively, the "Cellcor Principal
Stockholders") owned 46.5% of the Cellcor common stock and 95.2% of the Cellcor
preferred stock. The Cellcor Principal Stockholders agreed to vote such shares
in favor of the Cellcor Merger.
In connection with the Cellcor Merger, holders of record of Cellcor common
stock were granted the non-transferable right to purchase for cash up to an
aggregate of approximately $26 million of Cytogen common stock (the
"Subscription Offering"). Each holder of Cellcor common stock was 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 was conditioned upon the purchase of at least $12.0 million of the
Subscription Offering. Certain of the Cellcor Principal Stockholders had
committed to purchase up to $12.0 million of the shares in the Subscription
Offering.
On October 16, 1995, the Company's stockholders approved the issuance of
the Company's securities necessary to effect the acquisition of Cellcor and the
Subscription Offering. On October 20, 1995, the Company completed its
acquisition of Cellcor by merging Cellcor with and into the Merger Subsidiary.
As a result of the Cellcor Merger, the Company will issue (i) 4,713,564 shares
of Cytogen common stock to acquire Cellcor, and (ii) 5,144,388 shares of Cytogen
common stock in connection with the Subscription Offering, raising a total of
$20.0 million. As a result of the Cellcor Merger, the Company will record, a
one-time non-cash charge of approximately $26.0 million for acquired research
and development on its statement
9
<PAGE>
of operations in the fourth quarter of 1995, which charge represents the amount
by which the purchase price exceeds the fair value of net assets acquired from
Cellcor.
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
accepted for filing by FDA on August 11, 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
$1.0 million were recognized as license and contract revenues in the third
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 (i) 1.5 shares of the Company's common stock,
(ii) a warrant to acquire one share of the Company's common stock for $8.00 that
expires January 31, 1997 and (iii) 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
10
<PAGE>
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 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 September 30, 1995, the Company had
issued 6,035,235 shares of common stock, 4,023,495 CVRs and 4,023,495 warrants
pursuant to the exchange offer. Although the 1,505 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, which amount has been paid; $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 $130,000 and $391,000 relating to the
obligation, which was discounted based upon a 10% interest rate, were recorded
for the third 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. 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. In the third quarter of 1995, upon the filing of the NDA for Quadramet
with FDA, the Company recorded a one-time licensing fee of $2.0 million from Dow
for their use of Quadramet's NDA filing
11
<PAGE>
package. At the same time, the Company was required to pay to Dow $1.0 million.
The Company will 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 Ended
-------------------- -------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1995 1994 1995 1994
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Customer
- -------------
Dow (See Note 6) 70% - 45% -
DuPont Merck (See Note 3) 12% - 23% -
Company A 6% - 11% -
Knoll (See Note 5) - - - 41%
Chiron - 8% - 13%
</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 third quarter of 1995 compared to
$31,000 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 $130,000 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 $53,000 relating to the obligation, based upon a
10% interest rate, was recorded in the third quarter and year-to-date period of
1995, respectively. 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.
On August 28, 1995, Cytogen announced that it has executed Letters of
Intent with CIS bio international ("CIS"), a radiopharmaceutical company
headquartered in France, to market OncoScint CR/OV in Europe and other countries
outside North America, and with Faulding (Canada) Inc. ("Faulding") to market
OncoScint CR/OV in Canada. These agreements in
12
<PAGE>
principle are subject to the negotiation and execution of definitive agreements
and all necessary corporate approvals. No assurance can be given that such
definitive agreements will be executed or regarding the timing of such
execution.
Company A is a chain of radiopharmacies.
8. REDEEMABLE COMMON STOCK:
In September 1989, Cytogen entered into a research and option agreement
(the "Bracco Agreement") with Bracco Industria Chimica S.p.A. ("Bracco"),
pursuant to which Bracco purchased 250,000 shares of Cytogen common stock (the
"Bracco Shares") at $8.00 per share. The Bracco Agreement provided that Cytogen
would be obligated to repurchase the Bracco Shares from Bracco under certain
circumstances for an aggregate purchase price of $2.0 million (the "Purchase
Price"). Bracco had notified Cytogen of its belief that Cytogen had an
obligation to redeem the Bracco Shares and requested that Cytogen repurchase the
Bracco Shares. Cytogen asserted that it did not have an obligation to
repurchase the Bracco Shares. In August 1995, Cytogen and Bracco agreed that
Bracco would sell the Bracco Shares on the Nasdaq National Market ("NASDAQ") and
Bracco sold the Bracco Shares for an aggregate purchase price of $1,375,000 (the
"Shares Sale Price"), or $5.50 per share. At that date, Bracco had an
outstanding account payable due and owing to Cytogen in an amount equal to
$293,408 (the "Payable"). Cytogen also agreed to pay to Bracco the amount equal
to the difference between (i) the Purchase Price and (ii) the sum of the Shares
Sales Price plus the Payable (or $331,592), in full settlement of the dispute,
which amount has been paid.
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.
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 purchased 1.8 million shares
of the Company's common stock in August 1995, at an aggregate price of
approximately $7.3 million, or $4.058 per share, under an option agreement,
pursuant to which Fletcher could purchase up to 9.9% of Cytogen's outstanding
common stock (including shares previously purchased). The terms of the option
agreement have been amended so that Fletcher may purchase up to an additional
1.0 million shares of Cytogen common stock until November 15, 1995. 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.
On March 28, 1995, the Company entered into a purchase agreement with
Nomura
13
<PAGE>
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.
In September 1995, Cytogen and Fletcher Fund, L.P., a Delaware limited
partnership ("Fletcher Fund"), entered into an Investment Agreement (the
"Investment Agreement") pursuant to which Cytogen (i) sold to Fletcher Fund
665,352 shares of Cytogen common stock on September 11, 1995 for an aggregate
purchase price of $2.7 million, and (ii) will have the right, during the period
beginning October 13, 1995 and ending March 29, 1996, to issue and sell to
Fletcher Fund, and Fletcher Fund will be obligated to purchase, up to 675,000
shares of Cytogen common stock from time to time (collectively, the "Put
Rights") at a purchase price per share equal to 101% of the average of the daily
volume weighted average price of Cytogen common stock on NASDAQ during a
designated twenty-one business day period. Under certain circumstances,
Fletcher Fund will have the right to decrease or increase the number of shares
of Cytogen common stock to be purchased in connection with the exercise of a Put
Right by Cytogen, but in no event shall the total number of shares sold by
Cytogen and purchased by Fletcher Fund pursuant to the Investment Agreement
exceed 4.9% of the total number of shares of Cytogen common stock outstanding,
after giving effect to the proposed sale and purchase of the shares in question.
The shares to be issued and sold in this transaction were registered pursuant to
a registration statement on Form S-3 filed with the Commission in April 1994.
See Notes 2, 3, 4 and 10 for information related to the Company's issuance
of common stock in connection with the Cellcor Merger, 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.
14
<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. The NDA for Quadramet was
accepted for filing by FDA effective August 11, 1995. The timing and outcome of
FDA's decision regarding Quadramet cannot be predicted by the Company at this
time.
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.
To date, sales of OncoScint CR/OV in both the U.S. and European
markets have been limited. In May 1995, Cytogen announced its initial
implementation of a targeted marketing and sales program designed to provide
additional quality control and support for OncoScint CR/OV, as well as to build
the program in preparation for the launch of ProstaScint,
15
<PAGE>
the Company's prostate cancer imaging agent, 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 decision regarding ProstaScint cannot be
predicted by the Company at this time. Cytogen believes that both OncoScint
CR/OV and ProstaScint are novel "technically-sophisticated" products requiring a
core group of highly trained, expert nuclear medicine sites to serve as the
primary users of these imaging agents. This effort is referred to as Cytogen's
Partners In Excellence program (the "PIE" program").
The key objective of the PIE program is to direct referrals for patients
to be imaged with the Company's products to only those nuclear medicine sites
that are capable of expertly acquiring, processing and interpreting antibody-
derived images. It has been the Company's experience that well-trained and
competent nuclear medicine sites produce more consistent and accurate scan
results and are less likely to read scans incorrectly. As information is the
key benefit of an imaging agent, the PIE program may provide a valuable benefit
to referring physicians, patients and payors. There can be no assurance that
this marketing strategy will be successful or that product related revenues will
increase markedly.
In August 1995, the Company announced that it has executed Letters of
Intent with CIS to market OncoScint CR/OV in Europe and other countries outside
North America, and with Faulding to market OncoScint CR/OV in Canada. These
agreements in principle are subject to the negotiation and execution of
definitive agreements and all necessary corporate approvals. No assurance can
be given that such definitive agreements will be executed or regarding the
timing of such execution.
On October 20, 1995, the Company completed its acquisition of Cellcor by
merging Cellcor with and into a wholly-owned subsidiary of the Company. See
Note 2 to the Consolidated Financial Statements. Cellcor is a biotechnology
company focused on the development and commercialization of autolymphocyte
therapy (ALT), a proprietary immunotherapy using a patient's own immune cells to
treat cancer and certain infectious diseases. Cellcor recently completed the
patient accrual for its Phase III pivotal trial using ALT to treat metastatic
kidney cancer patients and in September, received FDA approval to proceed with a
Treatment IND that allows ALT to be available as a treatment option for these
patients. Importantly, the Treatment IND also allows Cellcor to recover costs
associated with the treatment. The Company will record a one-time non-cash
charge of approximately $26.0 million for acquired research and development on
its statement of operations in the fourth quarter of 1995, representing the
amount by which the purchase price exceeds the fair value of net assets acquired
from Cellcor.
Revenues. Total revenues for the third quarter and year-to-date periods
of 1995 were $2.8 million and $4.3 million, respectively, compared to $397,000
and $977,000 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 $1.0 million for the third quarter and
year-to-date period of 1995, respectively, for continued clinical development of
Quadramet. In addition, in the third quarter of 1995, the Company recorded a
one-time licensing fee of $2.0 million from Dow for their use of Quadramet's NDA
filing package.
16
<PAGE>
In the third quarter and year-to-date period of 1995, product related
revenues from the sales of OncoScint CR/OV were $347,000 and $1.1 million,
respectively, compared to $397,000 and $930,000 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 third quarter and year-to-date
period of 1995 were $2.4 million and $3.2 million, respectively, compared to $0
and $47,000 realized in the same periods of 1994. The increase from prior year
periods is primarily attributable to license and contract revenues from DuPont
Merck and Dow. The 1994 license and contract revenues were attributable to
Bracco and Chiron.
Operating Expenses. Operating expenses for the third quarter and year-to-
date period of 1995 were $6.7 million and $41.6 million, respectively, compared
to $8.6 million and $23.0 million recorded in the same periods of 1994. The
third quarter decrease from the comparable prior year period principally
reflects the Company's continuing objective to control spending and to focus its
efforts on its highest priorities. 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.
Research and development expenses for the third quarter of 1995 were $4.5
million compared to $5.5 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 a $1.0 million milestone
payment to Dow in the third quarter of 1995 at the time of the filing of the NDA
for Quadramet. Year-to-date research and development expenses in 1995 were
$14.8 million compared to $14.6 million recorded in the same period of the prior
year. These expenses included $1.1 million of inventory writedowns for each of
the years 1994 and 1995. 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 third quarter and year-to-date
period of 1995 were $652,000 and $2.4 million, respectively, compared to $1.3
million and $4.0 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.
17
<PAGE>
General and administrative expenses for the third quarter and year-to-date
period of 1995 were $1.5 million and $4.7 million, respectively, compared to
$1.8 million and $4.3 million recorded in the same periods of the prior year.
The year-to-date increase from the prior year period is primarily attributable
to increased spending for professional and consulting services.
Non-Operating Income/Expense. Net gains on investments for the third
quarter and year-to-date period of 1995 were $142,000 and $518,000,
respectively, compared to $212,000 and $850,000 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 $444,000 on liabilities associated with
the Company's termination agreements with Knoll and Chiron were recorded for the
third quarter and year-to-date period of 1995, respectively.
Net Loss. Net loss for the third quarter of 1995 was $3.9 million
compared to an $8.0 million loss recorded in the same period of 1994. The loss
per common share was $0.12 on 33.0 million average shares outstanding compared
to $0.33 on 24.3 million average shares outstanding for the comparable period of
1994.
For the year-to-date period in 1995, the net loss was $37.2 million
compared to a $21.1 million loss recorded in the comparable period of the prior
year. The loss per common share was $1.20 on 31.0 million average shares
outstanding compared to $0.90 on 23.5 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 September 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 1.0 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; (iv) CVRs to receive, under certain
circumstances, up to 2.0 million shares of Cytogen common stock; and (v) the Put
Right to issue and sell to Fletcher Fund up to 675,000 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 September 30, 1995
were $11.3 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
nine months ended September 30, 1995 were $20.5 million and $475,000,
respectively, compared to $19.7 million and $2.1 million used in the same
periods of 1994. The decrease in cash used for purchases of property and
equipment in 1995 compared to the prior year period reflects the 1994 capital
expenditures associated with the project to create additional manufacturing
capacity to produce the antibodies used with ProstaScint.
18
<PAGE>
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 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 and Cellcor entered into an agreement for the
acquisition of Cellcor by the Company. On October 20, 1995, the Company
completed its acquisition of Cellcor by merging Cellcor with and into a wholly-
owned subsidiary of the Company. In connection with the Subscription Offering
to Cellcor common stockholders, the Company raised an aggregate of $20.0
million, before certain transaction costs. See Note 2 to the Consolidated
Financial Statements.
In July 1995, Fletcher purchased 1.8 million shares of the Company's
common stock at an aggregate price of approximately $7.3 million or $4.058 per
share, under an option agreement pursuant to which Fletcher could purchase up to
9.9% of Cytogen's outstanding common shares (including shares previously
purchased). The terms of the option agreement have been amended so that
Fletcher may purchase up to an additional 1 million shares of the Company's
common stock until November 15, 1995.
In September 1995, Cytogen and Fletcher Fund entered into an Investment
Agreement pursuant to which Cytogen (i) sold to Fletcher Fund 665,352 shares of
Cytogen common stock on September 11, 1995 for an aggregate purchase price of
$2.7 million, and (ii) will have the right, during the period beginning October
13, 1995 and ending March 29, 1996, to issue and sell to Fletcher Fund, and
Fletcher Fund will be obligated to purchase, up to 675,000 shares of Cytogen
common stock from time to time at a purchase price per share equal to 101% of
the average of the daily volume weighted average price of Cytogen common stock
on NASDAQ during a designated twenty-one business day period. Under certain
circumstances, Fletcher Fund will have the right to decrease or increase the
number of shares of Cytogen common stock to be purchased in connection with the
exercise of a Put Right by Cytogen, but in no event shall the total number of
shares sold by Cytogen and purchased by Fletcher Fund pursuant to the
19
<PAGE>
Investment Agreement exceed 4.9% of the total number of shares of Cytogen common
stock outstanding, after giving effect to the proposed sale and purchase of the
shares in question. The shares to be issued and sold in this transaction were
registered pursuant to a registration statement on Form S-3 filed with the
Commission in April 1994.
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. In May 1995, the Company announced its initial implementation of the PIE
program described above. Depending on the success of the PIE program,
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, which amount has been paid; $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 $377,000 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
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,
20
<PAGE>
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. In the
third quarter of 1995, upon the filing of the NDA for Quadramet with FDA, the
Company recorded a one-time licensing fee of $2.0 million from Dow for their use
of Quadramet's NDA filing package. At the same time, the Company was required
to pay to Dow $1.0 million, which amount was offset against the $2.0 million
payment from Dow. In addition, the Company will 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.
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 towards
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, Cytogen entered into the Bracco Agreement, pursuant to
which Bracco purchased 250,000 shares of Cytogen common stock at $8.00 per
share. The Bracco Agreement provided that Cytogen would be obligated to
repurchase the Bracco Shares from Bracco under certain circumstances for an
aggregate Purchase Price of $2.0 million. Bracco had notified Cytogen of its
belief that Cytogen had an obligation to redeem the Bracco Shares and requested
that Cytogen repurchase the Bracco Shares. Cytogen asserted that it did not
have an obligation to repurchase the Bracco Shares. In August 1995, Cytogen and
Bracco agreed that Bracco would sell the Bracco Shares on NASDAQ and Bracco sold
the Bracco Shares for an aggregate Share Sales Price of $1,375,000, or $5.50 per
share. At that date, Bracco had an outstanding Payable due and owing to Cytogen
in an amount equal to $293,408. Cytogen also agreed to pay to Bracco the amount
equal to the difference between (i) the Purchase Price and (ii) the sum of the
Shares Sales Price plus the Payable (or $331,592), in full settlement of the
dispute, which amount has been paid.
The Company's capital and operating 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;
and (iii) competitive and technological developments. The Company plans to
continue to control spending for the balance of 1995 and anticipates that its
existing cash and short term investments of $11.3 million at September 30, 1995,
together with the proceeds from the Subscription Offering, which raised $20.0
million, other financing and acquisition opportunities which may become
available (including possible financings with Fletcher, Fletcher Fund L.P. and
Nomura under the terms of the agreements with the parties), and the receipt of
additional funds from DuPont Merck in accordance with the terms of the DP/Merck
Agreement, will be adequate to support the Company's operations into 1996.
21
<PAGE>
The Company's financial strategy is to meet its capital and operating
requirements through revenues from existing products, the establishment of
strategic marketing alliances, research and development partnerships, the
acquisition, in-licensing and development of other technologies, products or
services, subcontract manufacturing revenues, license and contract revenues,
sale of equity securities as market conditions permit, interest income, and a
continued commitment to control spending. This strategy may increase short term
expenses and, if successful, increase long term revenues. In addition, certain
of these transactions are 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. There can be no assurance as to the strategy's
success or that any resulting funds 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.
22
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
- ------
(a) Exhibits:
10.1- Amendment to the Option Agreement between Cytogen Corporation
and Fletcher Capital Markets, Inc. dated August 10, 1995/(1)/.
10.2- Investment Agreement between Cytogen Corporation and Fletcher
Fund L.P. dated September 8, 1995/(1)/.
27.1- Financial Data Schedule (submitted to the Securities and
Exchange Commission only in electronic format)
____________
(1) Filed as an exhibit to Cytogen Corporation's Registration Statement on
Form S-4 (Registration No. 33-62617), filed with the Securities and
Exchange Commission on September 13, 1995, and incorporated herein by
reference.
(b) Reports on Form 8-K:
During the third quarter of 1995, the Company filed a Form 8-K dated
September 25, 1995 to report on "Item 5. Other Events" regarding the
issuance of a press release by Cellcor announcing FDA's approval of
its Treatment IND program.
23
<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 November 13, 1995 By /s/ T. Jerome Madison
---------------------- -------------------------------------
T. Jerome Madison
Chief Financial Officer
(Authorized Officer and Principal Financial
Officer)
24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets as of September 30, 1995 and Consolidated Statement
of Operations for the Year-to-Date period ended September 30, 1995 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 10,029,000
<SECURITIES> 1,261,000
<RECEIVABLES> 724,000
<ALLOWANCES> (526,000)
<INVENTORY> 2,121,000
<CURRENT-ASSETS> 704,000
<PP&E> 15,406,000
<DEPRECIATION> (10,478,000)
<TOTAL-ASSETS> 21,088,000
<CURRENT-LIABILITIES> 5,309,000
<BONDS> 0
<COMMON> 344,000
0
0
<OTHER-SE> 12,305,000
<TOTAL-LIABILITY-AND-EQUITY> 21,088,000
<SALES> 1,075,000
<TOTAL-REVENUES> 4,312,000
<CGS> 0
<TOTAL-COSTS> 2,170,000
<OTHER-EXPENSES> 39,388,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 444,000
<INCOME-PRETAX> (37,172,000)
<INCOME-TAX> 0
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</TABLE>
