As filed with the Securities and Exchange Commission on December 11, 1998
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
Form S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
CYTOGEN CORPORATION
(Exact name of registrant as specified in its charter)
------------------------------------------------------
Delaware 2835 22-2322400
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or organization) Industrial Classification Identification No.)
Code Number)
-------------------------------------
600 College Road East CN 5308
Princeton, New Jersey 08540-5308
(609) 987-8200
(Address, including zip code and telephone
number, including area code, of registrant's
principal executive offices)
--------------------------------------
Donald F. Crane, Jr., Esq.
Vice President and General Counsel
CYTOGEN Corporation
600 College Road East CN 5308
Princeton, New Jersey 08540-5308
(609) 987-8200
(Name, address, including zip code, and telephone
number,including area code, of agent for service)
-----------------------------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ____________
If this Form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] ____________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.[ ]
----------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================
Proposed Maximum Proposed Maximum
Title of Each Class of Amount To Be Offering Price Aggregate Offering Amount of
Securities To Be Registered Registered (1) Per Share Price Registration Fee
<S> <C> <C> <C> <C>
Common Stock ($.01 per share) 8,000,000 Shares $.9687 (2) $7,750,000 (2) $2,155
===================================================================================================================
</TABLE>
(1) In the event of a stock split, stock dividend, or other transaction
involving the Company's Common Stock, in order to prevent dilution, the
number of shares registered shall automatically be increased to cover the
additional shares in accordance with Rule 416(a) under the Securities Act.
(2) Estimated solely for the purpose of calculating the registration fee.
Includes preferred stock purchase rights pursuant to Cytogen
Corporation's Shareholder Rights Agreement.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
PROSPECTUS Subject to Completion, dated December 11, 1998
8,000,000 Shares
CYTOGEN CORPORATION
Common Stock
This prospectus relates to the sale by CYTOGEN Corporation, from time to time,
of up to 8,000,000 shares of our common stock. Information with respect to the
terms of any particular offering of common stock pursuant to this prospectus
will be contained in a prospectus supplement.
Our common stock is listed on the Nasdaq Stock Market under the symbol "CYTO."
The last sales price of our common stock as reported by the Nasdaq on December
8, 1998 was $.9687 per share.
Investing in the common stock involves certain risks which are described in the
"Risk Factors" section beginning on page 7 of this prospectus.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
This prospectus may not be used to consummate sale of securities unless
accompanied by a prospectus supplement.
CYTOGEN's principal executive offices are located at 600
College Road East, CN 5308, Princeton, New Jersey 08540-5308,
(609) 987-8200.
- --------- __, 1998
<PAGE>
TABLE OF CONTENTS
Page
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Price Range of Our Common Stock. . . . . . . . . . . . . . . . . 23
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . . 23
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . 23
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . 24
Selected Consolidated Financial Data . . . . . . . . . . . . . . 25
Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . 26
Business of the Company. . . . . . . . . . . . . . . . . . . . . 36
Where You Can Find More Information. . . . . . . . . . . . . . . 53
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Executive Compensation . . . . . . . . . . . . . . . . . . . . . 57
Security Ownership of Certain Beneficial Owners and
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Description of Capital Stock . . . . . . . . . . . . . . . . . . 65
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . 68
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . 69
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Index to Consolidated Financial Statements . . . . . . . . . . . F-1
__________________________
ProstaScint and OncoScint are registered trademarks of CYTOGEN. PIE and
SynGene are trademarks of CYTOGEN, pending registration. Quadramet is a
trademark of Dow, licensed to CYTOGEN.
2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in
this prospectus. It is not complete and may not contain all the
information that you should consider before investing in the
common stock. You should read the entire prospectus carefully,
including the "Risk Factors" section, the financial statements
and the notes to the financial statements.
The Company
CYTOGEN Corporation ("CYTOGEN" or the "Company") is a
biopharmaceutical company engaged in the development,
commercialization and marketing of products to improve diagnosis
and treatment of cancer and other diseases. CYTOGEN was
incorporated in Delaware in 1981. Unless the context otherwise
indicates, as used herein, the term "Company" refers to CYTOGEN
and its subsidiaries, taken as a whole.
Our Products
We introduced to the market during 1997 our two principal
products, each of which have been approved by the U.S. Food and
Drug Administration ("FDA"):
- ProstaScint (kit for the preparation of Indium In111
Capromab Pendetide). ProstaScint has been approved as
a diagnostic imaging agent for prostate cancer, the most
frequently diagnosed malignancy and second leading
cause of cancer death in men.
- Quadramet (Samarium Sm153 Lexidronam Injection).
Quadramet has been approved for the treatment of
bone pain due to cancers that have spread to the
skeleton and that can be visualized on a bone scan.
Our OncoScint CR/OV imaging agent is also approved and
marketed as a diagnostic imaging agent for colorectal and ovarian
cancer.
We believe that our products represent a significant
improvement over existing technologies because our products
provide improved diagnostic information and/or treatment in a
site-specific manner with relatively low levels of toxicity.
We also develop other products and technologies, both
directly and through subsidiaries, and have engaged in
development efforts with other parties.
Research and Development
Historically, we have emphasized research and development of
a broad array of potential products, based on monoclonal
antibodies and other technologies. Having identified and
commercialized products which we believe have substantial
potential, we have:
- Conducted or sponsored clinical studies to evaluate
existing products in additional indications;
- Focused on development of technology with near term
commercial significance;
- Reviewed all current research and development
programs to assess their commercial potential; and
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<PAGE>
- Recently curtailed basic research expenditures in
order to allocate resources toward implementing our
business strategy.
Business Strategy
Our business strategy calls for:
- Devoting our primary efforts to the marketing of
ProstaScint and Quadramet to increase revenue and
achieve profitability;
- Expanding the use of ProstaScint and other products
into foreign markets;
- Developing products utilizing our proprietary
technology;
- Expanding our current product portfolio through the
continued in-licensing of additional products and
related technologies, in the same manner as Quadramet;
- Establishing strategic alliances; and
- Acquiring other companies with related or
complementary products, technologies and/or services.
We cannot predict, however, whether we can accomplish these
objectives or whether accomplishment of these objectives will
lead to new commercially viable products or technologies. In
addition, our efforts to develop or acquire new products depend
on our available resources, our ability to commit resources to
potential products or strategic activities without unduly
impacting current operations or financial results, and whether or
not such activities in the near term would affect the marketing
of our products or the efforts of management to commercialize the
Company successfully.
Restructuring Activities
During 1998, we reviewed our assets and business prospects
to determine which projects demonstrated adequate potential for a
continued investment of corporate resources. As a result of this
review, we:
- Terminated our ALT program.
Our subsidiary Cellcor, Inc. ("Cellcor") had been
developing Autologous Lymphocyte Therapy ("ALT")
for the treatment of metastatic renal cell
carcinoma ("mRCC"), a life threatening kidney
cancer for which there are no adequate therapies.
We had planned to submit a Biologics License
Application for ALT. Cellcor completed pivotal
Phase III clinical trials of ALT in mRCC patients
in January 1997. Although we believe the results
of the trials are favorable, ALT was not
considered a priority for allocation of available
resources. We halted our preparation for
submission of the Biologics License Application
and closed our Cellcor facility in September 1998.
- Sold our interest in Targon Corporation.
Our review determined that the projects under
development by Targon Corporation ("Targon") were
not consistent with our corporate strategies.
During August 1998, we sold our interest in Targon
to our partner in the venture, Elan Corporation
plc ("Elan") for $2 million in cash. In addition,
we received $2 million from Elan in exchange for a
convertible promissory note.
- Offered our manufacturing facility for sale.
We have determined that outsourcing manufacturing
of the Company's products is more economical and
consistent with our strategies. As a result, we
have offered the facility for sale with the
condition that any purchaser agrees to continue to
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<PAGE>
manufacture the Company's products currently
manufactured at the facility.
- Reduced expenses.
We have downsized the workforce by eliminating
positions which were no longer critical to our
strategic plans and have curtailed expenses for
basic research.
5
<PAGE>
Summary Consolidated Financial Information
(In thousands, except per share data)
The summary consolidated financial information below has
been derived from the Annual and Interim Consolidated
Financial Statements of CYTOGEN Corporation included elsewhere in
this prospectus. This information should be read in conjunction
with our Annual Financial Statements and the Interim Financial
Statements, and the Notes thereto, which are included in this
prospectus. Results of operations for the nine months ended
September 30, 1998 are not necessarily indicative of results of
operations for the whole year. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Product.................................... $ 6,244 $ 3,708 $ 5,252 $ 1,507 $ 1,377 $ 1,411 $ 1,591
Royalties.................................. 1,664 1,652 3,282 - - - -
License and contract....................... 1,456 4,834 5,886 4,223 3,608 1,047 8,763
--------- --------- --------- --------- --------- --------- ---------
Total revenues........................... 9,364 10,194 14,420 5,730 4,985 2,458 10,354
--------- --------- --------- --------- --------- --------- ---------
Operating Expenses:
Cost of product related and contract
manufacturing revenues (1).............. 6,090 4,604 5,939 - - - -
Research and development.................. 8,341 14,739 17,913 20,539 22,594 20,321 24,844
Acquisition of in-process
technology.............................. - - - - 45,878 4,647 -
Equity loss in Targon subsidiary (2)..... 1,020 8,709 9,232 288 - - -
Selling and marketing.................... 3,581 3,782 5,492 4,143 4,493 5,536 9,399
General and administrative............... 5,833 4,760 6,871 5,494 4,804 3,962 7,016
--------- -------- -------- --------- --------- --------- ---------
Total operating expenses............... 24,865 36,594 45,447 30,464 77,769 34,466 41,259
--------- -------- -------- --------- --------- --------- ---------
Operating Loss......................... (15,501) (26,400) (31,027) (24,734) (72,784) (32,008) (30,905)
Gain on sale of Targon subsidiary........ 2,833 - - - - - -
Other non-operating income (expense)..... 2 308 315 968 264 (798) 1,676
--------- -------- -------- --------- --------- --------- ---------
Net loss................................. (12,666) (26,092) (30,712) (23,766) (72,520) (32,806) (29,229)
Dividends, including deemed
dividends on preferred stock........... (119) - (1,352) (4,571) - - -
--------- -------- --------- --------- --------- --------- ---------
Net loss to common stockholders......... $(12,785) $(26,092) $(32,064) $(28,337) $(72,520) $(32,806) $(29,229)
========= ========= ========= ========= ========= ========= =========
Basic and diluted net loss per common
share.................................. $ (0.23) $ (0.51) $ (0.63) $ (0.59) $ (2.11) $ (1.38) $ (1.38)
========= ========= ========= ========== ========= ========= =========
Basic and diluted weighted average
common shares outstanding.............. 55,426 51,124 51,134 48,401 34,333 23,822 21,121
========== ======== ========= ========== ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Consolidated Balance Sheet Data: September 30, December 31,
---------------------------------------------------
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Cash, short term investments and
restricted cash............................ $ 3,027 $ 7,401 $24,765 $29,135 $ 7,700 $23,764
Total assets............................... 8,880 27,555 41,543 37,149 19,690 34,635
Long term liabilities...................... 2,141 10,171 1,855 3,275 4,310 192
Redeemable common stock.................... - - - 2,000 2,000
Stockholders'equity (deficit).............. (2,569) 9,983 32,927 25,276 4,368 21,731
</TABLE>
(1) Prior to 1997, product sales were minimal and no revenues
were derived from contract manufacturing, therefore cost of
product sales were immaterial and included in research and
development expenses.
(2) Restated in 1997 and 1996 to give retroactive effect to the
change in accounting for its investment in Targon. See Notes
to the Consolidated Financial Statements.
6
<PAGE>
RISK FACTORS
Prospective investors in the common stock offered hereby
should carefully consider the following risk factors, in addition
to the other information contained in this prospectus. This
prospectus contains forward-looking statements which involve
risks and uncertainties. Our actual results could differ
materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set
forth in the following risk factors and elsewhere in this
prospectus.
History of Losses and Accumulated Deficit
We have a history of losses as follows:
Operating Net Loss to Common
Losses Stockholders
------ ------------
Nine months
ended September 30, 1998 $15,501,000 $ 12,785,000
Year Ended December 31, 1997 31,027,000 32,064,000
Year Ended December 31, 1996 24,734,000 28,337,000
The losses were due in part to limited revenues and to
various expenditures, including:
- - Research and development activities;
- - Acquiring of complementary products and technologies;
- - Seeking regulatory approvals for our products;
- - Preclinical and clinical studies related to our products;
- - Preparing of submissions to the United States Food and Drug Administration;
- - Developing of sales, marketing, manufacturing and distribution channels;
- - Developing of internal manufacturing capabilities relating to ProstaScint; and
- - General and administrative expenses.
We expect to incur operating losses in the future due
primarily to:
- - Continuing product development;
- - Acquiring, developing and commercializing complementary products and
technologies; and
- - Expansion of our sales and marketing activities.
As a result of these losses, as of September 30, 1998, we
had an accumulated deficit of approximately $302 million.
7
<PAGE>
Uncertainty of Profitability
Our ability to achieve and maintain profitability is highly
dependent upon the successful commercialization of our products,
including Quadramet and ProstaScint. There can be no assurance
that we will ever be able to successfully commercialize our
products or that we will ever achieve profitability.
Fluctuating Results of Operations
Our results of operations have fluctuated on an annual and
quarterly basis and may fluctuate significantly from period to
period in the future, due to, among other factors:
- - Variations in revenue from sales of and royalties from our products;
- - Timing of regulatory approvals and other regulatory announcements
relating to our products;
- - Variations in our marketing, manufacturing and distribution channels;
- - Timing of the acquisition and successful integration of complementary
products and technologies;
- - Timing of new product announcements and introductions by the Company
and its competitors, and
- - Product obsolescence resulting from new product introductions.
Many of these factors, and others not listed above, are
outside our control. Due to one or more of these factors, our
results of operations may fall below the expectations of
securities analysts and investors in one or more future quarters.
If this happens, the market price of our common stock could be
materially and adversely affected.
Risk of possible delisting from the Nasdaq Stock Market
There is a possibility that our common stock could be
delisted from the Nasdaq Stock Market ("NSM"). While our common
stock is currently quoted on the NSM, in order to remain quoted
on the NSM, we must meet certain requirements with respect to:
- - Market capitalization (the market value of all
outstanding shares of our common stock);
- - Public float (the number of outstanding shares of
common stock held by non-affiliates of the Company);
- - Market value of public float;
- - Market price of the common stock;
- - Number of market makers;
- - Number of shareholders; and
- - Net tangible assets (total assets minus total
liabilities and goodwill).
At September 30, 1998, net tangible assets was below the
minimum level required for continued quotation on the NSM. We
have been in discussions with the NSM as to our failure to meet
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<PAGE>
the minimum net tangible assets standard, as to the fact that our
common stock could be delisted as a result, as to seeking an
exception to this requirement as we restructure, and as to our
plans for achieving compliance. There can be no assurance that
we will be granted an exemption, or that our common stock will
not be delisted from quotation on the NSM. If our common stock
is delisted from the NSM, we could apply to have the common stock
quoted on the Nasdaq SmallCap Market. The Nasdaq SmallCap Market
has a similar set of criteria for initial and continued
quotation. There can be no assurance that we would meet the
requirements for initial or continued quotation on the Nasdaq
SmallCap Market, however. If we were to fail to meet the
requirements of the Nasdaq SmallCap Market, trading of our common
stock could be conducted on an electronic bulletin board
established for securities that do not meet the Nasdaq SmallCap
Market listing requirements, in what is commonly referred to as
the "pink sheets."
In October, 1998, we entered into an Equity Line Agreement with
Kingsbridge Capital Limited ("Kingsbridge") that provides that we may issue
to Kingsbridge, from time to time, up to $12,000,000 of our common stock,
subject to certain conditions, including the requirement that our common
stock remain quoted on the Nasdaq Stock Market. If our common stock were
delisted from the NSM, we would not have the right to obtain funds under
the Equity Line Agreement and it could be more difficult for us to obtain
future financing. In addition, if our common stock is delisted,
investors' interest in our common stock would be reduced, which
would materially and adversely affect trading in, and the price
of, our common stock.
Need for Additional Capital
We have incurred negative cash flows from operations since
inception, and have expended, and will need to expend,
substantial funds to complete our planned product development
efforts, including:
- - Acquisition of products and complementary technologies;
- - Research and development;
- - Clinical studies and regulatory activities; and
- - Expansion of our marketing, sales and distribution activities.
In addition to the above requirements, we expect that we will
require additional capital either in the form of debt or equity,
irrespective of whether and when we reach profitability, for the
following activities:
- - Working capital;
- - Acquisitions of additional products and technologies; and
- - Further product development.
Our future capital requirements and the adequacy of our
available funds depend on numerous factors, including:
- - Successful commercialization of our products;
- - Acquisition of complementary products and technologies;
- - Magnitude, scope and results of our product development efforts;
- - Progress of preclinical studies and clinical trials;
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<PAGE>
- - Progress of regulatory affairs activities;
- - Costs of filing, prosecuting, defending and enforcing patent claims and
other intellectual property rights;
- - Competing technological and market developments; and
- - Expansion of strategic alliances for the sale, marketing and distribution
of our products.
We currently expect that our existing cash, together with
decreased operating costs, and revenues generated by product
sales and royalties will be adequate to fund our operations
into 1999. We have entered into an Equity Line Agreement with
Kingsbridge which provides that we may issue and sell, from time
to time, up to an aggregate of $12,000,000 of our common stock,
subject to the satisfaction of certain conditions. While there can
be no assurance that we will meet all of the conditions required
to obtain financing under the Equity Line Agreement, we believe that
the Equity Line Agreement will provide us with adequate cash to fund
operatins into the year 2000. However, there can be no assurance that
we will not consume our available capital resources before that time.
If we experience unanticipated cash requirements, we may require
additional capital to:
- Fund operations;
- Continue research and development programs;
- Continue pre-clinical and clinical testing of
potential products; or
- Commercialize any products that may be developed.
Possible Unavailability of Other Financing
Our ability to raise capital through the Equity Line
Agreement is subject to the satisfaction of certain conditions at
the time of each sale of common stock to Kingsbridge. These
conditions include, but are not limited to, the following:
- - The registration statement we have filed to register for resale
common stock purchased by Kingsbridge under the Equity Line Agreement
must have been declared effective by the Commission;
- - Our representations and warranties to Kingsbridge set forth in the
Equity Line Agreement must be accurate as of the date of each put;
- - No statue, rule, regulation, executive order, decree, ruling or injuction
shall be in effect which prohibits or directly and adversely affects any of
the transactions contemplated by the Equity Line Agreement;
- - At the time of a put, there shall have been no material adverse change in
our business, operations, properties, prospects or financial condition
since the date of filing of our most recent report with the Commission
pursuant to the Securities Exchange Act of 1934;
- - Our common stock shall not have been delisted from the Nasdaq Stock Market
nor suspended from trading;
- - The number of shares already held by Kingsbridge, together with those shares
we are proposing to put, shall not exceed 9.9% of the total amount of our
common stock that would be outstanding upon completion of the put;
- - Our common stock must have a minimum bid price of $.75 per share at the time
of the put;
- - At least 20 trading days must have elapsed since the date of the last put
notice; and
- - The average trading volume of our common stock must be at least 50,000 shares
per day.
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<PAGE>
There can be no assurance that we will satisfy all of these conditions, or
be able to sell shares pursuant to the Equity Line Agreement. For a more
complete description of the Equity Line Agreement, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
There can be no assurance we will be able to obtain
additional financing on acceptable terms, if at all. We may seek
to raise additional capital through public or private offerings
of equity or debt or through collaborative agreements, strategic
alliances with corporate partners and others, or through other
contractual arrangements with third parties. We may receive
additional funds upon the exercise of common stock purchase
warrants and stock options, but there can be no assurance that
any warrants or stock options will be exercised or that the
amounts received will be sufficient to meet our capital needs.
If adequate funds are not available, we may be required to delay,
scale back or eliminate one or more of our development programs
or certain aspects of our operations, or to obtain funds by
entering into arrangements with collaborative partners or others
that may require us to relinquish rights to certain of our
products, product candidates, technologies or potential markets,
that we would otherwise not relinquish. If adequate funds are
not available, our business, financial condition and results of
operations will be materially and adversely affected. Our
ability to raise capital through the Equity Line Agreement is
subject to the satisfaction of certain conditions at the time of
each sale of common stock to Kingsbridge.
Possible Dilution or Requirement to Comply with Covenants
Additional equity financing may result in substantial
dilution to shareholders, and additional debt financing may limit
our ability to declare dividends, or may require us to comply
with covenants that would alter the way we conduct business.
Uncertainty Regarding Our Ability to Continue as a Going Concern
Our independent public accountants, Arthur Andersen LLP, in
their audit report on the consolidated financial statements for
the year ended December 31, 1997 contained in our Annual Report
and elsewhere in this prospectus included an explanatory
paragraph indicating their view that the Company would require
additional funding to continue operations which raised
substantial doubt about our ability to continue as a going
concern. There can be no assurance that Arthur Andersen LLP's
opinion on future financial statements will not include a similar
explanatory paragraph if we are unable to raise sufficient funds
or generate sufficient cash flow from operations to cover the
cost of our operations. The inclusion of such an explanatory
paragraph could raise concerns about our ability to fulfill our
contractual obligations, thereby adversely affecting our
relationships with third parties, and could impact our ability to
complete future financings. Accordingly, the inclusion of such a
paragraph in Arthur Andersen LLP's opinion on any future
financial statements could have a material adverse effect on our
business, business prospects, financial condition and results of
operations.
Dependence on Market Acceptance of ProstaScint and Quadramet for Revenues
None of our products has a significant history of revenues.
ProstaScint and Quadramet were introduced to the market during
the first half of 1997 and are expected to account for a
significant percentage of our product-related revenues in the
foreseeable future. For the year ended December 31, 1997,
revenues from ProstaScint and Quadramet accounted for over 86% of
our product related revenues.
11
<PAGE>
Because these products contribute the majority of our
revenues, our business, financial condition and results of
operations depend on their acceptance as safe, effective and cost
efficient alternatives to other available treatment and
diagnostic protocols by the medical community, including:
- health care providers, such as hospitals and physicians
- third-party payors, including Medicare, Medicaid,
private insurance carriers and health maintenance organizations
Market Acceptance of ProstaScint
ProstaScint is marketed by the urological division
of C. R. Bard, Inc. ("BARD"), with CYTOGEN retaining co-
marketing rights. We believe that efforts to market
ProstaScint to physicians and hospitals have been well
received, based on increasing sales, statements by
physicians to our employees as to the benefits of
ProstaScint and presentations on ProstaScint by physicians
at medical association meetings. However, training by
physicians, technicians and other health care professionals
is required before certain of our products can be used for
diagnosis or therapy. In order to use ProstaScint, our
customers, including technologists and physicians, must
successfully complete our Partners in Excellence Program
("PIE Program"), a proprietary training program designed
to promote the correct acquisition and interpretation of
ProstaScint images. This approach is, therefore, technique
dependent and requires a learning commitment on the part of
users. There can be no assurance that additional physicians
will make this commitment or otherwise accept this product
as part of their treatment practices.
CYTOGEN has a program dedicated to providing information to
and resolving issues with managed care organization ("MCOs")
relating to reimbursement. BARD is obligated to market
ProstaScint to MCOs, but has not yet implemented a
significant program in this area. Failure to market
ProstaScint to MCOs could hinder acceptance or
reimbursement, although we cannot quantify what impact, if
any, this marketing effort could have on sales of
ProstaScint.
Market Acceptance of Quadramet
Berlex Laboratories, Inc. ("Berlex") is responsible for
the marketing of Quadramet, including marketing to MCOs, by
an agreement entered in October 1998, with marketing efforts
to begin in the first quarter of 1999. Berlex has no
previous experience with the marketing of Quadramet. There
can be no assurance that Berlex will be able to successfully
market Quadramet, or that this agreement will be profitable
for the Company.
We have licensed the rights to Quadramet from The Dow
Chemical Company ("Dow"). Such rights are currently limited
to North and Latin America with respect to currently
approved indications. We also hold a license from Dow for
use of Quadramet in treatment of refractory rheumatoid
arthritis in North and Latin America and in other
countries, including European countries and Japan. There
can be no assurance that Quadramet will be accepted in the
United States and Canada, where the product is currently
approved. We also can not give any assurance that Quadramet
will be accepted in any markets outside the United States
and Canada, or approved for additional indications in any
locations, due to the influence of established medical
practices and other social and economic factors beyond our
control.
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Accordingly, there can be no assurance that ProstaScint
or Quadramet will achieve market acceptance on a timely
basis, or at all. The failure of ProstaScint or Quadramet
to achieve market acceptance would have a material adverse
effect on the Company's business, financial condition and
results of operations.
Risks Relating to Potential Additional Cuts in Company Programs
We are reviewing and prioritizing programs, and there can be
no assurance that we will not cut programs to conserve capital.
After reviewing and prioritizing our business opportunities, we
have ceased various developmental and research programs,
including submission of a Biologics License Application for ALT.
In addition, we have ceased basic research in our Genetic
Diversity Library ("GDL") program. Any additional cuts would
increase our dependence on our remaining programs, and would
increase the risk from such programs to the Company as a whole,
which could materially and adversely affect our chances of
obtaining profitability. While we plan to allocate our resources
to those programs with the greatest potential to contribute to a
sound financial and operating position, there can be no assurance
that we will be successful in doing so.
Dependence on our Collaborative Partners
Our success depends in significant part upon the success of
our collaborative partners. We have entered into the following
agreements for the sales, marketing, distribution and manufacture
of our products, product candidates and technologies:
- - Sub-license and marketing agreement with Berlex relating to the
Quadramet technology that we have licensed from Dow. Berlex is
responsible for marketing, selling and arranging manufacturing and
distribution of Quadramet in the United States, Canada, and Latin America.
This agreement expires on the later of December 20, 2014 or upon the
expiration of the patents covering Quadramet.
- - Co-promotion agreement with BARD, granting BARD's Urological Division
the exclusive right to market ProstaScint to urologists; and
- - Agreement for manufacture of Quadramet by The DuPont Pharmaceuticals
Company (formerly the radiopharmaceuticals division of the DuPont Merck
Company, "DuPont").
Because our collaborative partners are responsible for certain of
our sales, marketing, manufacturing and distribution activities,
these activities are outside our direct control. There can be no
assurance that our partners will perform their obligations under
these arrangements with the Company. In the event that our
collaborative partners do not successfully market and sell our
products, or breach their obligations under the above agreements,
the successful commercialization of Quadramet and ProstaScint
would not be achieved or would be delayed, and new product
development could be inhibited, which could have a material
adverse effect on our business, financial condition and results
of operations.
There can be no assurance that we will be able to maintain
our existing collaborative arrangements; if they expire or are
terminated, there can be no assurance that they will be renewed,
or that new arrangements will be available on acceptable terms,
if at all. In addition, there can be no assurance that any new
arrangements or renewals of existing arrangements will be
successful, that the parties to any new or renewed agreements
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will perform their obligations thereunder, or that any potential
collaborators will not compete with us.
There can also be no assurance that our existing or future
collaborations will lead to the development of product candidates
or technologies with commercial potential, that we will be able
to obtain proprietary rights or licenses for proprietary rights
for our product candidates or technologies developed in
connection with these arrangements, or that we will be able to
ensure the confidentiality of proprietary rights and information
developed in such arrangements or prevent the public disclosure
thereof.
Limited Sales, Marketing and Distribution Capabilities
We have limited internal sales, marketing and distribution
capabilities. We are substantially dependent on Berlex for the
sales, marketing and distribution of Quadramet, and on BARD for
the sale and marketing of ProstaScint. If we are unable to
establish and maintain significant sales, marketing and
distribution efforts, either internally or through arrangements
with third parties, our business, financial condition and results
of operations could be materially adversely effected.
We have limited marketing history for our products.
- - ProstaScint was approved for marketing by the FDA in October 1996,
and commercially launched in February 1997. ProstaScint sales have
experienced growth since product launch. However, there can be no
assurance that such growth will continue; and
- - Quadramet was approved for marketing by the FDA in March 1997 and
launched by DuPont in June 1997. Quadramet sales during the period from
initial launch were below the levels of minimum royalty payments we
recorded under our agreement with DuPont. Growth during early months was
limited by the need for hospitals to obtain license amendments
under federal and state law to receive and handle this new radioactive
product. In addition, initial marketing efforts by DuPont were directed
primarily to nuclear medicine physicians who directly administer the product
to patients. While we believe this approach was necessary to generate
product understanding, marketing to primary caregivers for likely candidates
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for treatment with Quadramet is necessary for extensive penetration
into the market. Berlex maintains a sales force which calls on the physician
oncological community; however, there is no significant experience with
sales efforts for Quadramet and there can be no assurance that sales efforts
will be successful.
The failure of our marketing efforts to achieve commercial
success would have a material adverse effect on our business and
results of operations.
Risks Associated with Manufacturing; Third-Party Manufacturers'
Dependence on Single Source Suppliers; Need to Comply with
Manufacturing Regulations
Our products must be manufactured either internally or
through third-party manufacturers in compliance with regulatory
requirements and at acceptable costs.
While we believe that our manufacturing operations currently
address our needs for the production of our products, there can
be no assurance that we will be able to continue to manufacture,
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arrange for manufacture on a commercially reasonable basis, or
successfully outsource the manufacturing of our products. If we
are unable to successfully manufacture or arrange for the
manufacture of our products and product candidates, there would
be a material adverse effect on our business, financial condition
and results of operations.
Quadramet is manufactured by DuPont pursuant to an agreement
with both Berlex and CYTOGEN. Certain components of Quadramet,
particularly Samarium-153 and EDTMP, are provided to DuPont by
outside suppliers. Due to radioactive decay, Samarium-153 must
be produced on a weekly basis. On one occasion, DuPont was
unable to manufacture Quadramet on a timely basis due to the
failure of a supplier to provide Samarium-153. If DuPont cannot
obtain sufficient quantities of such components on commercially
reasonable terms, or in a timely manner, it would be unable to
manufacture Quadramet on a timely and cost-effective basis which
could have a material adverse effect on our business, financial
condition and results of operations. Alternative sources for
these components may not be readily available. If DuPont were to
lose its sources of supply for such components, production of
Quadramet would be interrupted, which could have a material
adverse effect on our business, financial condition and results
of operations.
The Company and its third party manufacturers are required
to adhere to FDA regulations setting forth requirements for
current Good Manufacturing Practices ("cGMP") and similar
regulations in other countries, which include extensive testing,
control and documentation requirements. Ongoing compliance with
cGMP, labeling and other applicable regulatory requirements is
monitored through periodic inspections and market surveillance by
state and federal agencies, including the FDA, and by comparable
agencies in other countries. Failure of the Company and its
third-party manufacturers to comply with applicable regulations
could result in sanctions being imposed on us, including fines,
injunctions, civil penalties, failure of the government to grant
premarket clearance or premarket approval of drugs, delays,
suspension or withdrawal of approvals, seizures or recalls of
products, operating restrictions and criminal prosecutions.
Risks Associated with Reimbursement by Third-Party Payors
Our business, financial condition and results of operations
will continue to be affected by the efforts of governments and
other third-party payors to contain or reduce the costs of
healthcare through various means. There have been, and we expect
that there will continue to be, a number of federal and state
proposals to implement government control of pricing and
profitability of therapeutic and diagnostic imaging agents such
as our products. In addition, an emphasis on managed increases
possible pressure on pricing of these products. While we cannot
predict whether such legislative or regulatory proposals will be
adopted or the effects such proposals or managed care efforts may
have on our business, the announcement of such proposals and the
adoption of such proposals or efforts could have a material
adverse effect on our business, financial condition and results
of operations. Further, to the extent such proposals or efforts
have a material adverse effect on other companies that are
prospective corporate partners for the Company, our ability to
establish strategic alliances may be materially and adversely
affected.
Sales of our products depend in part on the availability of
reimbursement to the consumer from third-party payors, including
Medicare, Medicaid, and private health insurance plans. Third-
party payors are increasingly challenging the prices charged for
medical products and services. There can be no assurance that
our products will be considered cost-effective and that
reimbursement to consumers will continue to be available, or will
be sufficient to allow us to sell our products on a competitive
basis. Approval of our products for reimbursement by a third
party payor may depend on a number of factors, including the
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payor's determination that our products are clinically useful and
cost-effective, medically necessary and not experimental or
investigational. Reimbursement is determined by each payor
individually and in specific cases. The reimbursement process
can be time consuming and costly. If we cannot secure adequate
third party reimbursement for our products, there would be a
material adverse effect on our business, financial condition and
results of operations.
Intense Competition in the Biotechnology and Pharmaceutical Industries
The biotechnology and pharmaceutical industries are subject
to intense competition from large pharmaceutical, biotechnology
and other companies, as well as universities and research
institutions.
Many of these competitors have, compared to us, substantial
advantages with respect to their:
- - Financial, marketing, sales, manufacturing, distribution and technological
resources;
- - Sales and marketing expertise;
- - Distribution channels;
- - Experience in establishing third-party reimbursement for their products;
- - Research and development expertise;
- - Experience in conducting clinical trials;
- - Experience in regulatory matters;
- - Manufacturing efficiency; and
- - Name recognition.
Due to this intensely competitive environment, there can be
no assurance that we will be able to compete effectively against
such existing or potential competitors or that competition will
not have a material adverse effect on our business, financial
condition and results of operations.
Quadramet competes with other more traditional treatments or
therapies, such as:
- - External beam radiation;
- - Chemotherapy agents;
- - Narcotic analgesics; and
- - Radiopharmaceuticals.
In addition, certain of our competitors may be in the
process of seeking FDA or foreign regulatory approval for their
own products, which compete directly or indirectly with ours.
We are highly dependent upon proprietary technology and seek
to protect such technology through a combination of patents,
licenses and trade secrets. We have applied for, obtained and
licensed patents for certain proprietary aspects of our
technology and processes in the U.S. and other countries. We are
particularly dependent upon the enforceability of our license
with Dow with respect to Quadramet. There can be no assurance
that our owned and licensed patents will prove to be enforceable
or that additional patents will be issued. Neither can assurance
be given that the technologies we use do not infringe upon the
proprietary rights of others, although we are not aware of any
such infringement or any adverse claim. Insofar as we rely in
part on trade secrets and unpatented know-how to maintain our
competitive position, there can be no assurance that others will
not independently develop similar or superior technologies or
that our trade secrets and know-how will not become known to
others. We could incur substantial costs in seeking enforcement
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of our patents against infringement or preventing unauthorized
use of our trade secrets by others, or in defending patent
infringement claims brought against the Company.
Our success depends, in part, on our ability, and the
ability of our collaborators or licensors, to obtain protection
for products and technologies under United States and foreign
patent laws, to preserve trade secrets, and to operate without
infringing the proprietary rights of third parties. Because of
the substantial length of time and expense associated with
development of new products, the biopharmaceutical industry
places considerable importance on obtaining, and maintaining,
patent and trade secret protection for new technologies, products
and processes. We have obtained rights to certain patents and
patent applications and may obtain or seek rights from third
parties to additional patents and patent applications. There can
be no assurance that patent applications relating to our products
or technologies will result in patents being issued, that any
issued patents will afford us adequate protection, or that such
patents will not be challenged, invalidated, infringed or
circumvented. Furthermore, there can be no assurance that others
have not developed, or will not develop, similar products or
technologies that will compete with ours without infringing upon
our intellectual property rights.
Legal standards relating to the scope of claims and the
validity of patents in the biopharmaceutical industry are
uncertain and still evolving, and no assurance can be given as to
the degree of protection that will be afforded any patents we are
issued or license from others. There can be no assurance that,
if challenged by others in litigation, the patents we have been
assigned or have licensed from others will not be found invalid.
There can be no assurance that our activities would not infringe
patents owned by others. Defense and prosecution of patent
matters can be expensive and time-consuming and, regardless of
whether the outcome is favorable to us, can result in the
diversion of substantial financial, management and other
resources. An adverse outcome could:
- - Subject us to significant liability to third parties,
- - Require us to cease any related research and development activities and
product sales; or
- - Require us to obtain licenses from third parties.
No assurance can be given that any licenses required under
any such patents or proprietary rights would be made available on
terms acceptable to us, if at all. Moreover, the laws of certain
countries may not protect our proprietary rights to the same
extent as United States law.
Our success also depends on the skill, knowledge, and
experience of our scientific and technical personnel. To help
protect our rights, we require all employees, consultants,
advisors and collaborators to enter into confidentiality
agreements that require disclosure, and in most cases, assignment
to us, of their ideas, developments, discoveries and inventions,
and that prohibit the disclosure of confidential information to
anyone outside the Company. There can be no assurance, however,
that these agreements will provide adequate protection for our
trade secrets, know-how or other proprietary information in the
event of any unauthorized use or disclosure.
Product Development
Product development involves a high degree of risk. There
can be no assurance that the product candidates we develop,
pursue or offer will prove to be safe and effective, will receive
the necessary regulatory approvals or will ultimately achieve
market acceptance. These product candidates will require
substantial additional investment, laboratory development,
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clinical testing and regulatory approvals prior to their
commercialization. There can be no assurance that we will not
experience difficulties that could delay or prevent the
successful development, introduction and marketing of new
products. If we are unable to successfully develop and
commercialize products on a timely basis or at all, or achieve
market acceptance of such products, there could be a material
adverse effect on our business, financial condition and results
of operations.
Before we obtain regulatory approvals for the commercial
sale of any of our products under development, we must
demonstrate through preclinical studies and clinical trials that
the product is safe and efficacious for use in each target
indication. The results from preclinical studies and early
clinical trials may not be predictive of results that will be
obtained in large-scale testing, and there can be no assurance
that the our clinical trials will demonstrate the safety and
efficacy of any products or will result in marketable products.
A number of companies in the biotechnology industry have suffered
significant setbacks in advanced clinical trials, even after
promising results in earlier trials. In addition, there can be
no assurance that product issues will not arise following
successful clinical trials and FDA approval.
The rate of completion of the our clinical trials is
dependent upon, among other factors, the rate of patient
enrollment. Patient enrollment depends on many factors,
including the size of the patient population, the nature of the
protocol, the proximity of patients to clinical sites and the
eligibility criteria for the study. Delays in planned patient
enrollment may result in increased costs and delays, which could
have a material adverse effect on our business, financial
condition and results of operations.
Government Regulation
Any products tested, manufactured or distributed by us or on
our behalf pursuant to FDA clearances or approvals are subject to
pervasive and continuing regulation by numerous regulatory
authorities, including primarily the FDA. Changes in existing
requirements or adoption of new requirements or policies could
adversely affect our ability to comply with regulatory
requirements. If we fail to comply with regulatory requirements,
there could be a material adverse effect on our business,
financial condition and results of operations. There can be no
assurance that we will not be required to incur significant costs
to comply with laws and regulations in the future or that laws or
regulations will not have a material adverse effect upon our
business, financial condition and results of operations.
Numerous federal, state and local governmental authorities
(each a "Regulatory Agency"), principally the FDA, and similar
agencies in other countries, regulate the preclinical testing,
clinical trials, manufacture and promotion of any compounds we or
our collaborative partners develop and the manufacturing and
marketing of any resulting drugs. The drug development and
regulatory approval process is lengthy, expensive, uncertain and
subject to delays.
- - Any compound we or our collaborative partners
develop must receive Regulatory Agency approval
before it may be marketed as a drug in a particular
country.
- - The regulatory process, which includes preclinical
testing and clinical trials of each compound in
order to establish its safety and efficacy, varies
from country to country, can take many years and
requires the expenditure of substantial resources.
- - In all circumstances, approval of the use of
previously unapproved radioisotopes in certain of
our products requires approval of either the Nuclear
Regulatory Commission or equivalent state regulatory
agencies. A radioisotope is an unstable form of an
element which undergoes radioactive decay, thereby
emitting radiation which may be used, for example,
to image or destroy harmful growths or tissue.
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There can be no assurance that such approvals will
be obtained on a timely basis, or at all.
- - Data obtained from preclinical and clinical
activities are susceptible to varying
interpretations which could delay, limit or prevent
Regulatory Agency approval.
- - Delays or rejections may be encountered based upon
changes in Regulatory Agency policy during the
period of drug development and/or the period of
review of any application for Regulatory Agency
approval for a compound. These delays could
adversely affect the marketing of any products we or
our collaborative partners develop, impose costly
procedures upon our activities, diminish any
competitive advantages we or collaborative partners
may attain and adversely affect our ability to
receive royalties.
There can be no assurance that, even after such time and
expenditures, Regulatory Agency approvals will be obtained for
any compounds developed by or in collaboration with the Company.
Moreover, if Regulatory Agency approval for a drug is granted,
such approval may entail limitations on the indicated uses for
which it may be marketed that could limit the potential market
for any such drug. Furthermore, if and when such approval is
obtained, the marketing, manufacture, labeling, storage and
record keeping related to our products would remain subject to
extensive regulatory requirements. Discovery of previously
unknown problems with a drug, its manufacture, or its
manufacturer may result in restrictions on such drug, manufacture
or manufacturer, including withdrawal of the drug from the
market. Failure to comply with regulatory requirements could
result in fines, suspension of regulatory approvals, operating
restrictions and criminal prosecution.
The U. S. Food, Drug and Cosmetics Act requires that our
products be manufactured in FDA registered facilities subject to
inspection. The manufacturer must be in compliance with current
good manufacturing practices, or, cGMP, which imposes certain
procedural and documentation requirements upon us, and our
manufacturing partners with respect to manufacturing and quality
assurance activities. Noncompliance with cGMP can result in,
among other things, fines, injunctions, civil penalties, recalls
or seizures of products, total or partial suspension of
production, failure of the government to grant premarket
clearance or premarket approval for drugs, withdrawal of
marketing approvals and criminal prosecution. If we or our
manufacturing partners were to fail to comply with the
requirements of cGMP, there could be a material adverse effect on
the Company's business, financial condition and results of
operations.
Attraction and Retention of Key Personnel
We are highly dependent on the principal members of our
management and scientific staff, the loss of whose services might
significantly delay or prevent the achievement of research,
development or strategic objectives. Our success depends on our
ability to retain key employees and to attract additional
qualified employees. Competition for such personnel is intense,
and there can be no assurance that we will be able to retain
existing personnel and to attract, assimilate or retain
additional highly qualified employees in the future.
We have an employment agreement with our President and Chief
Executive Officer, H. Joseph Reiser, Ph.D., which provides for
bonuses and vesting of options for the purchase of shares of
common stock based on continued employment and on the achievement
of performance objectives defined by the Board of Directors. We
do not have employment agreements with our other key personnel.
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If we are unable to hire and retain personnel in key positions,
there could be a material adverse effect on the Company's
business, financial condition and results of operations.
Potential Inadequacy of Product Liability Insurance
Our business is subject to product liability risks inherent
in the testing, manufacturing and marketing of our products.
There can be no assurance that product liability claims will not
be asserted against us, our collaborators or licensees. While we
currently maintain product liability insurance in amounts we
believe are adequate, there can be no assurance that such
coverage will be adequate to protect us against future product
liability claims or that product liability insurance will be
available to us in the future on commercially reasonable terms,
if at all. Furthermore, there can be no assurance that we will
be able to avoid significant product liability claims and adverse
publicity. Consequently, a product liability claim or other
claim with respect to uninsured or underinsured liabilities could
have a material adverse effect on our business, financial
condition and results of operations.
Environmental Regulation
We are subject to a variety of local, state and federal
government regulations relating to:
- Storage
- Discharge;
- Handling;
- Emission;
- Generation;
- Manufacture; and
- Disposal
of toxic, infectious or other hazardous substances used to
manufacture our products. If we fail to comply with these
regulations, we could be subject to significant liabilities,
which could have a material adverse effect on our business,
financial condition and results of operations.
Volatility of Stock Price
The market prices for securities of biotechnology and
pharmaceutical companies have historically been highly volatile,
and the market has from time to time experienced significant
price and volume fluctuations that are unrelated to the operating
performance of particular companies. The market price of our
common stock has fluctuated over a wide range and may continue to
fluctuate for various reasons, including, but not limited to,
announcements concerning the Company or our competitors
regarding:
- - Results of clinical trials;
- - Technological innovations or new commercial products;
- - Changes in governmental regulation or the status of our regulatory approvals
or applications;
- - Changes in earnings;
- - Changes in health care policies and practices;
- - Developments or disputes concerning proprietary rights;
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- - Litigation or public concern as to safety of the our potential products; and
- - Changes in general market conditions.
Fluctuations or decreases in the trading price of the common
stock may adversely affect the Company's ability to raise capital
through the Equity Line Agreement or through other future equity
financings.
Impact of Anti-takeover Provisions on the Market Price of Common Stock
We have adopted various anti-takeover provisions which may
affect the market price of the common stock.
Our Board of Directors has the authority, without further
action by the holders of common stock, to issue from time to
time, up to 5,200,000 additional shares of preferred stock in one
or more classes or series, and to fix the rights and preferences
of such preferred stock. Pursuant to these provisions, we have
implemented a Stockholder Rights Plan by which one preferred
stock purchase right is attached to each share of common stock,
as a means to deter coercive takeover tactics and to prevent an
acquirer from gaining control of the Company without some
mechanism to secure a fair price for all of our stockholders if
an acquisition was completed. These rights will be exercisable
if a person or group acquires beneficial ownership of 20% or more
of our common stock and can be made exercisable by action of our
Board of Directors if a person or group commences a tender offer
which would result in such person or group beneficially owning
20% or more of our common stock. Each right will entitle the
holder to buy one one-thousandth of a share of a new series of
junior participating preferred stock for $20. If any person or
group becomes the beneficial owner of 20% or more of CYTOGEN 's
common stock (with certain limited exceptions), then each right
not owned by the 20% stockholder will entitle its holder to
purchase, at the right's then current exercise price, common
shares having a market value of twice the exercise price. In
addition, if after any person has become a 20% stockholder, we
are involved in a merger or other business combination
transaction with another person, each right will entitle its
holder (other than the 20% stockholder) to purchase, at the
right's then current exercise price, common shares of the
acquiring company having a value of twice the right's then
current exercise price.
We are subject to provisions of Delaware corporate law
which, subject to certain exceptions, will prohibit us from
engaging in any "business combination" with a person who,
together with affiliates and associates, owns 15% or more of our
common stock (an "Interested Stockholder") for a period of three
years following the date that such person became an Interested
Stockholder, unless the business combination is approved in a
prescribed manner.
These provisions of the Stockholder Rights Plan, our
Certificate of Incorporation, and of Delaware law may have the
effect of delaying, deterring or preventing a change in control
of the Company, may discourage bids for the common stock at a
premium over market price and may adversely affect the market
price, and the voting and other rights of the holders, of the
common stock.
Impact of Shares Eligible for Future Sale on the Market Price of
the Common Stock
A large number of shares of common stock already
outstanding, or issuable upon exercise of options and warrants,
are eligible for resale, which may adversely affect the market
price of the common stock. As of September 30, 1998, the Company
had 58,602,852 shares of common stock outstanding. An additional
6,795,578 shares of common stock are issuable upon the exercise
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of outstanding options and warrants (including 300,000 shares
issuable upon exercise of warrants granted to Kingsbridge and the
May Davis Group, Inc., placement agent for the Equity Line Agreement
(collectively, the "Warrants"). Substantially all of
such shares subject to outstanding options and warrants will,
when issued upon exercise thereof, be available for immediate
resale in the public market pursuant to currently effective
registration statements under the Securities Act of 1933, as
amended, or pursuant to Rule 701 promulgated thereunder. In
addition, the Equity Line Agreement provides that we are
obligated to issue at least $3,000,000, after deducting
discounts, (up to a maximum of $12,000,000, after deducting
discounts) of common stock during its term, which continues until
the earlier of when:
- We sell $12,000,000 (after deducting discounts) of common stock
to Kingsbridge;
- We fail to meet certain conditions of the Equity Line Agreement; or
- 24 months from the date of effectiveness of the registration statement
covering the shares issuable pursuant to the Equity Line Agreement.
The shares of stock which may be acquired by Kingsbridge and the May
Davis Group, Inc. under the Equity Line Agreement and Warrants will be
available for immediate resale in the public market pursuant to
this prospectus. Such resales, or the prospect of such resales,
may have an adverse effect on the market price of the common
stock.
Dilutive Effects of Equity Line Agreement
The sale of shares pursuant to the Equity Line Agreement
will have a dilutive impact on our stockholders. As a result, our
net income or loss per share could be materially decreased in
future periods, and the market price of our common stock could be
materially and adversely affected. In addition, the common stock
to be issued under the Equity Line Agreement will be issued at a
discount to the then-prevailing market price of the common stock.
These discounted sales could have an immediate adverse effect on
the market price of the common stock. We also issued to
Kingsbridge a warrant for 200,000 shares of common stock
exercisable until April 2002 at an exercise price of $1.016 per
share and warrants to the May Davis Group for 100,000 shares of
common stock exercisable until October, 2001 at an exercise price
of $2.00 per share. The issuance or resale of such shares and the
shares issuable upon exercise of these warrants would have a
further dilutive effect on our common stock and could adversely
affect on its price.
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PRICE RANGE OF OUR COMMON STOCK
Our common stock is currently quoted on the Nasdaq Stock
Market under the symbol "CYTO." For each quarter since the
beginning of 1996, the high and low closing prices for our common
stock, as reported by Nasdaq, were as follows:
1996 High Low
- ---- ---- ---
First Quarter..................... 10 5 1/8
Second Quarter.................... 9 1/2 5 13/16
Third Quarter..................... 9 5 3/16
Fourth Quarter.................... 7 1/8 4 7/16
1997
- ----
First Quarter..................... 6 1/2 4 3/4
Second Quarter.................... 6 5/16 4 11/16
Third Quarter..................... 5 1/16 3 5/8
Fourth Quarter.................... 4 3/4 1 7/16
1998
- ----
First Quarter..................... 2 7/16 1 1/4
Second Quarter.................... 2 5/8
Third Quarter..................... 2 9/16 3/4
Fourth Quarter
(through December 10, 1998)....... 1 7/8 11/16
The foregoing bid quotations reflect inter-dealer prices,
without retail mark-ups, mark-downs or commissions, and may not
represent actual transactions.
DIVIDEND POLICY
We have never paid or declared any cash dividends on our
common stock. We currently intend to retain any future earnings
for our business and, therefore, do not anticipate paying cash
dividends in the foreseeable future. Future dividends, if any,
will depend on, among other things, our results of operations,
capital requirements, restrictions in loan agreements and on such
other factors as our Board of Directors, in its discretion, may
consider relevant.
USE OF PROCEEDS
We intend to use the proceeds from the sale of common stock
hereunder to support corporate development initiatives, including
expansion of corporate programs and opportunities, which may include
development of our AxCell Biosciences proteonics program, product
opportunities, and marketing programs. The proceeds may also be
used for general corporate purposes.
23
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the
Company as of September 30, 1998. This table should be read in
conjunction with the Company's Consolidated Financial Statements
and the Notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
September 30, 1998
-------------------
(All amounts in thousands
except share data)
<S> <C>
Long-term Liabilities (1) $ 2,141
-----------
Stockholders' Deficit
Preferred stock, $.01 par value, 5,400,000 shares authorized--
Series C Junior Participating Preferred Stock, $.01 par value
200,000 shares authorized, 0 shares issued and outstanding -
Common Stock, $.01 par value, 89,600,000 shares authorized,
58,602,852 shares issued and outstanding actual 586
Additional paid-in capital 298,371
Accumulated deficit (301,526)
----------
Total Stockholders' Deficit (2,569)
----------
Total Capitalization $ (428)
===========
</TABLE>
(1) For information concerning the Company's long-term debt, see
"Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources"
and Notes to Consolidated Financial Statements.
24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands except per share data)
The selected consolidated financial data as of and for each
of the five years in the period ended December 31, 1997 have been
derived from the Consolidated Financial Statements of the Company
which have been audited by Arthur Andersen LLP, independent
public accountants, included elsewhere in this Prospectus. The
selected consolidated financial data as of September 30, 1998 and
for the nine months ended September 30, 1998 and 1997 has been
derived from the Interim Consolidated Financial Statements of
the Company included elsewhere in this Prospectus. The Interim
financial statements, in the opinion of the Company, include all
adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results of operations
for the full year.
The information set forth below should be read in
conjunction with the Consolidated Financial Statements of the
Company and the notes thereto included elsewhere in this
Prospectus. Results of operations for the nine months ended
September 30, 1998 are not necessarily indicative of results of
operations for future periods. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
------------------ -------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenues:
Product................................ $ 6,244 $ 3,708 $ 5,252 $ 1,507 $ 1,377 $ 1,411 $ 1,591
Royalties.............................. 1,664 1,652 3,282 - - - -
License and contract................... 1,456 4,834 5,886 4,223 3,608 1,047 8,763
--------- --------- --------- --------- --------- --------- ---------
Total revenues..................... 9,364 10,194 14,420 5,730 4,985 2,458 10,354
--------- --------- --------- --------- --------- --------- ---------
Operating Expenses:
Cost of product related and contract
manufacturing revenues (1)............. 6,090 4,604 5,939 - - - -
Research and development................ 8,341 14,739 17,913 20,539 22,594 20,321 24,844
Acquisition of in-process technology.... - - - - 45,878 4,647 -
Equity loss in Targon subsidiary (2).... 1,020 8,709 9,232 288 - - -
Selling and marketing................... 3,581 3,782 5,492 4,143 4,493 5,536 9,399
General and administrative.............. 5,833 4,760 6,871 5,494 4,804 3,962 7,016
--------- -------- -------- -------- --------- --------- ---------
Total operating expenses............ 24,865 36,594 45,447 30,464 77,769 34,466 41,259
--------- -------- -------- -------- --------- --------- ---------
Operating Loss...................... (15,501) (26,400) (31,027) (24,734) (72,784) (32,008) (30,905)
Gain on sale of Targon subsidiary....... 2,833 - - - - - -
Other non-operating income (expense).... 2 308 315 968 264 (798) 1,676
--------- --------- -------- -------- --------- --------- ---------
Net loss................................ (12,666) (26,092) (30,712) (23,766) (72,520) (32,806) (29,229)
Dividends, including deemed
dividends on preferred stock........... (119) - (1,352) (4,571) - - -
--------- --------- --------- --------- --------- --------- ---------
Net loss to common stockholders......... $(12,785) $(26,092) $(32,064) $(28,337) $(72,520) $(32,806) $(29,229)
========= ========= ========= ========= ========= ========= =========
Basic and diluted net loss per common
share.................................. $ (0.23) $ (0.51) $ (0.63) $ (0.59) $ (2.11) $ (1.38) $ (1.38)
========= ========= ========= ========= ========= ========= =========
Basic and diluted weighted average
common shares outstanding.............. 55,426 51,124 51,134 48,401 34,333 23,822 21,121
========= ========= ========= ========= ========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
Consolidated Balance Sheet Data: September 30, December 31,
------------- -------------------------------------------------
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Cash, short term investments and
restricted cash............................ $ 3,027 $ 7,401 $24,765 $29,135 $ 7,700 $23,764
Total assets................................ 8,880 27,555 41,543 37,149 19,690 34,635
Long term liabilities....................... 2,141 10,171 1,855 3,275 4,310 192
Redeemable common stock..................... - - - - 2,000 2,000
Stockholders' equity (deficit).............. (2,569) 9,983 32,927 25,276 4,368 21,731
</TABLE>
(1) Prior to 1997, product sales were minimal and no revenues were
derived from contract manufacturing, therefore cost of product sales
were immaterial and included in research and development expenses.
(2) Restated in 1997 and 1996 to give retroactive effect to the change in
accounting for its investment in Targon. See Notes to the Consolidated
Financial Statements.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
From time to time, as used herein, the term "Company" may
include CYTOGEN Corporation and its subsidiaries AxCell
Biosciences Corporation ("AxCell"), Cellcor and Targon, taken as
a whole, where appropriate. In 1998, we sold our interest in
Targon and closed our Cellcor facility. See "Business of the
Company."
Results of Operations
Background. To date, the Company's revenues have resulted
primarily from (i) sales and royalties from ProstaScint,
Quadramet and OncoScint CR/OV, (ii) the cost recovery related to
the treatment of patients receiving ALT for metastatic renal cell
carcinoma under a Treatment Investigational New Drug program and
compassionate protocol which permits patients who do not qualify
for or have completed treatment under an ongoing study approved
by the FDA to receive treatment, (iii) payments received from
contract manufacturing and research services pursuant to
agreements, (iv) fees generated from the licensing of its
technology and marketing rights to its products, and (v)
milestone payments received when events stipulated in the
collaborative agreements with third parties have been achieved.
CYTOGEN launched its second FDA-approved product,
ProstaScint, a monoclonal antibody-based imaging agent developed
to detect the presence and extent of metastatic prostate cancer,
in February 1997. In connection with the launch, CYTOGEN has
developed its PIE accreditation program by establishing a
network of qualified nuclear medicine sites and physicians. Each
site is trained and certified in acquiring, processing and
interpreting the antibody-derived images. As of November 1998
there were 228 PIE Sites in operation. ProstaScint is available
for use only at qualified PIE Sites, thus providing quality
control and support. BARD is currently marketing ProstaScint to
urologists while CYTOGEN markets ProstaScint to the medical
imaging community and oncologists through its PIE Program. Both
companies are responsible for marketing ProstaScint to MCOs.
CYTOGEN's focus is to increase the MCOs' awareness of and to
obtain coverage for ProstaScint while Bard is working with the
MCOs to incorporate ProstaScint in the MCOs' patient practice
guidelines. CYTOGEN's costs of its efforts related to marketing
to MCOs are immaterial and primarily attributable to its own
marketing personnel.
In October 1998 CYTOGEN announced an exclusive license and
marketing agreement ("Berlex Agreement") with Berlex for the
manufacture and sale of its third FDA approved product,
Quadramet, a treatment for bone pain arising from cancers which
have spread to the skeleton and that can be visualized on
standard bone scans. CYTOGEN and Berlex, in November 1998,
jointly finalized a long-term supply agreement with DuPont, the
current contract manufacturer of Quadramet. Under the terms of
the Berlex Agreement, CYTOGEN received an $8 million up-front
payment upon completion of the supply agreement with DuPont, of
which $4 million is payable to DuPont for securing a long-term
manufacturing commitment. Berlex will pay CYTOGEN royalties on
net sales of Quadramet, as well as milestone payments based on
achievement of certain sales levels. See Note 2 of Notes to the
Interim Consolidated Financial Statements.
Quadramet was previously marketed in the United States
beginning in June 1997 by DuPont. Under this arrangement,
CYTOGEN recorded royalty revenues based on a percentage of sales
of Quadramet or guaranteed contractual minimum royalty payments,
whichever was greater. Actual sales were substantially less than
the minimum royalties. On June 3, 1998, pursuant to an agreement
(the "Termination Agreement") between CYTOGEN and DuPont, CYTOGEN
reclaimed marketing rights to Quadramet and the minimum royalty
26
<PAGE>
arrangement was terminated. All terms of the Termination
Agreement have been met. As a result, near-term royalty revenues
were adversely affected and Quadramet revenues are now based on
actual sales.
On September 15, 1998, CYTOGEN implemented a restructuring
plan including operating expense reductions with the closure of
the Cellcor subsidiary and a corporate downsizing. As a result,
significant aspects of the Company's operations were scaled back
or eliminated to increase its focus on marketing of its products,
Quadramet, ProstaScint and OncoScint CR/OV. In conjunction with
this restructuring plan, CYTOGEN recorded a charge of $1.7
million in the third quarter of 1998 to its general and
administrative expenses for severances, other closure related
expenses and costs to implement a corporate turn-around plan.
On August 12, 1998, CYTOGEN completed the sale of its
remaining 49.875% ownership interest of Targon to Elan for $2.0
million As a result, the Company recognized a non-operating gain
of approximately $2.8 million in the third quarter of 1998. All
previous notes among CYTOGEN, Targon and Elan were canceled.
Also on August 14, 1998, CYTOGEN received $2.0 million from Elan
in exchange for a convertible promissory note. See Notes 3 and 5
of Notes to the Interim Consolidated Financial Statements.
Years Ended 1997, 1996 and 1995
Revenues. Total revenues were $14.4 million in 1997, $5.7
million in 1996 and $5.0 million in 1995. Product related
revenues, including product and royalty revenues, accounted for
59%, 26% and 28% of revenues in 1997, 1996 and 1995,
respectively. The 1997 growth was due to the launch and revenues
generated from ProstaScint and Quadramet. License and contract
revenues accounted for the remainder of revenues with 41%, 74%
and 72% of the revenues in 1997, 1996 and 1995, respectively.
Product revenues were $5.3 million, $1.5 million and $1.4
million in 1997, 1996 and 1995, respectively. ProstaScint
accounted for 77% and 4% of the revenues in 1997 and 1996,
respectively, while OncoScint accounted for 18%, 85% and 99% of
the revenues in 1997, 1996 and 1995, respectively. Sales from
ProstaScint were $4.1 million and $55,000, in 1997 and 1996,
respectively. Sales from OncoScint CR/OV were $950,000, $1.3
million and $1.4 million in 1997, 1996 and 1995, respectively.
Revenues from ALT treatments for mRCC were $245,000 in 1997,
$178,000 in 1996 and $16,000 in 1995. Due to the discontinuance
of the program in September 1998, the Company will receive no
additional revenues from ALT. No significant history of
revenues exists with respect to the Company's products,
ProstaScint and Quadramet. The Company's future product and
royalty revenues will be dependent upon the market place
acceptance of its products.
Product related revenues from royalties for 1997 were $3.3
million or 38% of the revenues. All royalty revenues were
related to the sales of Quadramet. From the time of product
launch in the second quarter of 1997 up to June 3, 1998, CYTOGEN
recorded royalty revenues from DuPont based on minimum
contractual payments, which were in excess of actual sales.
Subsequent to June 3, 1998, the minimum royalty arrangement was
discontinued and CYTOGEN has recorded product revenues from
Quadramet based on actual sales.
License and contract revenues for 1997, 1996 and 1995 were
$5.9 million, $4.2 million and $3.6 million, respectively, and
included up-front and milestone payments, contract manufacturing
and research revenues. License and contract revenues have
fluctuated in the past and may fluctuate in the future. Revenues
from up-front and milestone payments were $2.1 million, $845,000
27
<PAGE>
and $2.1 million in 1997, 1996 and 1995, respectively. In 1997,
CYTOGEN received a $2.0 million milestone payment from DuPont
Merck upon FDA approval of Quadramet. In 1996, the payments were
derived primarily from BARD and CIS biointernational ("CISbio"),
the Company's marketing partners, and in 1995, the payments
consisted primarily of $2.0 million from Dow, which was received
upon the Company's filing of the New Drug Application ("NDA") for
Quadramet with FDA (see Note 6 of Notes to the Annual
Consolidated Financial Statements).
Revenues from contract manufacturing and research revenues
were $3.9 million, $3.4 million and $1.5 million in 1997, 1996,
and 1995, respectively. The 1997 revenues included $1.5 million
from DuPont Merck for the continued clinical development of
Quadramet (see Note 5 of Notes to the Annual Consolidated
Financial Statements), $924,000 from Elan for a combined research
program between CYTOGEN and Elan to collaboratively develop
orally administered products (see Note 3 to the Annual
Consolidated Financial Statements), and $984,000 from eleven
contract manufacturing customers. The 1996 revenues included
$1.5 million from DuPont, $1.3 million from Elan, and $405,000
from three customers for contract manufacturing services. In
1995, CYTOGEN recorded $1.3 million of research revenue from
DuPont.
Operating Expenses. Total operating expenses were $45.4
million in 1997, $30.5 million in 1996, and $77.8 million in
1995. The operating expenses in 1997 reflect the Company's
efforts in acquiring, developing and marketing of new products.
The 1997 Operating expenses included a one-time license fee of
$7.5 million for the acquisition of Morphelan (see Note 2 of
Notes to the Annual Financial Statements) and a milestone payment
of $4.0 million to Dow upon FDA approval of Quadramet. The 1995
operating expenses included one-time non-cash charges of $45.9
million for acquisition of in-process technology from CytoRad
Incorporated ("CytoRad") and Cellcor (see Note 4 of Notes to the
Annual Financial Statements). Even excluding the aforementioned
one-time charges, the operating expenses in 1997 were higher
than prior year periods due to $5.9 million in cost of sales
attributable to increased revenues, product development efforts
by Targon and AxCell, two new strategic business units
established during the second half of 1996, higher administrative
costs and increased selling and marketing efforts to promote
ProstaScint and to establish and maintain PIE Sites. The
operating expenses are composed of cost of product related and
contract manufacturing revenues, research and development
expenses, acquisition of in-process technology expenses, equity
loss in Targon subsidiary, selling and marketing expenses, and
general and administrative expenses. The Company continues to
incur significant research and development and other costs. In
addition, selling and marketing expenses are expected to increase
as the Company continues to generate increased revenues from its
products.
Cost of product related and contract manufacturing revenues
was $5.9 million in 1997. Prior to 1997, product sales were
minimal and no revenues were derived from contract manufacturing;
therefore, costs of products were immaterial and included in
research and development expenses.
Research and development expenses were $17.9 million in 1997,
$20.5 million in 1996 and $22.6 million in 1995. These expenses
principally reflect product development efforts and support for
various ongoing clinical trials. The 1997 research and
development expenses included a one-time milestone payment of
$4.0 million to Dow and increased expenses associated with
AxCell. The 1995 expenses included a charge of $2.9 million to
research and development for write downs of commercial inventory
relating to OncoScint CR/OV.
Acquisition of in-process technology expenses was $45.9
million in 1995 which included $19.7 million and $26.2 million of
one-time non-cash charges representing the amounts by which the
purchase prices exceeded the fair value of net assets acquired in
connection with the CytoRad and Cellcor mergers, respectively.
28
<PAGE>
These acquisitions were recorded as in-process technology given
the development stage nature of the related technology.
Equity loss in Targon was $9.2 million in 1997 and $288,000
in 1996. The expense included a $7.5 million one-time product
acquisition fee and various product development and clinical
support programs.
Selling and marketing expenses were $5.5 million in 1997,
$4.1 million in 1996 and $4.5 million in 1995. The 1997 increase
from the prior year periods is primarily attributable to expenses
associated with the launch of ProstaScint, including expenses to
establish the PIE Program. The 1996 decrease compared to 1995 is
primarily attributable to the reduction of promotional expenses
associated with OncoScint CR/OV.
General and administrative expenses were $6.9 million in
1997, $5.5 million in 1996 and $4.8 million in 1995. The
increase over prior year periods is attributable to the expansion
of the Company's insurance program, the addition of consultants
to support the Company's investor relations efforts, and
increased legal costs for general corporate purposes.
Other Income/Expense. Net gains on investments for 1997,
1996 and 1995 were $606,000, $1.4 million and $857,000,
respectively. The changes from the prior year periods is due
primarily to changes in the average cash and short term
investment balances for the periods.
Interest expense was $291,000 in 1997, $451,000 in 1996 and
$593,000 in 1995. In addition to the imputed interest on
liabilities associated with CYTOGEN's termination agreements with
Knoll Pharmaceuticals Company ("Knoll") and Chiron B.V.
("Chiron"), in 1997, the Company recorded $310,000 of interest
expense in connection to the $10.0 million note due to Elan.
Net Loss. Net losses to common stockholders were $32.1
million, $28.3 million and $72.5 million in 1997, 1996 and 1995,
respectively. Losses per common share were $0.63, $0.59 and
$2.11 in 1997, 1996, and 1995, respectively, on 51.1 million,
48.4 million and 34.3 million average common shares outstanding
in each year, respectively. The 1997 loss was increased by the
$1.4 million deemed and accrued dividends on the Series B
Preferred Stock and the $9.2 million equity loss in Targon
subsidiary. The 1996 loss was increased by a $4.6 million deemed
dividend on the Series A Preferred Stock (see Note 11 of Notes to
the Annual Consolidated Financial Statements). The net loss for
1996 decreased in comparison to 1995 primarily due to the 1995
charges to the statement of operations for the acquisition of in-
process technology.
Nine Months Ended September 30, 1998 and 1997
Revenues. Total revenues for the nine months ended September
30, 1998 and 1997 were $9.4 million and $10.2 million,
respectively. The product related revenues accounted for 84% of
total revenues in 1998 versus 53% from the same period of the
prior year. License and contract revenues accounted for the
remainder of revenues with 16% and 47% of total revenues recorded
in the nine months ended September 30, 1998 and 1997,
respectively.
Product related revenues for the nine months ended September
30, 1998 and 1997 were $7.9 million and $5.4 million,
respectively. ProstaScint accounted for 58% and 52% of product
related revenues in 1998 and 1997, respectively, while Quadramet
royalty and sales revenue accounted for 33% and 31% of product
related revenues in 1998 and 1997, respectively (see Note 2 of
Notes to the Interim Consolidated Financial Statements). Sales
from ProstaScint were $4.6 million in the nine months ended
29
<PAGE>
September 30, 1998 compared to $2.8 million in the comparable
period of 1997. Royalty and sales revenues from Quadramet were
$2.6 million and $1.7 million in 1998 and 1997, respectively.
During the interim period until the re-launch of Quadramet by
Berlex in the first quarter of 1999, the Company does not expect
Quadramet sales to be significant. Although CYTOGEN believes
that Berlex is an advantageous marketing partner, there can be no
assurance that Quadramet will following re-launch of the product
achieve market acceptance on a timely basis or sufficiently to
result in significant revenues for CYTOGEN. Other Revenues,
including sales from OncoScint CR/OV and ALT treatments, were
$696,000 in 1998 compared to $929,000 recorded in the comparable
period of 1997. There is no revenue from ALT treatment after
September 15, 1998 as a result of closure of Cellcor.
License and contract revenues for the nine months ended
September 30, 1998 and 1997 were $1.5 million and $4.8 million,
respectively. The 1998 license and contract revenues included
$1.1 million in contract manufacturing revenues from eleven
customers, $127,000 from Boston Life Sciences for clinical
services and $100,000 license fee from Antisoma. The 1997
revenues included a $2.0 million milestone payment from DuPont,
$1.1 million and $810,000 in research revenues from DuPont for
continued clinical development of Quadramet and from Elan,
respectively, and $781,000 in contract manufacturing revenues
from eleven customers.
Operating Expenses. The current year operating expenses
reflect the Company's continued efforts to control spending. For
the nine months ended September 30, 1998, operating expenses were
$24.9 million compared to $36.6 million recorded in the same
period of 1997. The decrease from the prior year period is due
to the overall savings from cost containment efforts in 1998, a
one-time $4.0 million milestone payment to Dow recorded in the
first quarter of 1997 upon the approval of Quadramet by FDA, and
a one-time $7.5 million charge recorded in the third quarter of
1997 for product acquisition by Targon. The decrease is
partially offset by a $1.5 million increase in costs of sales,
and $1.7 million in restructuring charges and in costs related to
the implementation of a turn-around plan recorded in the third
quarter of 1998.
Cost of product related and contract manufacturing revenues
for the nine months ended September 30, 1998 were $6.1 million
compared to $4.6 million recorded in the same period of 1997.
The increase from the prior period is due primarily to increased
manufacturing costs associated with increased revenues in 1998,
and to expenses related to Quadramet including royalty,
manufacturing and distribution costs (see Note 2 of Notes to the
Annual Financial Statements).
Research and development expenses for the nine months ended
September 30, 1998 were $8.3 million compared to $14.7 million
recorded in the same period of 1997. These expenses principally
reflect product development efforts and support of clinical
trials. The decrease from the prior year period is due to the
aforementioned $4.0 million milestone payment to Dow in the first
quarter of 1997 combined with various savings from the Company's
product development efforts in 1998 including the scale back of
the GDL program and AxCell subsidiary. Pursuant to the Company's
restructuring, research and development expenses have been
curtailed significantly. See "Business of the Company - Research
and Development."
Equity loss in Targon subsidiary for the nine months ended
September 30, 1998 was $1.0 million reflecting Targon's product
development and clinical trials programs. The Company did not
recognize Targon's losses after March 31, 1998, based on the
completion of the sale of Targon. For the comparable period in
1997, the Company recorded $8.7 million for equity loss in Targon
30
<PAGE>
subsidiary which included a one-time charge of $7.5 million
recorded in the third quarter of 1997 for a product acquisition
Selling and marketing expenses were $3.6 million and $3.8
million for the nine months ended September 30, 1998 and 1997,
respectively. The 1998 expenses reflected the marketing efforts
to increase ProstaScint sales and expenses to establish and
maintain PIE sites. The 1997 expenses included costs associated
with ProstaScint launch and PIE program.
General and administrative expenses for the nine months ended
September 30, 1998 were $5.8 million which included $1.2 million
of restructuring costs associated with the closure of Cellcor and
work force reduction and $500,000 of expenses related to the
implementation of a corporate turn-around plan. Excluding the
aforementioned charges, the 1998 general and administrative
expenses were lower than the $4.8 million recorded in the
comparable period of 1997 reflecting cost containment efforts.
Gain on sale of Targon subsidiary was $2.8 million recorded
in the third quarter of 1998, a result of a sale of CYTOGEN's
ownership interest in Targon to Elan (see Note 3 of Notes to the
Interim Consolidated Financial Statements).
Interest Income/Expense. Interest income for the nine months
ended September 30, 1998 was $537,000 compared to $527,000
realized in the same period in 1997. The increase from the prior
year period is due to the $410,000 interest income realized in
1998 from the $10.0 million note due to CYTOGEN from Targon,
partially offset by lower investment income due to lower cash
and short term investment balances for the periods. As mentioned
above, the note was canceled as a result of a sale of Targon to
Elan.
Interest expense for the nine months ended September 30, 1998
was $535,000 compared to $219,000 recorded in the same period of
1997. The increase from the prior year period is due to the 1998
interest expense of $410,000 associated with the $10.0 million
note due to Elan which was canceled as a result of a sale of
Targon to Elan in August 1998.
Net Loss. Net loss to common stockholders for the nine
months ended September 30, 1998 was $12.8 million compared to a
net loss of $26.1 million incurred in the same period of 1997.
The loss per common share was $0.23 on 55.4 million average
common shares outstanding compared to $0.51 on 51.1 million
average common shares outstanding for the same period in 1997.
The 1998 net loss to common stockholders included $119,000 of
accrued dividends on Series B Preferred Stock. The 1997 net
loss to common stockholders included a one-time $7.5 million
charge or a $0.15 per share loss for the product acquisition.
Liquidity and Capital Resources
The Company's cash and cash equivalents were $3.0 million as
of September 30, 1998, compared to $7.4 million as of December
31, 1997 and $24.8 million as of December 31, 1996. The cash
used for operating activities for the nine months ended September
30, 1998 was $8.2 million compared to $17.9 million in the same
period of 1997. The decrease in cash usage for operating
activities from the prior year period was primarily due to lower
research and development spendings and to the receipts of
revenues generated by sales and royalties from Quadramet and
ProstaScint.
Historically, the Company's primary sources of cash have been
proceeds from the issuance and sale of its stock through public
offerings and private placements, product related revenues,
31
<PAGE>
revenues from contract manufacturing and research services, fees
paid under its license agreements and interest earned on its cash
and short term investments.
Pursuant to the registration statement of which this prospectus forms
a part, we have registered pursuant to Rule 415 under the Securities Act of
1933, as amended, 8,000,000 shares of common stock which may be sold from
time to time. All proceeds from the sale of such common stock will be used for
general corporate purposes.
On October 23, 1998, the Company entered into an agreement
with Kingsbridge for a $12,000,000 common stock equity line.
Pursuant to the Equity Line Agreement, the Company, subject to
the satisfaction of certain conditions including the effective
registration of such shares, was granted the right to issue and
sell to the Kingsbridge, and the Kingsbridge would be obligated
to purchase up to $12,000,000 of CYTOGEN common stock from time
to time over a two year period at a purchase price per share equal
to 85% of the average of lowest trading prices of CYTOGEN common stock
during five designated trading days as determined under the Equity Line
Agreement. The Company can put shares every 20 trading days in
the amounts ranging from $150,000 to $1,000,000, subject to the
satisfaction of minimum trading volume, market price of CYTOGEN
common stock and registration of the shares of common stock
under the Securities Act of 1933, as amended. The Company is
required to put shares with respect to a minimum of $3 million
over the life of the Equity Line Agreement. In addition, the
Company granted to the Kingsbridge a warrant to purchase up to
200,000 shares of CYTOGEN common stock at an exercise price of
$1.016 per share through April 2002.
On October 19, 1998, the Company entered into a $750,000 term
loan agreement with The CIT Group/Credit Finance Inc., using the
Company's tangible assets as collateral. The note bears interest
at prime plus 3%. The note is payable over 35 monthly principal
payments of $12,500 plus interest with the remaining balance due
October 2001.
On August 14, 1998, CYTOGEN received $4.0 million from Elan
consisting of $2.0 million for the sale of CYTOGEN's remaining
interest in Targon and $2.0 million in exchange for a convertible
promissory note. The note is convertible into CYTOGEN common
shares at $2.80 per share, subject to adjustments, and matures
in seven years. The note bears interest of 7% compounded semi-
annually; however, such interest is not payable in cash but will
be added to the principal for the first 24 months; thereafter,
interest will be payable in cash.
Quadramet. On October 29, 1998 CYTOGEN announced an
exclusive license agreement with Berlex for the manufacture and
sale of Quadramet. Under the terms of the Berlex Agreement,
CYTOGEN received an $8 million up front payment, of which $4
million is payable to DuPont for securing a long-term
manufacturing commitment. Berlex will pay CYTOGEN royalties on
net sales of Quadramet, as well as milestone payments based on
achievement of certain sales levels (see Note 2 of Notes to the
Annual Financial Statements). In connection with the Berlex
Agreement, CYTOGEN granted Berlex a warrant to purchase 1 million
shares of CYTOGEN common stock at an exercise price of $1.002 per
share through October 2003 and exercisable after the earlier of
one year or the achievement of defined sales levels.
CYTOGEN acquired an exclusive license to Quadramet in the
U.S., Canada and Latin America from Dow. The agreement requires
the Company to pay Dow royalties based on a percentage of net
sales of Quadramet, or guaranteed contractual minimum payments,
whichever is greater, and future payments upon achievement of
certain milestones. Minimum royalties due Dow are $500,000
during 1998 and 1999, $750,000 in 2000 and 2001 and $1.0 million
per year for the following 11 years. For the nine months ended
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September 30, 1998 and 1997, the Company recorded $375,000 and
$189,000 in royalty expenses for Quadramet.
ProstaScint. ProstaScint was launched in February 1997.
Significant cash will be required to support the Company's
marketing program and expansion and maintenance of the PIE
program.
In 1996, CYTOGEN entered into an agreement with BARD (the
"Co-Promotion Agreement") to market and promote ProstaScint,
pursuant to which BARD will make payments upon the occurrence of
certain milestones, which include expansion of co-marketing
rights in selected countries outside the U.S. During the term of
the Co-Promotion Agreement, BARD will receive performance-based
compensation for its services. For the year-to-date periods in
1998 and 1997, the Company recorded $550,000 and $393,000,
respectively, for BARD commissions.
OncoScint CR/OV. To date, sales of OncoScint CR/OV have not
been material. In 1994, the Company reacquired all U.S.
marketing rights to OncoScint from Knoll Pharmaceuticals Company
("Knoll") and is required to pay Knoll $1.7 million on or before
December 15, 1998 in addition to accrued interest from July 1,
1998 (the original due date) through the date of payment at the
prevailing prime rate of interest as of such date. The Company
will fund this payment from product related revenues and other
sources.
The Company's capital and operating requirements may change
depending upon various factors, including: (i) the success of the
Company and its strategic partners in manufacturing, marketing
and commercialization of its other products; (ii) the amount of
resources which the Company devotes to clinical evaluations and
the expansion of marketing and sales capabilities; (iii) results
of preclinical testing, clinical trials and research and
development activities; and (iv) competitive and technological
developments.
The Company's financial objectives are to meet its capital
and operating requirements through revenues from existing
products, contract manufacturing, license and research contracts,
and control of spending. To achieve its strategic objectives,
the Company may enter into research and development partnerships
and acquire, in-license and develop other technologies, products
or services. Certain of these strategies may require payments by
the Company in either cash or stock in addition to the costs
associated with developing and marketing a product or technology.
The Company currently has no commitments or specific plans for
acquisitions or strategic alliances. However, the Company
believes that, if successful, such strategies may increase long
term revenues. There can be no assurance as to the success of
such strategies or that resulting funds will be sufficient to
meet cash requirements until product revenues are sufficient to
cover operating expenses. To fund these strategic and operating
activities, the Company may sell equity and debt securities as
market conditions permit or enter into credit facilities.
The Company has incurred negative cash flows from operations
since its inception, and has expended, and expects to continue to
expend in the future, substantial funds to complete its planned
product development efforts, including acquisition of products
and complementary technologies, research and development,
clinical studies and regulatory activities, and to further expand
its marketing and sales. The Company expects that its existing
capital resources, together with decreased operating costs,
$750,000 proceeds from the term loan, the $4.0 million net cash
receipt from Berlex, but exclusive of the Equity Line Agreement,
will be adequate to fund the Company's operations into 1999.
Management believes the addition of the Equity Line Agreement,
will provide the Company with adequate cash flow to sustain
operations into 2000. No assurance can be given that the Company
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will not consume a significant amount of its available resources
before that time. In addition, the Company expects that it will
have additional requirements for debt or equity capital,
irrespective of whether and when it reaches profitability, for
further development of products, product and technology
acquisition costs, and working capital. The Company's future
capital requirements and the adequacy of available funds will
depend on numerous factors, including the successful
commercialization of its products, the costs associated with the
acquisition of complementary products and technologies, progress
in its product development efforts, the magnitude and scope of
such efforts, progress with preclinical studies and clinical
trials, progress with regulatory affairs activities, the cost of
filing, prosecuting, defending and enforcing patent claims and
other intellectual property rights, competing technological and
market developments, and the expansion of strategic alliances for
the sales, marketing, manufacturing and distribution of its
products. To the extent that the currently available funds and
revenues including the Equity Line Agreement, $750,000 proceeds
from the term loan, and the $4.0 million net cash receipt from
Berlex are insufficient to meet current or planned operating
requirements, the Company will be required to obtain additional
funds through equity or debt financing, strategic alliances with
corporate partners and others, or through other sources. Based
on the Company's historical ability to raise capital and current
market conditions, the Company believes other financing
alternatives are available. There can be no assurance that the
financing commitments described above or other financial
alternatives will be available when needed or at terms
commercially acceptable to the Company. If adequate funds are
not available, the Company may be required to delay, further
scale back or eliminate certain aspects of its operations or
attempt to obtain funds through arrangements with collaborative
partners or others that may require the Company to relinquish
rights to certain of its technologies, product candidates,
products or potential markets. If adequate funds are not
available, the Company's business, financial condition and
results of operations will be materially and adversely affected.
Year 2000 Compliance
The "Year 2000 problem" describes the concern that certain
computer applications, which use two digits rather than four to
represent dates, will interpret the year 2000 as 1900 and
malfunction on January 1, 2000.
CYTOGEN's Internal Systems. The efficient operation of the
Company's business is dependent in part on its computer software
programs and operating systems (collectively, Programs and
Systems). These Programs and Systems are used in several key
areas of the Company's business, including clinical, purchasing,
inventory management, sales, shipping, and financial reporting,
as well as in various administrative functions. The Company has
completed its evaluation of the Program and Systems to identify
any potential year 2000 compliance problem. Based on present
information, the Company believes that it will be able to achieve
year 2000 compliance through combination of modification of some
existing Programs and Systems and replacement of others with new
Programs and Systems that are already year 2000 compliant. The
majority of the Company internal systems have been replaced with
fully compliant new systems. The remaining are expected to be
completed by February 28, 1999. The total future cost is
estimated at $40,000. However, there can be no assurance that
the required expenditures will not exceed that amount.
Readiness of Third Parties. The Company is also working with
its processing banks and network providers to ensure their
systems are year 2000 compliant. All these costs will be borne
by the processors, network and software companies. In the event
some of the processors are unable to convert their systems
appropriately, the Company will switch merchant accounts to those
that are able to perform the processing.
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Risks Associated with the Year 2000. The Company is not
aware, at this time, of any Year 2000 non-compliance that will
not be fixed by the Year 2000 and that will materially affect the
Company. However, some risks that the Company faces include: the
failure of internal information systems, defects in its work
environment and a slow down in its customers' ability to make
payments.
Contingency Plans. The Company is in the process of
developing contingency plans to address a worst case year 2000
scenario. This contingency plan is expected to be completed by
February 28, 1999.
Recently Enacted Accounting Pronouncements
There have been no recently enacted accounting
pronouncements which the Company believes would have an effect on
the Company's financial position or results of operations.
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BUSINESS OF THE COMPANY
Overview
CYTOGEN is a biopharmaceutical company engaged in the
development, commercialization and marketing of products to
improve diagnosis and treatment of cancer and other diseases.
Our Products
We introduced to the market during 1997 our two principal
products, each of which have been approved by the FDA:
ProstaScint (kit for the preparation of Indium In111 Capromab
Pendetide) and Quadramet (Samarium Sm153 Lexidronam Injection).
Our OncoScint CR/OV imaging agent is also approved and marketed as
a diagnostic imaging agent for colorectal and ovarian cancer.
Cancer Diagnostic Imaging Products
Our cancer diagnostic products, ProstaScint and OncoScint,
are monoclonal antibody-based imaging agents for prostate,
colorectal and ovarian cancers. These products utilize our
proprietary targeted delivery system, employing whole monoclonal
antibodies, to deliver the diagnostic radioisotope Indium-111 to
malignant tumor sites. A radioisotope is an element which,
because of nuclear instability, undergoes radioactive decay,
thereby emitting radiation. The imaging products are supplied to
hospitals and central radiopharmacies without the radioisotope.
Prior to patient administration, the radioisotope is added to the
product by the radiopharmacist using a simple liquid transfer
procedure we have developed, thereby creating the radiolabeled
monoclonal antibody product.
During an imaging procedure, the radiolabeled monoclonal
antibody product is administered intravenously into the patient.
The antibody travels through the body seeking out and binding to
tumor sites. The radioactivity from the isotope that has been
attached to the antibody can be detected from outside the body by
a gamma camera. The resultant image identifies the existence,
location and extent of disease in the body. Based on clinical
studies conducted to date by physicians on our behalf, the
imaging agents may provide new and useful information not
available from other diagnostic modalities regarding the
existence, location and extent of the disease throughout the
body. We believe that this information has the potential to
affect the way physicians manage their patients' individual
treatments. We also believe that, because our products use a
very low dose of one milligram or less of antibody conjugate per
administration, the products have the additional advantages of
low manufacturing cost and ease of administration.
ProstaScint
ProstaScint is a diagnostic imaging agent utilizing a
monoclonal antibody which targets prostate specific membrane
antigen ("PSMA"), a protein expressed by prostate cancer cells
and, to a lesser extent, by normal prostate epithelial cells. We
are the exclusive licensee of the antibody utilized in
ProstaScint. ProstaScint is prepared by combining this antibody
with the radioisotope Indium-111 just prior to intravenous
administration. Due to the selective expression of PSMA, the
ProstaScint imaging procedure can detect the spread of prostate
cancer. Since the patterns of spread of prostate cancer can vary
substantially from one patient to another, by identifying the
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unique pattern of metastases in a particular patient, we believe
that ProstaScint aids physicians in the selection of appropriate
treatments to meet the special needs of that patient.
In 1996, we received FDA approval to market ProstaScint in
two clinical settings:
- - As a diagnostic imaging agent in newly-diagnosed
patients with biopsy-proven prostate cancer thought
to be clinically localized after standard diagnostic
evaluation and who are at high risk for spread of
their disease to pelvic lymph nodes; and
- - For use in post-prostatectomy patients in whom there
is a high suspicion that the cancer has recurred.
The risk of spread of prostate cancer in both newly-diagnosed and
recurrent disease patients is determined by several factors,
including the stage of the disease when initially diagnosed,
microscopic evaluation of the primary tumor, and the prostate
specific antigen ("PSA") level. PSA is a widely used blood test
currently used for detecting and monitoring prostate cancer.
We believe that ProstaScint has clinical utility in newly
diagnosed patients with prostate cancer who are thought to be
candidates for therapies such as:
- Radical prostatectomy;
- External beam radiation therapy; and
- Brachytherapy (radioactive seed implants).
Before a physician decides upon a course of therapy, it is
critical to determine whether the prostate cancer has spread to
other parts of the body, thereby dramatically reducing the
likelihood of successful treatment. Studies from The Johns
Hopkins University and Stanford University Medical Center have
shown that almost one-third of the prostate cancer patients
treated at these two institutions who have undergone
prostatectomy or radiation therapy experienced disease recurrence
within five years following treatment, and half of the patients
had recurrence of their disease within ten years. Prior to the
availability of ProstaScint, determining whether newly diagnosed
disease was limited to the prostate or had spread distantly was
based upon statistical inference from the biopsy appearance of
the tumor and the patient's serum level of PSA. Conventional
imaging methods, such as computed tomography, magnetic resonance
imaging and transrectal ultrasound, are all relatively
insensitive since they rely on anatomic structure (form) and
therefore require that the normal structures (i.e. lymph nodes)
become enlarged or altered in shape to indicate suspicion of
malignancy. The ProstaScint scan images disease based upon
function (expression of the PSMA molecule) and, therefore, can
image low volume disease not detectable with conventional
procedures. A clear understanding of the existence and location
of any prostate cancer metastasis is crucial in selecting the
most appropriate form of treatment to be administered. We
believe that ProstaScint enhances tumor detection in patients who
are candidates for its use in comparison with alternative means
of detection.
In the U.S., following prostatectomy, prostate cancer
patients are monitored to ascertain changes in the level of PSA.
In this setting, a rise in PSA is strong and presumptive evidence
of recurrence of the patient's prostate cancer. Knowledge of the
extent and location of disease is a critical consideration in
choosing the most appropriate form of treatment. Patients whose
disease is confined to the prostatic fossa may have the potential
to be cured by receiving "salvage" radiation therapy; patients
with more widespread disease would not benefit from such an
approach and instead should receive systemic treatment such as
hormonal therapy. We believe that the results of a ProstaScint
scan performed prior to radiation therapy to the pelvis may help
predict which recurrent disease patients are likely to benefit
from salvage radiation therapy. This distinction is currently not
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possible using any other technique and approximately 70% of
recurrent disease patients currently treated with salvage
radiation therapy fail to achieve long-term control of their
disease, since the cancer has already metastasized to other
points in the body. A prospective study is planned to evaluate
ProstaScint in this setting.
ProstaScint Marketing, Sales, Manufacturing and Distribution
According to the American Cancer Society, about 185,000
American men will be diagnosed with prostate cancer in 1998, of
whom approximately 20% will be at high risk for metastatic spread
of their disease. In addition, estimates indicate that in 1998,
40,000 to 60,000 patients previously treated for prostate cancer
will develop symptoms of recurrent cancer which has not yet
progressed to the point of skeletal involvement. We believe that
there are approximately 75,000 to 100,000 patients with prostate
cancer in the U.S. that are candidates, based on current
indications, to receive a ProstaScint scan each year.
In February 1997, we announced the commercial launch of
ProstaScint, which is co-marketed with the urological division of
BARD, a marketer of broad range of urology products exclusively
to the urology community. Pursuant to our agreement with BARD:
- - BARD is responsible for the promotion of ProstaScint
to urologists, the group of physicians most likely
to order or generate referrals for ProstaScint
scans;
- - Our marketing activities are focused on the training
of the nuclear medicine imaging community, including
those physicians most likely to perform ProstaScint
scans;
- - We are responsible for manufacturing and
distributing ProstaScint as well as instructing
physicians in its proper use;
- - BARD will make payments to the Company upon the
occurrence of certain milestones; and
- - BARD will receive performance-based compensation for
its services.
Our agreement with BARD has an initial term of ten years and is
subject to renewal.
In 1997, we entered into a distribution agreement which
granted Faulding (Canada), Inc. ("Faulding") the exclusive right
to distribute and sell ProstaScint in Canada.
ProstaScint is a "technique-dependent" product that requires
a high degree of proficiency in nuclear imaging, as well as a
thorough appreciation of the information the scan can provide.
We believe that this information regarding the existence,
location and extent of disease has the potential to assist a
physician in making appropriate patient management decisions. We
have established a network of accredited nuclear medicine imaging
centers through our PIE Program (each accredited center, a "PIE
Site"). Each PIE Site receives rigorous training, undergoes
proficiency testing, and is subject to ongoing quality assurance
protocols. To qualify as a PIE Site, each center must be
certified as proficient in the interpretation of ProstaScint
scans by the American College of Nuclear Physicians. We
developed this program in preparation for the launch of
ProstaScint in February 1997. As of November 1998, there were
over 220 PIE Sites, including a substantial majority of the
National Cancer Institute designated Comprehensive Cancer
Centers. ProstaScint may only be administered by PIE Sites.
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We plan to add PIE Sites on a selective basis in order to
ensure that new sites are adequately qualified and committed to a
minimum number of scans for training purposes At the present
time, we bear the expense of qualification of each site.
We currently employ 16 field representatives, each of whom
is a certified or registered nuclear medicine technologist with
experience working in a nuclear medicine department. These field
representatives assist in training of physicians and
qualification of nuclear imaging centers as PIE Sites, and
provide BARD marketing representatives with technical information
and support of ProstaScint and its usage.
We believe that approximately 80% of patients with prostate
cancer are managed by urologists, with the remainder being
managed primarily by medical and radiation oncologists. Through
a Joint Marketing Committee, the Company and BARD coordinate our
respective educational and promotional activities to ensure that
PIE Sites receive appropriate patient referrals from urologists
and that future PIE Sites are located in medical facilities
served by urologists who are ordering the ProstaScint test. The
product is not marketed directly to managed care organizations or
other payor groups, however, we maintain points of contact with
reimbursement specialists for physicians, patients, and payors to
assist with and ensure reimbursement and insurance coverage.
Medical and radiation oncologists also order diagnostic
procedures such as ProstaScint for advanced prostate cancer
patients, and our promotional efforts are addressing this segment
of the medical community directly.
OncoScint CR/OV. OncoScint CR/OV was approved by the FDA in
the U.S. in December 1992. OncoScint CR/OV was initially
approved for single use with other appropriate, commercially
available diagnostic tests, to locate malignancies outside the
liver in patients with known colorectal or ovarian cancer. In
November 1995, FDA approved an expanded indication allowing for
repeat administration of OncoScint CR/OV. OncoScint CR/OV is
also approved for sale in eleven European countries and Canada.
To date, OncoScint has not enjoyed substantial sales. We believe
this product is effective in imaging both primary and metastatic
colorectal and ovarian tumors. However, this information has not
yet been widely used by physicians for patients with these
conditions. We are currently funding an investigator-initiated
study designed to demonstrate the benefits of performing an
OncoScint study as soon as an initial diagnosis of ovarian cancer
is made, to determine which patients would benefit by a more
aggressive initial treatment of their disease. We believe a more
aggressive treatment at an earlier date could provide the
potential for improved prognoses for the patients following
diagnosis of their malignancy.
Promotion of OncoScint CR/OV involves several different
physician audiences, including those who prescribe imaging
procedures for their patients as well as those who obtain and
interpret the image. Referring physicians are likely to be
surgeons and oncologists. OncoScint CR/OV, like ProstaScint, is
technique dependent, requiring training and expertise in
reviewing and interpreting images. Acceptance by the medical
community of the benefits of OncoScint CR/OV depends in part on
the degree to which physicians acquire such skills. Since May
1994, we have been the sole marketer of OncoScint CR/OV in the
U.S.
In 1995, we entered into a distribution agreement (the
"Faulding Agreement") with Faulding granting to Faulding the
exclusive right to distribute and sell OncoScint CR/OV in Canada.
Faulding received regulatory approvals to market the product in
Canada in January 1998. The Faulding Agreement provides for
payments for minimum annual purchases of OncoScint CR/OV by
Faulding, and for certain royalties based upon net sales, if any,
of OncoScint CR/OV by Faulding. The initial term of the Faulding
Agreement is seven years.
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In 1996, we entered into a distribution agreement (the
"CISbio Agreement") with CIS biointernational, granting to CISbio
the exclusive right to distribute and sell OncoScint in all the
countries of the world, except for the U.S. and Canada. CISbio
has markets OncoScint CR/OV in various European countries. The
CISbio Agreement provides for minimum annual purchases of the
components of OncoScint CR/OV by CISbio, and for certain
royalties based upon net sales of OncoScint CR/OV by CISbio. The
initial term of the CISbio Agreement is seven years following the
first commercial sale of the product by CISbio.
Cancer Therapeutic Product
Quadramet. Quadramet, a proprietary cancer therapeutic
agent, received marketing approval from the FDA in March 1997 for
the relief of pain in patients with metastatic bone lesions that
image on conventional bone scan, a routinely performed nuclear
medicine procedure. Quadramet consists of a radioactive isotope,
Samarium-153, which delivers cell-killing beta radiation, and a
targeting agent, EDTMP, which guides the drug to sites of new
bone formation.
According to American Cancer Society and National Cancer
Institute statistics, approximately 600,000 new cases of cancer
that typically metastasize to bone occurred in the U.S. in 1997.
We believe that over 200,000 patients each year will suffer from
bone pain that is severe enough to require palliative
intervention.
Once tumors have metastasized to the skeleton, they continue
to grow and cause destruction of the adjacent bone. This erosion
of bone stimulates new bone formation, which results in a rim of
newly formed bone which encircles the metastatic tumor. The
continued growth from the expanding tumor causes pressure which
the patient perceives as pain at the site of such metastasis. By
targeting these areas of bone formation, Quadramet delivers site-
specific radiation, which may result in significant pain
reduction. As such areas of tumor involvement expand, they
weaken the bone and eventually lead to fracture of the affected
bone. The medical complications associated with bone metastases
may also include bone fractures, spinal cord compression and
paralysis.
Current competitive treatments for severe cancer bone pain
include:
- Narcotic analgesics
These drugs work by masking the brain's ability to
perceive the pain induced by the tumors as they
expand and grow within the bone. While narcotic
analgesics can be effective in addressing cancer-
related bone pain, their prolonged and escalating
use can result in undesirable side effects,
including nausea and vomiting, sedation, confusion
and severe constipation.
- External beam radiation therapy
External beam radiation therapy, while usually
effective in relieving pain, is most appropriately
used to treat solitary lesions. In addition,
retreatment of painful areas is often not feasible
due to unacceptable toxicities to neighboring
organs and tissues. Treatments are generally
administered in five to ten or more sessions over
two to three weeks necessitating frequent visits
by the patient and contributing to the high cost
of this procedure.
- Metastron, a radiopharmaceutical product of Nycomed Amersham plc
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Metastron is the only other therapeutic
radiopharmaceutical approved by the FDA for the
treatment of cancer bone pain. It contains a non-
imageable radionuclide, Strontium-89. This
radionuclide decays with a very long radioactive
half-life (approximately 50 days), resulting in a
delayed onset of pain relief, generally several
weeks after administration. Further, the long
half-life causes a prolonged and variable degree
of bone marrow suppression. Prolonged bone marrow
toxicity limits the usage of other potential
therapies such as chemotherapy and radiation
therapy, as well as the ability to administer
additional doses of this drug.
- Novantrone, a chemotherapeutic product of Immunex Corporation
("Immunex")
Novantrone, a chemotherapeutic drug frequently
used in the management of acute non-lymphocytic
leukemia, is also marketed by Immunex for use in
combination with steroids for pain related to
hormone refractory prostate cancer. The Company
believes that Quadramet offers significant
advantages over Novantrone, including lower
toxicity, fewer side effects, and more rapid onset
of pain relief. However, Novantrone is well known
to oncologists because of its other applications
and this may provide some marketing advantages to
Immunex.
Quadramet has numerous characteristics which we believe are
advantageous for the treatment of cancer bone pain, including
early onset of pain relief; predictability of recovery from bone
marrow toxicity; ease of administration; and length of pain
relief. Quadramet is administered as a single intravenous
injection on an outpatient basis and directly targets sites of
new bone formation which include those areas in the skeleton that
have been invaded by metastatic tumors. Quadramet exhibits high
and very selective uptake in bone with little or no detectable
accumulation in soft tissue. The fraction of the injected dose
that is not taken up in the skeleton is excreted in an unmodified
form in the urine over a period of four to six hours. Further
studies are planned to evaluate the safety and efficacy of repeat
dosing.
We intend to expand the use of Quadramet within the
currently approved indication and extend its use to new
indications by performing additional clinical trials and seeking
regulatory approvals, primarily by and through our marketing
partner, Berlex. Clinical trials are either planned or currently
underway to evaluate the use of Quadramet in combination with
other cancer therapies (such as external beam radiation therapy),
as a potential therapeutic agent for treatment of cancer and as a
therapy for children with malignancies which have either arisen
in bone or have spread to bone. Future trials are also planned to
evaluate the extension of the use of Quadramet to patients whose
bone metastases can be visualized on conventional bone scan, but
who are not yet experiencing pain from these metastases. Our
continuation of these trials will depend upon their progress,
success and on the ability to obtain funding from our existing or
potential marketing partners.
The first non-cancer use of Quadramet under investigation is
the treatment of patients with refractory rheumatoid arthritis.
These patients often demonstrate enhanced uptake of radionuclide
in affected joints on diagnostic bone scans. In such cases, we
believe Quadramet can target the diseased joints and provide a
high but localized dose of radiation to the area. Published
studies by foreign investigators have suggested benefits from
Quadramet in the relatively small numbers of rheumatoid arthritis
patients studied. We are currently conducting a Phase I dose
escalation study of Quadramet to evaluate the safety and
preliminary efficacy of Quadramet in refractory rheumatoid
arthritis patients.
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Quadramet Marketing, Sales, Manufacturing and Distribution
We have licensed the rights to Quadramet from Dow.
Quadramet was previously marketed through DuPont, which
arrangement was terminated during June 1998. In October 1998,
we entered into an exclusive agreement with Berlex for the
marketing of Quadramet. We anticipate that Berlex will re-launch
Quadramet during the first quarter of 1999. Berlex maintains a
sales force which calls upon the oncological community. Pursuant
to our agreement with Berlex, we are entitled to royalty payments
based on net sales of the Quadramet product and milestone
payments based upon sales levels achieved.
Quadramet was originally launched in June 1997. During the
first year of launch, Quadramet was marketed principally to the
nuclear medicine community, which administers the treatment to
patients. However, the treatment is more typically prescribed by
caregiving physicians, including oncologists and urologists. We
believe that successful commercialization of Quadramet will
depend upon marketing to these referring physicians.
DuPont, a leading supplier of radiopharmaceutical products
in the U.S., will continue to manufacture and distribute the
product. Berlex has agreed to bear all costs of manufacture of
Quadramet.
Sales, Marketing and Distribution
We have limited sales, marketing and distribution
capabilities. With respect to the sales, marketing and
distribution of Quadramet and the co-promotion of ProstaScint, we
are substantially dependent on the efforts of Berlex and BARD.
See "ProstaScint Marketing, Sales, Manufacturing and
Distribution" and "Quadramet Marketing, Sales, Manufacturing and
Distribution." If we are unable to successfully establish and
maintain significant sales, marketing and distribution efforts,
either internally or through arrangements with third parties,
there would be a material adverse effect on our business,
financial condition and results of operations. We anticipate
that future products would require similar marketing
collaborations upon which we would be dependent for the success
of any such products.
There can be no assurance that we be able to maintain our
existing collaborative arrangements or enter into collaborative
and license arrangements in the future on acceptable terms, if at
all, that such arrangements will be successful, that the parties
with which the Company has or may establish arrangements will
perform their obligations under such arrangements, or that
potential collaborators will not compete with the Company by
seeking alternative means of developing products for the
indications targeted by the Company.
Product Contribution
The Company's currently marketed products and other sources
of income constitute a single business segment. No significant
history of revenues exists with respect to any of the Company's
products. ProstaScint and Quadramet were introduced to the
market during the first half of 1997 and account for a
significant percentage of the Company's product and royalty
revenues and total revenues and are expected to do so for the
foreseeable future. For the year ended December 31, 1997,
revenues related to ProstaScint and Quadramet accounted for
approximately 86% of the Company's product and royalty revenues.
ProstaScint sales have experienced continued growth since product
launch. However, there can be no assurance that such growth will
continue indefinitely. Quadramet sales during the period from
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its launch have not grown significantly. From the period
beginning in the second half of 1997, in which the product was
launched in the commercial marketplace, through June 1998,
reported revenues related to Quadramet sales were based on
minimum royalty payments due from its original commercial
partner, DuPont. Actual sales were substantially less than
minimum royalty payments. Growth of Quadramet sales were
initially slow because of the need for hospitals to obtain
license amendments under federal and state law to receive and
handle this new radioactive product. In addition, marketing
efforts by DuPont were directed primarily to nuclear medicine
physicians who directly administer the product to patients.
While this sales effort was necessary to generate product
understanding, the Company believes that marketing to oncologists
and urologists, the primary care-givers for patients who may
benefit from Quadramet, is necessary for adequate penetration
into the market.
The marketing agreement with DuPont has been terminated and the
Company the Company has since entered into an exclusive license
and marketing agreement for the marketing of Quadramet with
Berlex, which maintains an experienced sales force calling on the
oncology community. The Company and Berlex have entered into an
agreement with DuPont for the manufacture of Quadramet. Pursuant
to this agreement, Berlex bears the manufacturing costs for
Quadramet. Marketing by Berlex will commence during the first
quarter of 1999. There can be no assurance that ProstaScint
and Quadramet will achieve market acceptance on a timely basis,
or at all. The Company's success will be dependent upon the
acceptance of ProstaScint and Quadramet by the medical community,
including health care providers, such as hospitals and
physicians, and third-party payors (such as employers, insurers,
and health maintenance organizations), as safe, effective and
cost efficient alternatives to other available treatment and
diagnostic protocols. The failure of ProstaScint or Quadramet
to achieve market acceptance would have a material adverse effect
on the Company's business, financial condition and results of
operations.
Product Development
AxCell Biosciences. AxCell, a wholly owned subsidiary of
the Company created in August 1996, utilizes GDL technology to
support advances in combinatorial chemistry, genomics and drug
discovery. AxCell has developed an integrated set of tools to
map selective protein-protein interactions and is using these
tools to develop an Inter-Functional Proteomic Database ("IFP-
dBase"). The IFP-dBase includes data relating to protein-protein
interaction linked to a variety of other relevant bioinformatic
data. We believe this informational database has potential value
in the use by scientists in the pharmaceutical industry as a
means to validate pharmaceutical targets. We believe such
information will be of value to pharmaceutical companies in
conducting research on new drugs.
AxCell is pursuing arrangements with software companies
toward development of a prototype bioinformatics interface for
the IFP-dBase. We expect that substantial funding will be
required to refine the prototype and to pursue further research
to identify protein-protein interactions which would be useful in
and necessary to a commercially viable bioinformatics database.
Funding is being sought from collaborators for the AxCell
program, from venture capital funds, or from other sources,
including corporate resources if adequate to provide such
funding. No assurance can be provided that the program will be
developed, will be successful, or that we will retain
substantially all ownership or even a majority interest of
AxCell.
Genetic Diversity Library Technology. Long-term research,
much of which is preliminary, had been conducted over a period of
time by the Company on GDL technology. The GDL program consists
of research on long peptides that fold to form three-dimensional
structures. These peptides, which are biologically produced,
create vast, highly diverse compound libraries. We believe that
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the ability of these compounds to bind to predetermined sites may
mediate certain therapeutic or diagnostic effects more
effectively than other existing products. Unlike conventional
small molecule drugs or short peptides, long peptides can act
more like proteins and can fold to take on very precise
biological functions such as specific recognition units ("RUs").
Depending upon the application, these RUs can act as receptors,
as targeting agents, or ligands for biological receptors. In
certain applications, it may be more advantageous to administer
the synthetic gene which encodes for the RU. This technology has
been utilized in the development of the AxCell program discussed
above. Certain peptides believed to have commercial potential
have been identified from the GDL program and may be subject to
further development efforts, although we would at present pursue
such development only in connection with a commercial partner.
Otherwise, the basic research component of the GDL program has
been cancelled as part of our ongoing review of its long term
research projects and focus on programs with nearer term economic
potential. We are actively pursuing corporate alliances and
basic research and development agreements to support and advance
the GDL technology toward commercialization.
The Company has entered into a license agreement granting
Elan worldwide rights to a group of peptides and associated GDL
technology for orally administered drugs that are transported
across the gastrointestinal epithelium, as well as rights to
other orally delivered drugs derived from the research program.
Elan is responsible for the further development and
commercialization of this technology.
PSMA. In 1993, CYTOGEN and Memorial Sloan-Kettering Cancer
Center ("MSKCC") began a development program involving PSMA and
CYTOGEN's prostate cancer monoclonal antibody, CYT-351. PSMA is
an unique antigen expressed in prostate cancer cells and by the
normal prostate epithelial cells. In July 1996, a patent
entitled "Prostate-Specific Membrane Antigen" was issued to
Sloan-Kettering Institute for Cancer Research, an affiliate of
MSKCC. In November 1996, we exercised our option for the
exclusive license to this technology.
In December 1996, CYTOGEN exclusively licensed the use of
PSMA in prostate cancer vaccines for certain immunotherapeutic
treatments of prostate cancer to Prostagen, Inc. ("Prostagen"), a
privately held company in New York. The agreement with Prostagen
provides for an up-front fee, several milestone payments
throughout the development of any potential products, and
royalties payable if and when products come to market. Products
are currently under development by third parties in collaboration
with and under license from Prostagen. Currently, a dendritic
cell therapy using PSMA for treatment of prostate cancer is in
Phase II clinical studies.
In January 1997, we granted a non-exclusive option for the
PSMA technology to Boehringer Mannheim in the area of in vitro
diagnostics, including reverse transcriptase-polymerase chain
reaction assays, a technique used to detect circulating prostate
cancer cells in the blood of patients. We have issued licenses to
various third parties for different uses of the PSMA technology
in diagnostic and therapeutic applications. These agreements
provide the Company with royalties payable if and when products
come to market.
In 1996, Targon was granted exclusive rights to certain
other fields of use for the PSMA technology, including recent
developments in the area of prodrugs for prostate cancer. These
rights were relinquished to Cytogen in connection with the sale
of our interest in Targon to Elan.
Other Applications. While we have retained all rights for
therapeutic and in vivo diagnostic uses of the antibody utilized
in ProstaScint for the Company and its affiliates, we have
licensed the antibody for in vitro diagnostic use to the Pacific
Northwest Research Foundation, which in turn, has established a
collaboration with Hybritech Incorporated ("Hybritech") to
exploit this antibody in a serum-based in vitro diagnostic test.
We will receive royalties on product sales by Hybritech, if any.
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We believe that certain of our technologies under
development may have medical applications in various other areas,
including autoimmune disorders and infectious diseases. We
intend to expand the research and development of these
technologies primarily through strategic alliances with other
entities. We cannot predict the establishment or the timing of
such alliances. To the extent funding is available, we expect to
devote resources to these other areas. No prediction can be
made, however, as to when or whether the areas of research
described above will yield new scientific discoveries, or whether
such research will lead to new commercial products.
Research and Development
Our research and development expenditures include projects
conducted by the Company and payments made to customer sponsored
research programs. Our expenses for research and development
activities (including customer sponsored programs) were:
- Nine months ended September 30, 1998 - $8.3 million
- 1997 - $17.9 million
- 1996 - $20.5 million
- 1995 - $22.6 million
Research and development expenditures for customer sponsored programs were:
- Nine months ended September 30, 1998 - $1.5 million
- 1997 - $1.5 million
- 1996 - $1.1 million
- 1995 - $200,000
We intend to pursue research and development activities
having commercial potential and to review all of our programs to
determine whether possible market opportunities, near and longer
term, provide an adequate return to justify the commitment of
human and economic resources to their initiation or continuation.
Anticipated research and development spending for 1998 and 1999
has been dramatically curtailed.
Health Care Reimbursement
Our business, financial condition and results of operations
will continue to be affected by the efforts of governments and
third-party payors to contain or reduce the costs of healthcare
through various means. There have been, and we expect that there
will continue to be, federal and state proposals to implement
government control of pricing and profitability of therapeutic
and diagnostic imaging agents. In addition, an increasing
emphasis on managed care has and will continue to increase the
pressure on pricing of these products. While we cannot predict
whether such legislative or regulatory proposals will be adopted
or the effects such proposals or managed care efforts may have on
our business, the announcement of such proposals and the adoption
of such proposals or efforts could have a material adverse effect
on our business, financial condition and results of operations.
Further, to the extent such proposals or efforts have a material
adverse effect on other companies that are prospective corporate
partners of the Company, our ability to establish strategic
alliances may be materially and adversely affected.
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Sales of our products depend in part on the availability of
reimbursement to the consumer from third-party payors, including
Medicare, Medicaid, and private health insurance plans. Third-
party payors are increasingly challenging the prices charged for
medical products and services. To the extent we succeed in
bringing products to market, there can be no assurance that these
products will be considered cost-effective and that reimbursement
to consumers will be available or will be sufficient to allow us
to sell our products on a competitive basis. Reimbursement by a
third-party payor may depend on a number of factors, including
the payor's determination that our products are clinically useful
and cost-effective, medically necessary and not experimental or
investigational. Since reimbursement approval is required from
each payor individually, seeking such approvals can be a time
consuming and costly process which could require us to provide
supporting scientific, clinical and cost-effectiveness data for
the use of our products to each payor separately. If we are
unable to secure adequate third party reimbursement for our
products, there would be material adverse effect on its business,
financial condition and results of operations.
Competition
The biotechnology and pharmaceutical industries are subject
to intense competition, including competition from large
pharmaceutical companies, biotechnology companies and other
companies, universities and research institutions. Competition
with the Company's existing therapeutic products is posed by a
wide variety of other firms, including firms which provide
products used in more traditional treatments or therapies, such
as external beam radiation, chemotherapy agents and narcotic
analgesics. In addition, the Company's existing and potential
competitors may be able to develop technologies that are as
effective as, or more effective than those offered by the
Company, which would render the Company's products noncompetitive
or obsolete. Moreover, many of the Company's existing and
potential competitors have substantially greater financial,
marketing, sales, manufacturing, distribution and technological
resources than the Company. Such existing and potential
competitors may be in the process of seeking FDA or foreign
regulatory approval for their respective products or may also
enjoy substantial advantages over the Company in terms of
research and development expertise, experience in conducting
clinical trials, experience in regulatory matters, manufacturing
efficiency, name recognition, sales and marketing expertise and
distribution channels. In addition, many of these companies may
have more experience in establishing third-party reimbursement
for their products. Accordingly, there can be no assurance that
the Company will be able to compete effectively against such
existing or potential competitors or that competition will not
have a material adverse effect on the Company's business,
financial condition and results of operations. See "Cancer
Diagnostic Imaging Products - ProstaScint" and "Cancer
Therapeutic Products - Quadramet".
Cellcor
In 1995 we acquired Cellcor for the continued development of
ALT. As part of our restructuring activities during 1998, we
determined that Cellcor was no longer in lone with our strategic
and financial objectives. In September 1998, we terminated
our Cellcor program and closed our facility.
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Manufacturing
We have established a limited commercial-scale, cGMP-
compliant manufacturing capacity in Princeton for the
manufacturing of our products. An Establishment License
Application for the facility for the manufacture of our products
was approved by the FDA for the manufacture of ProstaScint in
October 1996 and for manufacture of OncoScint in December 1992.
It is expected that this facility will allow us to meet our
projected production requirements for ProstaScint and OncoScint
for the foreseeable future, although no assurances can be given
to that effect.
In November 1997, the FD&C Act was amended to make the
approval and review process for biologics more similar to that
for drugs. The new law requires only one license to market a
biological product, a BLA, eliminating the need for separate
license for the facility. Therefore, while we will continue to
maintain compliance with cGMPs, under the new law, we are not
required to obtain separate licenses of its commercial
manufacturing facilities in the future. Moreover, we will retain
the status of having met the FDA's establishment licensing
requirements which we believes is an important competitive
advantage in attracting contract manufacturing business
(discussed below).
Our products must be manufactured either internally or
through third-party manufacturers in compliance with regulatory
requirements and at commercially acceptable costs. While we
believe that our manufacturing operations currently address our
needs for our other products, there can be no assurance that will
we be able to continue to manufacture such products on a
commercially reasonable basis, that we will have the capacity to
manufacture additional products and product candidates or
successfully outsource such manufacturing needs. If we are
unable to successfully manufacture or arrange for the manufacture
of our products and product candidates there could be a material
adverse effect on our business, financial condition and results
of operations.
The Company and its third party manufacturers are required
to adhere to FDA regulations setting forth requirements for cGMP
and similar regulations in other countries, which include
extensive testing, control and documentation requirements.
Ongoing compliance with cGMP, labeling and other applicable
regulatory requirements is monitored through periodic inspections
and market surveillance by state and federal agencies, including
the FDA, and by comparable agencies in other countries. Failure
of the Company and its third-party manufacturers to comply with
applicable regulations could result in sanctions being imposed on
the Company, including fines, injunctions, civil penalties,
failure of the government to grant premarket clearance or
premarket approval of drugs, delays, suspension or withdrawal of
approvals, seizures or recalls of products, operating
restrictions and criminal prosecutions.
The annual production capacity of our facility is
approximately 100,000 OncoScint or ProstaScint kits. The
facility was utilized approximately 15% in 1998, 15% in 1997, and
20% in 1996 for manufacture of our products.
There has been a strong trend toward outsourcing of
manufacturing and development services by companies in the drug
and biotechnology sectors of the pharmaceutical industry in the
past few years. We offer excess capacity in our cGMP compliant
manufacturing facility to prospective client companies that are
seeking an outsourcing solution for the manufacture of their
products. With our manufacturing facility, and its cGMP status,
we have been able to attract clients that are seeking a third-
party manufacturing outsourcing option for manufacture of low
volumes of sterile, preservative-free liquid formulations of
biological products. Contract manufacturing activities are
supported by our quality control groups that perform raw material
and product testing, monitoring of environmental conditions in
the manufacturing facility and review of manufacturing
documentation and quality assurance functions. We currently
provide development and manufacturing services to eleven
customers. Our contract manufacturing revenues were
approximately $1.1 million for the nine months ended September
30, 1998, $984,000 in 1997 and $405,000 in 1996.
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Currently we are actively seeking to divest or sell our
manufacturing operations and outsource the manufacture of certain
of our products. To the extent that we do not outsource
manufacture of its products, we plan to continue to utilize and
develop our contract manufacturing capacity to offset fixed costs
associated with the operation and maintenance of its
manufacturing facility. Our proposed terms of sale of the
facility would require any purchaser to contract with us to
continue to manufacture our products currently manufactured in
the facility. We believe that such a contract would reduce
significantly our expenses, including costs of goods sold.
Raw Materials and Suppliers
The active raw materials used for the manufacture of our
products include different antibodies. We have both exclusive
and non-exclusive license agreements which permit the use of
specific monoclonal antibodies in our products. Our first
product, OncoScint CR/OV, uses the same monoclonal antibody which
has been supplied in clinical quantities and is being supplied in
commercial quantities by a single contract manufacturer, Lonza
Biologics (which acquired the Company's former supplier,
Celltech, in 1996), through a shared manufacturing agreement. We
anticipate that Lonza Biologics will be able to meet our needs
for commercial quantities of monoclonal antibody.
We currently have the in-house production capacity necessary
to produce projected commercial quantities of monoclonal antibody
for manufacture of ProstaScint. If we outsource manufacturing of
ProstaScint, we will be dependent on third parties for our
production.
Quadramet is manufactured by DuPont pursuant to an agreement
with Berlex and CYTOGEN. Certain components of Quadramet,
particularly Samarium-153 and EDTMP, are provided to DuPont by
sole source suppliers. Due to its radiochemical properties,
Samarium-153 must be produced on a weekly basis by its supplier
in order to meet DuPont's manufacturing requirements. On one
occasion, DuPont was unable to manufacture Quadramet on a timely
basis due to the failure of the sole source supplier to provide
an adequate supply of Samarium-153. In the event that DuPont is
unable to obtain sufficient quantities of such components on
commercially reasonable terms, or in a timely manner, DuPont
would be unable to manufacture Quadramet on a timely and cost-
competitive basis. In addition, sources for certain of these
components may not be readily available. Thus, the loss by
DuPont of its sources for such components could result in an
interruption of supply and could have a material adverse effect
on the Company's business, financial condition and results of
operations.
Patents and Proprietary Rights
Consistent with industry practice, we have a policy of using
patent and trade secret protection to preserve our right to
exploit the results of our research and development activities
and, to the extent it may be necessary or advisable, to exclude
others from appropriating our proprietary technology.
Our policy is to protect aggressively our proprietary
technology by selectively seeking patent protection in a
worldwide program. In addition to the U.S., we file patent
applications in Canada, major European countries, Japan and
additional foreign countries on a selective basis to protect
inventions important to the development of its business. We
believe that the countries in which we have obtained and are
seeking patent coverage for our proprietary technology represent
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the major focus of the pharmaceutical industry in which the
Company and certain of our licensees will market our respective
products.
We hold 31 current U.S. patents and 66 current foreign
patents. We have filed and currently have pending a number of
additional U.S. and foreign patent applications, covering certain
aspects of our technology for diagnostic and therapeutic
products, and the methods for their production and use. We
intends to file patent applications with respect to subsequent
developments and improvements when we believe such protection is
in our the best interest.
We are the exclusive licensee of certain patents and patent
applications held by the University of North Carolina at Chapel
Hill covering GDL technology. We hold an exclusive license under
certain patent and patent applications held by the Memorial Sloan
Kettering Institute covering PSMA. We are the exclusive licensee
of certain U.S. patents and applications held by Dow covering
Quadramet.
We may be entitled under certain circumstances to seek
extension of the terms of our patents. See "Government
Regulation and Product Testing - FDA Approval".
We also rely upon, and intend to continue to rely upon,
trade secrets, unpatented proprietary know-how and continuing
technological innovation to develop and maintain our competitive
position. We typically enter into confidentiality agreements
with our licensees and any scientific consultants, and each of
our employees have entered into agreements requiring that they
forbear from disclosing confidential information, and assign to
us all rights in any inventions made while in our employ. We
believe that our valuable proprietary information is protected to
the fullest extent practicable; however, there can be no
assurance that:
- - Any additional patents will be issued to the Company
in any or all appropriate jurisdictions;
- - Litigation will not be commenced seeking to
challenge the patent protection or such challenges
will not be successful;
- - Our processes or products do not or will not
infringe upon the patents of third parties; or
- - The scope of patents issued will successfully
prevent third parties from developing similar and
competitive products.
It is not possible to predict how any patent litigation will
affect the Company's efforts to develop, manufacture or market
its products.
The technology applicable to our products is developing
rapidly. A substantial number of patents have been issued to
other biotechnology companies. In addition, competitors have
filed applications for, or have been issued, patents and may
obtain additional patents and proprietary rights relating to
products or processes that are competitive with ours. In
addition, others may have filed patent applications and may have
been issued patents to products and to technologies potentially
useful to us or necessary to commercialize our products or
achieve our business goals. There can be no assurance that we
will be able to obtain licenses of such patents on acceptable
terms. See "Competition."
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Government Regulation and Product Testing
The development, manufacture and sale of medical products
utilizing our technology are governed by a variety of statutes
and regulations in the U.S. and by comparable laws and agency
regulations in most foreign countries.
The FD&C Act requires that our products be manufactured in
FDA registered facilities subject to inspection. The
manufacturer must be in compliance with cGMP which imposes
certain procedural and documentation requirements upon us and our
manufacturing partners with respect to manufacturing and quality
control activities. Noncompliance with cGMP can result in, among
other things, fines, injunctions, civil penalties, recalls or
seizures of products, total or partial suspension of production,
failure of the government to grant premarket clearance or
premarket approval for drugs, withdrawal of marketing approvals
and criminal prosecution. Any failure by us or our manufacturing
partners to comply with the requirements of cGMP could have a
material adverse effect on the Company's business, financial
condition and results of operations.
FDA Approval. The major regulatory impact on the diagnostic
and therapeutic products in the U.S. derives from the FD&C Act
and the Public Health Service Act, and from FDA rules and
regulations promulgated thereunder. These laws and regulations
require carefully controlled research and testing of products,
government notification, review and/or approval prior to
marketing the products, inspection and/or licensing of
manufacturing and production facilities, adherence to good
manufacturing practices, compliance with product specifications,
labeling, and other applicable regulations.
The medical products which we apply our technology is
subject to substantial governmental regulation and may be
classified as new drugs or biologics under the FD&C Act. FDA and
similar health authorities in most other countries must approve
or license the diagnostic and therapeutic products before they
can be commercially marketed. In order to obtain FDA approval,
an applicant must submit, as relevant for the particular product,
proof of safety, purity, potency and efficacy. In most cases such
proof entails extensive pre-clinical, clinical and laboratory
studies. The studies and the preparation and prosecution of
those applications by FDA is expensive and time consuming, and
may take several years to complete. Difficulties or
unanticipated costs may be encountered by us or our licensees in
their respective efforts to secure necessary governmental
approval or licenses, which could delay or preclude the Company
or its licensees from marketing their products. Limited
indications for use or other conditions could also be placed on
any such approvals that could restrict the commercial
applications of such products. With respect to patented products
or technologies, delays imposed by the government approval
process may materially reduce the period during which we will
have the exclusive right to exploit them, because patent
protection lasts only for a limited time, beginning on the date
the patent is first granted in the case of U.S. patent
applications filed prior to June 6, 1995, and when the patent
application is first filed in the case of patent applications
filed in the U.S. after June 6, 1995, and applications filed in
the European Economic Community. We intend to seek to maximize
the useful life of our patents under the Patent Term Restoration
Act of 1984 in the U.S. and under similar laws if available in
other countries.
The majority of our diagnostic and therapeutic products will
likely be classified as new drugs or biologics and will be
evaluated in a series of in vitro, non-clinical and human
clinical testing. Typically, clinical testing is performed in
three phases to further evaluate the safety and efficacy of the
drug. In Phase I, a product is tested in a small number of
patients primarily for safety at one or more dosages. In Phase
II, in addition to safety, the efficacy of the product against
particular diseases is evaluated in a patient population
generally somewhat larger than Phase I. Clinical trials of
certain diagnostic and cancer therapeutic agents frequently
combine Phase I and Phase II into a single Phase I/II study. In
Phase III, the product is evaluated in a larger patient
population sufficient to generate data to support a claim of
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safety and efficacy within the meaning of the FD&C Act.
Permission by the FDA must be obtained before clinical testing
can be initiated within the U.S. This permission is obtained by
submission of an IND application which typically includes the
results of in vitro and non-clinical testing and any previous
human testing done elsewhere. FDA has 30 days to review the
information submitted and makes a final decision whether to
permit clinical testing with the drug or biologic. A similar
procedure applies to medical device and diagnostic products.
After completion of in vitro, non-clinical and clinical
testing authorization to market a drug or biologic must be
granted by FDA. FDA grants permission to market through the
review and approval of either an NDA (New Drug Application) for
drugs or a BLA (Biologic License Application) for biologics.
These applications provide detailed information on the results of
the safety and efficacy of the drug conducted both in animals and
humans. Additionally, information is submitted describing the
facilities and procedures for manufacturing the drug or biologic.
The Prescription Drug User Fee Act and subsequently, the
Food and Drug Administration Modernization Act of 1997 have
established application review times for both NDAs and BLAs. For
new drugs and biologics, FDA is to review and make a
recommendation for approval within 12 months. For drugs and
biologics designated as "priority," the review time is six
months.
Once a drug or biologic is approved, we are required to
maintain approval status of the products by providing certain
safety and efficacy information at specified intervals.
Additionally, the Company is required to meet other requirements
specified by the FD&C Act including but not limited to the
manufacture of products, labeling and promotional materials and
the maintenance of other records and reports. Failure to comply
with these requirements or the occurrence of unanticipated safety
effects from the products during commercial marketing, could lead
to the need for product recall, or FDA initiated action, which
could delay further marketing until the products are brought into
compliance. Similar laws and regulations apply in most foreign
countries where these products are likely to be marketed.
Orphan Drug Act. The Orphan Drug Act is intended to provide
incentives to manufacturers to develop and market drugs for rare
diseases or conditions affecting fewer than 200,000 persons in
the U.S. at the time of application for orphan drug designation.
A drug that receives orphan drug designation and is the first
product to receive FDA marketing approval for a particular
indication is entitled to orphan drug status, a seven-year
exclusive marketing period in the U.S. for that indication.
Clinical testing requirements for orphan drugs are the same as
those for products that have not received orphan drug
designation. OncoScint CR/OV has received an orphan drug
designation for the detection of ovarian carcinoma. Under the
Orphan Drug Act, the FDA cannot approve any application by
another party to market an identical product for treatment of an
identical indication unless (i) such party has a license from the
holder of orphan drug status, or (ii) the holder of orphan drug
status is unable to assure an adequate supply of the drug.
However, a drug that is considered by FDA to be different from a
particular orphan drug is not barred from sale in the U.S. during
such seven-year exclusive marketing period even if it receives
marketing approval for the same product claim.
Other Regulations. In addition to regulations enforced by
FDA, the Company is also subject to regulation under the state
and local authorities and other federal agencies including
Occupational Safety and Health Act, the Environmental Protection
Act, the Toxic Substances Control Act, the Resource Conservation
and Recovery Act and Nuclear Regulatory Commission.
Foreign Regulatory Approval. Prior to marketing its
products in Western Europe and certain other countries, the
Company will be required to receive the favorable recommendation
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of the Committee for Proprietary Medicinal Products, or CPMP,
followed by the appropriate government agencies of the respective
countries. Substantial requirements, comparable in many respects
to those imposed under the FD&C Act, will have to be met before
commercial sale is permissible in most countries. There can be
no assurance, however, as to whether or when governmental
approvals (other than those already obtained) will be obtained or
as to the terms or scope of those approvals.
Customers
For the nine months ended September 30, 1998, we received
33% of its total product related, license and contract revenues
from two customers: DuPont and Medi-Physics, Inc., a chain of
radiopharmacies.
Employees
As of September 30, 1998, we employed 109 persons full-time,
of whom 11 were engaged in research and development activities,
36 in operations and manufacturing, 23 in clinical and regulatory
activities, 18 in administration and management, and 21 in
marketing. We believe that it has been successful in attracting
skilled and experienced employees; however, competition for such
personnel is intense.
None of the Company's employees is covered by a collective
bargaining agreement. All of the Company's employees have
executed confidentiality agreements. We considers relation with
its employees to be excellent.
Facilities
We currently lease approximately 85,000 square feet of
administrative, laboratory, and manufacturing space in three
locations in Princeton, New Jersey, including:
- - 56,900 square foot laboratory and manufacturing facility.
The lease on this facility expires in 2003, subject to
our right to renew through 2013;
- - 20,000 square feet of office space. The lease on this
facility expires in 2002; and
- - 8,000 square feet of warehousing and additional
manufacturing space. The lease on this space expires in
1999.
We intend to remain in Princeton, New Jersey for the
foreseeable future. We own substantially all of the equipment
used in the laboratories, manufacturing facilities, and offices.
Important Factors Regarding Forward Looking Statements
Certain discussions set forth above regarding the
development and commercialization of our products and
technologies are forward looking statements that are subject to
risks and uncertainties. The statements under this caption are
intended to serve as cautionary statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Certain
statements in this prospectus are forward-looking statements
within the meaning of Section 27A of the Securities Act and
Section 21E of the Securities Exchange Act of 1934, as amended.
The Company's actual results could differ materially from those
anticipated in such forward-looking statements as a result of
certain factors, including those discussed in Risk Factors,
52
<PAGE>
listed below or discussed elsewhere in this prospectus, and in
the Company's filings with the Securities and Exchange
Commission:
(i) the Company's ability to continue as a going concern if the
Company is unable to raise sufficient funds or generate
sufficient cash flows from operations to cover the cost of its
operations; (ii) the Company's ability to access the capital
markets in the near term and in the future for continued funding
of existing projects and for the pursuit of new projects; (iii)
the Company's ability to complete its restructuring plans timely
and in a way that permits the Company to operate effectively;
(iv) the ability to attract and retain personnel needed for
business operations and strategic plans; (v) the timing and
results of clinical studies, and regulatory approvals; (vi)
market acceptance of the Company's products, including programs
designed to facilitate use of the products, such as the PIE
Program; (vii) demonstration over time of the efficacy and safety
of the Company's products; (vii) the degree of competition from
existing or new products; (ix) the decision by the majority of
public and private insurance carriers on whether to reimburse
patients for the Company's products; (x) the profitability of
its products; (xi) the ability to attract, and the ultimate
success of, strategic partnering arrangements, collaborations,
and acquisition candidates; (xii) the ability of the Company and
its partners to identify new products as a result of those
collaborations that are capable of achieving FDA approval, that
are cost-effective alternatives to existing products and that are
ultimately accepted by the key users of the product; and (xiii)
the success of the Company's marketing partners in obtaining
marketing approvals in Canada and in European countries, in
achieving milestones and achieving sales of products resulting in
royalties; and (xiv) the ability to protect and practice the
Company's intellectual property, including patents and know-how.
Any forward-looking statements are made as of the date of
this prospectus and the Company assumes no obligation to update
any such forward-looking statements or to update the factors
which could cause actual results to differ materially from those
anticipated in such forward-looking statements.
WHERE YOU CAN FIND MORE INFORMATION
The Company has filed with the Securities and Exchange
Commission, Washington, D.C. 20549, a Registration Statement on
Form S-1 under the Securities Act with respect to the shares of
common stock offered hereby. This prospectus does not contain
all of the information set forth in the Registration Statement
and the exhibits and schedules thereto. For further information
with respect to the Company and the common stock offered hereby,
reference is made to the Registration Statement and the exhibits
and schedules filed therewith. Statements contained in this
prospectus as to the contents of any contract or any other
document referred to are not necessarily complete, and in each
instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each
such statement being qualified in all respects by such reference.
A copy of the Registration Statement may be inspected without
charge at the offices of the Commission in Washington, D.C.
20549, and copies of all or any part of the Registration
Statement may be obtained from the Public Reference Section of
the Commission, Washington, D.C. 20549 upon the payment of the
fees prescribed by the Commission. The Commission maintains a
Web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding
registrants, such as the Company, that file electronically with
the Commission. The Company also maintains a Web site
(http://www.cytogen.com).
53
<PAGE>
MANAGEMENT
Directors and Executive Officers
The directors and executive officers of the Company are as follows:
Name Age Title
- ---- --- -----
James A. Grigsby 55 Director; Chairman of the Board
H. Joseph Reiser, Ph.D. 52 Director; President and Chief
Executive Officer
John E. Bagalay, Jr., Ph.D. J.D. 64 Director
Ronald J. Brenner, Ph.D. 64 Director
Stephen K. Carter, M.D. 61 Director
Robert F. Hendrickson 65 Director
Robert J. Broeze, Ph.D. 46 Vice President, Operations
Donald F. Crane 48 Vice President, General Counsel
and Corporate Secretary
Jane M. Maida 43 Chief Accounting Officer, and
Principal Financial Officer
Graham S. May, M.D. 50 Vice President, Medical Affairs
and Commercial Development
John D. Rodwell, Ph.D. 52 Senior Vice President, Chief
Scientific Officer and
President, AxCell Biosciences
Michael A. Trapani 43 Vice President, Regulatory Affairs
and Quality Assurance
James A. Grigsby has been a director of the Company since May
1996 and Chairman of the Board since June 1998. Since 1994, Mr.
Grigsby has been president of Cancer Care Management LLC, a
consulting firm providing consulting services to managed care
companies regarding cancer disease management issues. From 1989
to 1994, Mr. Grigsby was President of CIGNA Corporation's
International Life and Employee Benefits Division, which operated
in over 20 countries worldwide, and prior to that period also
served as the head of CIGNA's national health care sales force.
Prior to that time, since 1978, he held a number of executive
positions with CIGNA Corporation. Mr. Grigsby received a B.A.
degree in Mathematics from Baylor University and is a Fellow of
the Society of Actuaries.
H. Joseph Reiser, Ph.D. joined CYTOGEN in August 1998 as
President and Chief Executive Officer and as a member of the
Board of Directors. Most recently, Dr. Reiser was Corporate Vice
President and General Manager, Pharmaceuticals, for Berlex
Laboratories Inc., the U.S. subsidiary of Schering AG. During
his 17 year tenure at Berlex, Dr. Reiser held positions of
increasing responsibility, serving as the first President of
Schering Berlin's Venture Corporation, Vice President, Technology
and Industry Relations, and Vice President, Drug Development and
Technology. Dr. Reiser received his Ph.D. in Physiology from
Indiana University School of Medicine, where he also earned his
Master and Bachelor of Science degrees.
54
<PAGE>
John E. Bagalay, Jr., Ph.D., J.D. became a director in 1995
and served as interim President and Chief Executive Officer from
January 1998 until August 1998. Dr. Bagalay was a director of
Cellcor prior to the Company's acquisition of Cellcor in October
1995. He has served as the Managing Director of Community
Technology Fund, the venture capital affiliate of Boston
University, since September 1989 and as Senior Advisor to the
Chancellor since January 1, 1998. Dr. Bagalay has also served as
General Counsel for Texas Commerce Bancshares, for Houston First
Financial Group, and for Lower Colorado River Authority, a
regulated electric utility. Dr. Bagalay currently also serves on
the boards of directors of Wave Systems Corporation and several
privately-held companies in the biotechnology industry. Dr.
Bagalay holds a B.A. in Politics, Philosophy and Economics and a
Ph.D. in Political Philosophy from Yale University, and a J.D.
from the University of Texas.
Ronald J. Brenner, Ph.D. has been a director of the Company
since October 1995. Dr. Brenner was President and Chief
Executive Officer of Cellcor from July 1995 until the Company's
acquisition of Cellcor in October 1995. Dr. Brenner has been a
general partner of the managing general partner of the Hillman
Medical Ventures partnerships since 1989. From 1984 to 1988, Dr.
Brenner was President and Chief Executive Officer of Cytogen.
Prior to 1984, he was Vice President, Corporate External
Research, at Johnson & Johnson, a major pharmaceutical company,
and also served as Chairman of McNeil Pharmaceutical, Ortho
Pharmaceutical Corp. and the Cilag Companies, all subsidiaries of
Johnson & Johnson. Dr. Brenner is a director of Aronex
Pharmaceuticals, Inc. He received a B.S. in Pharmacy from the
University of Cincinnati, and an M.S. and Ph.D., both in
Pharmaceutical Chemistry, from the University of Florida.
Stephen K. Carter, M.D. has been a director of the Company
since September, 1998. Dr. Carter was Senior Vice President of
Research and Development at Boehringer Ingelheim Pharmaceuticals,
Inc. from 1995 to 1997. Prior to joining Boehringer, Dr. Carter
was Senior Vice President of Worldwide Clinical Research and
Development at Bristol-Myers Squibb Company. From 1976 to 1982,
Dr. Carter served as Director of the Northern California Cancer
Institute. Dr. Carter was also appointed to President Clinton's
panel for AIDS drug development. Dr. Carter received an AB in
History from Columbia College and an MD from New York Medical
College. He completed a medical internship and residency at
Lenox Hill Hospital.
Robert F. Hendrickson became a director of the Company in
March 1995. Since 1990, Mr. Hendrickson has been a consultant to
the pharmaceutical and biotechnology industries on strategic
management and manufacturing issues with a number of leading
biotechnology companies among his clients. Prior to his
retirement in 1990, Mr. Hendrickson was Senior Vice President,
Manufacturing and Technology for Merck & Co., Inc. He is a
director of Envirogen, Inc., Unigene, Inc., The Liposome Company,
Inc., and a trustee of the Carrier Foundation, Inc. Mr.
Hendrickson received an A.B. degree from Harvard College and an
M.B.A. from the Harvard Graduate School of Business
Administration.
Robert J. Broeze, Ph.D. joined CYTOGEN in May 1990 as
Director, Pharmaceutical Development. He served as CYTOGEN's
Director, Manufacturing, Senior Director, Manufacturing &
Technical Operations and as Executive Director, Manufacturing &
Technical Operations until February 1997, when he was promoted to
Vice President, Operations. Prior to joining CYTOGEN, Dr. Broeze
held the position of Director, Process Development at
Collaborative Research, Inc., a development stage biotechnology
company engaged in the development and manufacture of biomedical
products for research, diagnostic and clinical use, from 1989 to
1990. Dr. Broeze holds B.S. and Ph.D. degrees in Biology from
Rensselaer Polytechnic Institute.
55
<PAGE>
Donald F. Crane joined CYTOGEN in June 1997 as Vice
President, General Counsel and Corporate Secretary. Most
recently, Mr. Crane was Senior SEC Counsel for U.S. Surgical
Corporation since 1993. Previously, Mr. Crane was Assistant
Secretary and Corporate Counsel at BellSouth Corporation in
Atlanta, Georgia. Mr. Crane holds a Bachelor's degree in
Communications from the University of Georgia and a J.D. degree
from the University of Georgia School of Law.
Jane M. Maida joined CYTOGEN in March 1997 as Chief Accounting
Officer, Corporate Controller and Assistant Secretary and currently
serves as Principal Financial Officer. Before joining CYTOGEN,
Ms. Maida served as Chief Financial and Information Officer for
Mustard Seed, Inc., a behavioral health care company, from 1995.
Prior to that position, she was Chief Financial Officer of Morphogenesis,
Inc., a biotechnology company focused on cellular immunology.
From 1986 to 1994, Ms. Maida was Corporate Controller and Assistant
Secretary for The Liposome Company, Inc., a biotechnology company.
Ms. Maida holds a B.S. in Education from the University of Pennsylvania
and a M.S. in Accounting from the State University of New York at Albany.
She is also a Certified Public Accountant.
Graham S. May, M.D. joined CYTOGEN in January 1997 as Vice
President, Medical Affairs. In February 1998, he assumed
additional responsibilities for corporate business development.
Most recently, he was a Principal in the Global Health Care
Practice of Gemini Consulting Inc., an international management
consultant company, from 1995 to 1996. Prior to that, Dr. May
was with Pharmacia, U.S., for almost 10 years, first as Medical
Director of the Hospital Products division, and finally as
Executive Medical Director of Kabi Pharmacia, Inc. Dr. May has
been a visiting scientist at the Clinical Trials Branch, National
Heart, Lung, and Blood Institute at the National Institutes of
Health. He has also worked with AKZO and Ciba-Geigy in Europe,
as well as Hoechst-Roussel Pharmaceuticals in the U.S. Dr. May
holds undergraduate and medical degrees from Cambridge
University, England, and is a member of the Faculty of
Pharmaceutical Medicine.
John D. Rodwell, Ph.D. joined CYTOGEN in September 1981. He
served as Director, Chemical Research, then as Vice President,
Discovery Research from 1984 to 1989, and as Vice President,
Research and Development from 1989 to July 1996, at which time he
assumed his present responsibilities as Sr. Vice President and
Chief Scientific Officer. Dr. Rodwell has also served as
President and a director of AxCell since 1996. From 1980 to
1981, Dr. Rodwell was a Research Assistant Professor and, from
1976 to 1980, he was a postdoctoral fellow, both in the
Department of Microbiology at the University of Pennsylvania
School of Medicine, where he currently is an Adjunct Associate
Professor in the Department of Microbiology. He holds a B.A.
degree from the University of Massachusetts, an M.S. degree in
Organic Chemistry from Lowell Technological Institute and a Ph.D.
degree in Biochemistry from the University of California at Los
Angeles.
Michael A. Trapani joined CYTOGEN in January 1996 as Director,
Regulatory Affairs & Quality Assurance and held that position
until his promotion in March 1998 to Vice President, Regulatory
Affairs and Quality Assurance. In his current position, he is
responsible for regulatory and quality activities world-wide.
Mr. Trapani has approximately 20 years experience in the
pharmaceutical industry with the majority of his experience in
the drug approval area. Most recently, he was Senior Director,
Regulatory Affairs for Pharmacia Adria in Columbus, OH. Prior to
that position, he held the position of Executive Director,
Regulatory Affairs at Kabi Pharmacia in Piscataway, N.J. Mr.
Trapani started his career with the FDA. Mr. Trapani holds a
B.S. degree in Biology from Brooklyn College and an MBA degree
from Seton Hall Graduate School of Business.
56
<PAGE>
Director Compensation
In 1997, each director who is not also an officer of the
Company was paid an annual retainer of $7,500, plus $800 for each
Board meeting attended ($400 if participation was by telephone).
Any director who also served on a Board committee received an
additional annual fee of $500 for serving on the committee, and
$1,000 for serving as chairman of any Board committee, plus $250
for each committee meeting attended, except that the members of
the Nominating Committee did not receive any compensation for
serving on that committee. The Chairman of the Board, if not an
employee of the Company, receives an additional annual retainer
of $35,000.
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term
compensation awarded to, earned by or paid to (i) the Company's
Chief Executive Officer, and (ii) the other four most highly
compensated executive officers of the Company, for services
rendered to the Company during the Company's fiscal years ended
December 31, 1997, 1996 and 1995.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation (1) Long-Term Compensation
----------------------- ----------------------
Awards
----------------------
Other Securities
Annual Restricted Underlying All Other
Salary Bonus Compen- Stock Options/ Compen-
Name and Principal Position Year ($) ($) sation ($) Awards ($) SARs (#) sation ($) (2)
- --------------------------- ---- ------ ----- ---------- ----------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas J. McKearn (5) 1997 298,012 0 0 0 0 10,613 (6)
Chairman, President and Chief 1996 284,181 49,150 0 0 (3) 155,000 (4) 10,650
Executive Officer 1995 250,000 38,500 0 0 (3) 135,000 (4) 10,876
John D. Rodwell 1997 202,999 22,800 0 0 0 8,631
Senior Vice President and 1996 187,198 35,150 0 0 82,000 8,499
Chief Scientific Officer 1995 170,000 29,000 0 0 90,000 8,038
Graham May (7) 1997 206,446 31,100 0 0 45,000 6,515
Vice President, Medical Affairs
Frederick M. Miesowicz (8) 1997 201,554 20,400 0 0 0 6,178
Vice President 1996 207,985 26,950 0 0 40,000 4,191
1995 189,496 29,000 0 0 98,000 480
Richard J. Walsh (9) 1997 186,000 27,200 0 0 0 8,533
Vice President, Marketing and 1996 176,443 43,375 0 0 70,000 8,470
Commercial Development 1995 170,735 22,000 20,263 (10) 0 55,000 8,137
</TABLE>
_____________________
(1) Perquisites or personal benefits did not exceed the lesser of
either $50,000 or 10% of total annual salary and bonus reported
for the named executive officers.
(2) The amounts disclosed in this column include amounts
contributed or accrued by the Company in the respective fiscal
years under the Company's Savings Plan, a defined contribution
plan which consists of a 401(k) portion and a discretionary
contribution portion. In fiscal year 1997, these amounts were
57
<PAGE>
as follows: on behalf of Dr. McKearn, $7,750; Dr. Rodwell,
$7,750; Dr. May, $5,948, Dr. Miesowicz, $5,640; and Mr. Walsh,
$7,750. The amounts disclosed also include insurance premiums
paid by the Company with respect to group term life insurance
and with respect to fiscal year 1997, these amounts were as
follows: on behalf of Dr. McKearn, $863; Dr. Rodwell, $881;
Dr. May, $567, Dr. Miesowicz, $538; and Mr. Walsh, $783.
(3) On December 8, 1994, Dr. McKearn and the Company entered into
a Stock Compensation and Performance Option Agreement (the
"Compensation Agreement"), which provided for the issuance to
Dr. McKearn of 30,000 shares of Common Stock in three
installments of 10,000 shares in each of 1994, 1995 and 1996.
On December 8, 1994, Dr. McKearn received the first installment
of 10,000 shares upon payment made equal to the aggregate par
value of the shares. On January 3, 1995, Dr. McKearn received
the second installment of 10,000 shares upon payment made equal
to the aggregate par value of the shares. On January 3, 1996,
Dr. McKearn received the third installment of 10,000 shares
upon payment made equal to the aggregate par value of the
shares.
(4) Pursuant to the Compensation Agreement, the Company granted to
Dr. McKearn, effective as of January 3, 1994, an option to
purchase up to 100,000 shares of Common Stock at an exercise
price of approximately $6.188 per share (subject to adjustment
under certain circumstances). Vesting of this option was at
the discretion of the Compensation Committee of the Board of
Directors. Any shares not vested were irrevocably canceled and
ineligible for future vesting under the grant. In December
1995, the Compensation Committee considered the vesting of the
second installment of 20,000 shares and determined that 15,000
shares should vest. In March 1997, the Compensation Committee
considered the vesting of the third installment of 20,000
shares and determined that 17,000 shares should vest. See
"Employment and Severance Arrangements".
(5) Dr. McKearn resigned as Chairman, President and Chief
Executive Officer and returned to a scientific role in the
Company, effective January 1998, and left the employment of the
Company in September, 1998.
(6) In March 1995, the Company and Dr. McKearn entered into a
Split Dollar Collateral Assignment Agreement. Under this
agreement, the Company was responsible for the payment of all
premiums due for two life insurance policies on the life of Dr.
McKearn, having a total face value of $2.3 million. The amount
disclosed in the Summary Compensation Table reflects the
portion of the total premiums ($43,710) paid by the Company
under these insurance policies in fiscal year 1997 that is
attributable to term life insurance coverage (a total of
$2,000). The current dollar value of the benefit to Dr.
McKearn of the remainder of the premiums paid by the Company
during fiscal year 1997 is $0. The benefit was calculated
based upon the difference between the payment of the premium
and its refund at the earliest possible time to the Company.
For a description of the Split Dollar Collateral Assignment
Agreement, see "Employment and Severance Arrangements".
(7) Dr. May joined the Company as Vice President, Medical Affairs,
effective January 2, 1997.
(8) Dr. Miesowicz was elected as a Vice President of the Company,
effective October 20, 1995. Dr. Miesowicz also serves as Vice
President and General Manager of Cellcor. A portion of the
amount included in the Summary Compensation Table for 1995
reflects salary paid to Dr. Miesowicz by Cellcor in fiscal
year 1995, prior to the merger, for services rendered in his
capacity as Cellcor's Senior Vice President of Scientific
Affairs. Dr. Miesowicz left the employment of the Company in
September 1998.
58
<PAGE>
(9) Mr. Walsh resigned from the Company during February 1998.
(10)Under the terms of his offer of employment, Mr. Walsh was
awarded 5,000 shares of Common Stock. The amount included in
the Summary Compensation Table for 1995 reflects the aggregate
value of those shares on the date they were purchased by Mr.
Walsh, which value is based upon the closing market price of
the Company's unrestricted stock on that date ($20,313), less
the price paid for the shares by Mr. Walsh ($50).
The following table sets forth information regarding individual
grants of stock options to the named executive officers during
fiscal year 1997:
OPTION GRANTS IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed AnnualRates
of Stock Price
Appreciation for
Individual Grants Option Term (3)
-------------------------------------------------------- --------------------------
Percent of
Number of Total
Securities Options Exercise or
Underlying Granted to Base Price
Options Employees in (per share) Expiration
Name Granted (1) Fiscal Year (1) (2) Date 5% ($) 10% ($)
---- ----------- --------------- ---------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Thomas J. McKearn 0 0 0 0 0
Frederick M. Miesowicz 0 0 0 0 0
Graham S. May 45,000 5.43 5.4063 01/02/07 153,000 387,731
John D. Rodwell 0 0 0 0 0
Richard J. Walsh 0 0 0 0 0
</TABLE>
_______________________
(1) All of the options granted to the named executive officers
vest over five years at the rate of 20% per year beginning on
the first anniversary of the date of grant, subject to
acceleration under certain conditions. The maximum term of
each option granted is ten years from the date of grant.
Annual option grants for the named and other executive officers
were deferred until January 1998.
(2) The exercise price of all stock options granted during the
last fiscal year is equal to the average of the high and low
sale prices of the common stock as reported on the NSM on the
respective dates the options were granted.
(3) These amounts represent certain assumed rates of appreciation
only. Actual gains, if any, on stock option exercises and
common stock holdings are dependent on the future performance
of the common stock and overall stock market conditions. There
is no assurance that the amounts reflected will be realized.
59
<PAGE>
The following table sets forth information regarding aggregated
exercises of stock options by the named executive officers during
fiscal year 1997 and fiscal year-end values of unexercised
options:
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at FY-End at FY-End (1) (2)
----------------- --------------------
(#) ($)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (#) ($) (1) Unexercisable Unexercisable
---- ---------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Thomas J. McKearn 0 0 353,000/285,000 0/0
Frederick M. Miesowicz 0 0 181,000/90,800 0/0
Graham S. May 0 0 0/45,000 0/0
John D. Rodwell 19,100 43,894 150,400/151,000 0/0
Richard J. Walsh 0 0 87,000/123,000 0/0
</TABLE>
________________________
(1) The dollar values in this column were calculated by
determining the difference between the fair market value of the
common stock underlying the options at fiscal year-end or the
date of exercise, as the case may be, and the exercise price of
the options.
(2) The fair market value of a share of common stock
(calculated as the average of the high and low sale prices as
reported on the NSM) on December 31, 1997 was $1.6094.
Stock Option Plan
The Company's 1995 Employee Stock Option Plan (the "Option
Plan") provides for grants of "incentive stock Options" within
the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code") and nonqualified stock options. The
Option Plan provides for issuance of up to 4,502,635 shares of
the Company's Common Stock, subject to adjustment in the event of
stock splits, stock dividend, combinations or other similar
changes in the capital structure of the Company. Under the
Option Plan, incentive stock options and nonqualified stock
options may be granted to officers and employees of the Company
and its subsidiaries and affiliate, or in certain instances to
consultants. As of September 30, 1998, there were options to
purchase 2,634,741 shares of Common Stock outstanding under the
Option Plan.
The Option Plan is administered by a committee of the Board
of Directors, which has sole discretion and authority, consistent
with the provisions of the Option Plan, to determine which
60
<PAGE>
eligible participants will receive options, the time at which
options will be granted and the character of the options, the
terms of the options granted, including vesting, and the number
of shares which will be subject to options granted under the
Option Plan.
In the event of a change in control of the Company, as
defined in the Option Plan, all outstanding options granted under
the Option Plan vest, and may at the discretion of the Board of
Directors or a committee of the Board of Directors be assumed by
or converted into options or securities of a successor
corporation.
The exercise price of options may not be less than the fair
market value of the Common Stock on the date of grant of the
option. Options are nontransferable, other than pursuant to the
laws of descent and distribution.
Employee Stock Purchase Plan
The Company also maintains a Stock Purchase Plan for its
eligible employees, intended to qualify as an "employee stock
purchase plan" under section 423 of the Code. Under this plan,
employees with a minimum amount of service are eligible to
purchase common stock of the Company, by regular payroll
deduction, at a 15% discount to the market. Employees can invest
1-10% of base compensation under this plan.
Section 401(k) Plan
The Company also maintains a retirement program under a plan
intended to qualify under Section 401(k) of the Code. Under the
plan, employees with a minimum amount of service can defer
income on a pretax basis. The Company matches contributions at a
level of $.50 for each $1.00 the employee contributes, to a
maximum of 6% of base salary. Employees may, subject to limits
established by the Internal Revenue Service, defer up to 10% of
base salary under the plan. In addition, the Company may provide
on a discretionary basis additional matching contributions.
Employment Agreements
Dr. Thomas J. McKearn served as the President of Cellcor on a
full-time basis since January 1998 through its closure in
September 1998. Prior to this assignment he served as the
Company's Chairman, Chief Executive Officer and President. Dr.
McKearn had entered into agreements with the Company pursuant to
which he earned or received (i) base salary of $298,012 in fiscal
year 1997, (ii) a restricted stock grant of 10,000 shares in each
of 1994, 1995, and 1996, and certain (iii) a stock option granted
effective January 3, 1994 to purchase up to an aggregate of
100,000 shares of Common Stock at an exercise price of
approximately $6.188 per share, with vesting determined by the
Compensation Committee based upon the meeting of certain
performance criteria, and (iv) a $2.3 million split-dollar life
insurance policy (described above) effective in 1995 through his
last employment date. The agreement provided Dr. McKearn was
entitled to one year's severance pay upon dismissal. Dr. McKearn
left the employment of the Company in September 1998.
Under the terms of severance agreements, Drs. Rodwell and May
will also be entitled to receive twelve months of salary if their
employment with the Company is terminated without cause. Dr.
Miesowicz left the employment of the Company in September 1998
and he will receive twelve months of salary under the terms of
his severance agreement.
61
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information as of
September 30, 1998, with respect to the beneficial ownership of
the Company's Common Stock by each person known by the Company to
be the beneficial owner of more than 5% of its outstanding Common
Stock, by each director, by each of the Company's five most
highly compensated executive officers for 1997, and by all
executive officers and directors as a group. Except as indicated
in the footnotes to the table, the persons named in the table
have sole voting and investment power with respect to all shares
of Common Stock beneficially owned by them. The number of shares
set forth below includes those shares of Common Stock issuable
pursuant to options which are exercisable or shares which are
convertible within 60 days of September 30, 1998.
Number of Shares
of Common Stock Percent
Name and Address of Beneficial Owner (1) Beneficially Owned of Class
- ---------------------------------------- ------------------ --------
Henry L. Hillman,
Elsie Hilliard Hillman and
C.G. Grefenstette, Trustees
2000 Grant Building
Pittsburgh, PA 15219 (2)........................ 5,551,524 9.40%
Ronald J. Brenner, Ph.D.
One Tower Bridge
Suite 1350
100 Front Street
West Conshohocken, PA 19428 (4)(5).............. 3,808,909 6.45%
Hillman Medical Ventures Partnerships
824 Market Street, Suite 900
Wilmington, DE 19801 (3)....................... 3,713,909 6.29%
Hal S. Broderson
One Tower Bridge
Suite 1350
100 Front Street
West Conshohocken, PA 19428 (4)................ 3,715,009 6.29%
Charles G. Hadley
One Tower Bridge
Suite 1350
100 Front Street
West Conshohocken, PA 19428 (4)................ 3,714,159 6.29%
62
<PAGE>
Directors and Executive Officers
- --------------------------------
Thomas J. McKearn (5)....................... 731,531 1.31%
Frederick M. Miesowicz (5).................. 181,000 *
John D. Rodwell (5)(6)...................... 259,300 *
Richard J. Walsh (5)........................ 5,000 *
John E. Bagalay, Jr. (5).................... 8,400 *
Stephen K. Carter (7)....................... 0 *
James A. Grigsby............................ 8,400 *
Robert F. Hendrickson (5)................... 14,200 *
Graham S. May (5)........................... 9,000 *
H. Joseph Reiser (7)........................ 0 *
All executive officers
and directors as a group (16 persons) (5).. 5,091,952 8.62%
_________________
*Indicates amount is less than 1%.
(1) All information with respect to beneficial ownership of
shares is based upon filings made by the respective beneficial
owners with the Securities and Exchange Commission or information
provided by such beneficial owners to the Company. Percent of
class for each person and all executive officers and directors as
a group is based on shares of Common Stock outstanding on
September 30, 1998 and includes shares subject to options held by
the individual or the group, as applicable which are exercisable
or as become exercisable within 60 days following such date.
(2) Includes 116,325 shares of Common Stock held by the
Henry L. Hillman Trust U/A dated November 18, 1985 (the "HLH
Trust"), 20,625 shares of Common Stock held by Hillman 1984
Limited Partnership ("Hillman 1984"), 4,125 shares of Common Stock
held by HCC Investments, Inc. ("HCC"), 1,696,540 shares of Common
Stock held by Juliet Challenger, Inc. ("JCI"), 367,445 shares of
Common Stock held by Hillman Medical Ventures 1989 L.P. ("HMV
1989"), 176,470 shares of Common Stock held by Hillman Medical
Ventures 1990 L.P. ("HMV 1990"), 486,622 shares of Common Stock
held by Hillman Medical Ventures 1991 L.P. ("HMV 1991"), 110,522
shares of Common Stock held by Hillman Medical Ventures 1992 L.P.
("HMV 1992"), 1,094,700 shares of Common Stock held by Hillman
Medical Ventures 1994 L.P. ("HMV 1994"), and 1,478,150 shares of
Common Stock held by Hillman Medical Ventures 1995 L.P. ("HMV
1995"). JCI, HCC, and Wilmington Securities, Inc. (which (i) owns
Hillman Properties West, Inc., the sole general partner of Hillman
1984, and (ii) is the sole general partner of Hillman/Dover L.P.,
one of the general partners of HMV 1989, HMV 1990, HMV 1991, HMV
1992, HMV 1994 and HMV 1995 (collectively, "Hillman Medical
Ventures")) are private investment companies owned by Wilmington
Investments, Inc., which, in turn, is owned by The Hillman
Company. The Hillman Company is a private firm engaged in
diversified investments and operations, which is controlled by the
HLH Trust. The trustees of the HLH Trust are Henry L. Hillman,
Elsie Hilliard Hillman and C.G. Grefenstette (the "HLH Trustees").
Consequently, the HLH Trustees share voting and investment power
with respect to the shares held of record by the HLH Trust, JCI,
HCC, Hillman 1984, and Hillman Medical Ventures and may be deemed
to be the beneficial owners of such shares. Does not include an
aggregate of 155,100 shares of Common Stock held by four
irrevocable trusts for the benefit of members of the Hillman
family (collectively, the "Family Trusts"), as to which shares the
HLH Trustees (other than Mr. Grefenstette) disclaim beneficial
63
<PAGE>
interest. C.G. Grefenstette and Thomas G. Bigley are trustees of
the Family Trusts and, as such, share voting and investment power
over the shares held by the Family Trusts.
(3) Includes 367,445 shares of Common Stock held by HMV
1989, 176,470 shares of Common Stock held by HMV 1990, 486,622
shares of Common Stock held by HMV 1991, 110,522 shares of Common
Stock held by HMV 1992, 1,094,700 shares of Common Stock held by
HMV 1994 and 1,478,150 shares of Common Stock held by HMV 1995.
(4) Includes 3,713,909 shares held by Hillman Medical
Ventures. Each of Drs. Broderson and Brenner and Mr. Hadley is a
general partner of Cashon Biomedical Associates, L.P., which is a
general partner of the Hillman Medical Ventures Partnerships and,
therefore, may be deemed to be the beneficial owner of such
shares. Drs. Broderson and Brenner and Mr. Hadley share voting and
investment power with respect to the shares held by Hillman
Medical Ventures and disclaim beneficial ownership of the
1,992,715 shares beneficially owned by the HLH Trustees, Hillman
1984, HCC, JCI and the Family Trusts referred to in note 2 above.
(5) Includes shares of Common Stock which the named persons
have the right to acquire upon the exercise of stock options,
within sixty days of September 30, 1998, as follows: Dr. McKearn:
388,000; Dr. Miesowicz: 181,000; Dr. Rodwell: 194,300; Dr. May
9,000; Dr. Brenner: 8,400; Dr. Bagalay: 8,400; Mr. Grigsby: 4,400;
and Mr. Hendrickson: 10,200. The group number includes the shares
of Common Stock which the named persons and other executive
officer have the right to acquire upon the exercise of stock
options, within sixty days of September 30, 1998. Dr. McKearn,
Dr. Miesowicz and Mr. Walsh are no longer employed by the Company.
(6) Includes 5,000 shares held by Dr. Rodwell's wife as
custodian for two children under the Pennsylvania Uniform Gift to
Minors Act. Dr. Rodwell disclaims beneficial ownership of the
5,000 shares held by his wife.
(7) Dr. Reiser was elected President and Chief Executive
Officer and as a director on August 24, 1998; Dr. Carter was
elected as a director on September 14, 1998.
64
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Authorized Stock; Issued and Outstanding Shares
As of the date of this Prospectus, the Company's authorized
capital stock consists of 89,600,000 shares of Common Stock, par
value $0.01 per share, and 5,400,000 shares of preferred stock,
$0.01 per share. 200,000 shares of Series C Junior participating
Preferred Stock have been authorized for issuance pursuant to the
Company's Shareholder Rights Agreement. The description below is
a summary of all material provisions of the Company's common
stock and preferred stock.
Common Stock
The holders of Common Stock are entitled to one vote per
share on all matters voted on by the stockholders, including
elections of directors. Except as otherwise required by law or
as provided in any resolutions adopted by the Board with respect
to the preferred stock of the Company, the holders of shares of
Common Stock will exclusively possess all voting power. Subject
to the preferential rights, if any, of holders of any then
outstanding preferred stock, the holders of Common Stock are
entitled to receive dividends when, as and if declared by the
Board of Directors of the Company out of funds legally available
therefor. The terms of the Common Stock do not grant to the
holders thereof any preemptive, subscription, redemption,
conversion or sinking fund rights. Subject to the preferential
rights of holders of any then outstanding preferred stock, the
holders of Common Stock are entitled to share ratably in the
assets of the Company legally available for distribution to
stockholders in the event of the liquidation, dissolution or
winding up of the Company.
As of September 30, 1998, 58,602,852 shares of Common Stock
were issued and outstanding, and 1,260,000 shares of Common Stock
were reserved for issuance upon the exercise of certain
outstanding warrants and approximately 6,694,623 shares were
reserved for issuance pursuant to stock option plans and Employee
Stock Purchase Plans. The Company has issued to Dow, two
warrants to purchase an aggregate of 260,000 shares of Common
Stock at $3.00 per share in connection with the Company's
acquisition of and amendments to an exclusive license from Dow.
Subsequent to September 30, 1998, the Company has issued to
Berlex warrants for the purchase of one million shares of Common
Stock at an exercise price of $1.0016 per share; to Kingsbridge,
200,000 warrants at $1.016 per share; and to the May Davis Group,
as placement agent for the Equity Line Agreement, 100,000
warrants at $2.00 per share. Pursuant to the registration statement
of which this prospectus forms a part, the Company has registered
pursuant to Rule 415 under the Securities Act of 1933, as amended,
8,000,000 shares of its common stock which may be sold from time to time.
The Certificate of Incorporation and Bylaws of the Company
contain certain provisions which may have the effect of delaying,
deferring, or preventing a change of control of the Company. See
"Risk Factors - Anti-takeover Considerations". In addition, the
Board generally has the authority, without further action by
stockholders, to fix the relative powers, preferences, and rights
of the unissued shares of preferred stock of the Company.
Provisions which could discourage an unsolicited tender offer or
takeover proposal, such as extraordinary voting, dividend,
redemption, or conversion rights, could be included in such
preferred stock. For a description of certain rights which may
also affect a change-in-control transaction, see "Description of
Capital Stock - Preferred Stock."
65
<PAGE>
Preferred Stock
Pursuant to the Certificate of Incorporation, the Company
has the authority to issue up to 5,400,000 shares of preferred
stock, $0.01 par value per share, in one or more series as
determined by the Board of Directors of the Company. The Board
of Directors of the Company may, without further action by the
stockholders of the Company, issue one or more series of
preferred stock and fix the rights and preferences of such
shares, including the dividend rights, dividend rates, conversion
rights, exchange rights, voting rights, terms of redemption,
redemption price or prices, liquidation preferences and the
number of shares constituting any series or the designation of
such series. Shares of any series of preferred stock of the
Company may be represented by depositary shares evidenced by
depositary receipts, each representing a fractional interest in a
share of preferred stock of such series and deposited with a
depository. The use of this mechanism could increase the number
of interests in preferred stock issued by the Company. The
rights of the holders of Common Stock will be subject to, and may
be adversely affected by, the rights of holders of preferred
stock issued by the Company in the future. In addition, the
issuance of preferred stock could have the effect of making it
more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, control of the Company.
One Series C Junior Participating preferred Stock purchase
right which has a redemption value of $.01 was distributed as a
dividend for each of the Company's common shares held of record
as of the close of business on June 30, 1998, or issued
thereafter (with certain exceptions). The rights will be
exercisable if a person or a group acquires beneficial ownership
of 20% or more of the Company's Common Stock and can be made
exercisable by action of the Company's Board of Directors if a
person or a group commences a tender offer which would result in
such person or group beneficially owning 20% or more of the
Company's Common Stock. Each right will entitle the holder to
buy one one-thousandth of a share of Series C Junior
Participation Preferred Stock for $20. The rights expire on June
19, 2008.
Transfer Agent and Registrar
Chase Mellon Shareholder Services, L.L.C. is the transfer
agent and registrar for the Common Stock.
Section 203 of the Delaware General Corporation Law
The Company is subject to the provisions of Section 203 of
the Delaware General Corporation Law ("Section 203"). Under
Section 203, certain "business combinations" between a Delaware
corporation whose stock generally is publicly traded or held of
record by more than 2,000 stockholders and an "interested
stockholder" are prohibited for a three-year period following the
date that such a stockholder became an interested stockholder,
unless (i) the corporation has elected in its original
certificate of incorporation not to be governed by Section 203;
(ii) the business combination was approved by the Board of
Directors of the corporation before the other party to the
business combination became an interested stockholder, (iii) upon
consummation of the transaction that made it an interested
stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the commencement
of the transaction (excluding voting stock owned by directors who
are also officers or held in employee benefit plans in which the
employees do not have a confidential right to tender or vote
stock held by the plan); or (iv) the business combination was
approved by the Board of Directors of the corporation and
ratified by two-thirds of the voting stock which the interested
stockholder did not own. The three-year prohibition also does
not apply to certain business combinations proposed by an
interested stockholder following the announcement or notification
of certain extraordinary transactions involving the corporation
66
<PAGE>
and a person who had not been an interested stockholder during
the previous three years or who became an interested stockholder
with the approval of the majority of the corporation's directors.
The term "business combination" is defined generally to include
mergers or consolidations between a Delaware corporation and an
interested stockholder, transactions with an interested
stockholder involving the assets or stock of the corporation or
its majority-owned subsidiaries and transactions which increase
an interested stockholder's percentage ownership of stock. The
term "interested stockholder" is defined generally as a
stockholder who, together with affiliates and associates, owns
(or, within three years prior, did own) 15% or more of a Delaware
corporation's voting stock. Section 203 could prohibit or delay
a merger, takeover or other change in control of the Company and
therefore could discourage attempts to acquire the Company.
67
<PAGE>
PLAN OF DISTRIBUTION
We may sell the common stock registered hereby from time to time to
one or more underwriters for public offering and sale by them or may sell
the common stock to investors directly or through agents. Any such underwriter,
investor or agent involved in the offer and sale of the common stock will be
named in the applicable prospectus supplement.
Underwriters may offer and sell the common stock at a fixed price or
prices, which may be changed, at market prices prevailing at the time of sale,
at prices related to such prevailing market prices or at negotiated prices. In
connection with the sale of the common stock, underwriters may receive
compensation from the Company in the form of underwriting discounts or
commissions and may also receive commissions from purchasers of the common stock
for whom they may act as agent. Underwriters may sell the common stock to or
through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters and/or commissions
from the purchasers for whom they may act as agent. We also may, from time to
time, authorize dealers, acting as our agents, to offer and sell the common
stock upon the terms and conditions as set forth in the applicable prospectus
supplement.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of the common stock, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable prospectus supplement. Dealers and agents
participating in the distribution of the common stock may be deemed to be
underwriters, and any discounts and commissions received by them may be deemed
to be underwriting discounts and commissions. Underwriters, dealers and agents
may be entitled, under agreements entered into with the Company, to
indemnification against and contribution toward certain civil liabilities.
Our common stock is listed on the Nasdaq Stock Market under the symbol
"CYTO."
We will bear all expenses of registering the common stock hereunder.
No common stock may be sold without delivery of the applicable
prospectus supplement describing the method and terms of each offering of any
such common stock.
68
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby
will be passed upon for the Company by Donald F. Crane, Jr. Esq.,
Vice President and General Counsel to Cytogen Corporation.
EXPERTS
The consolidated financial statements of the Company
as of December 31, 1997 and 1996, and for each of the three
years in the period ended December 31, 1997 included in this
Prospectus and registration statement have been audited by Arthur
Andersen LLP, independent public accounts, as indicated in their
report with respect thereto, and are included herein in reliance
upon the authority of said firm as experts in giving said
reports. Reference is made in their report which is qualified as
to the ability of the Company to continue as a going concern.
69
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
Annual Financial Statements
Report of Independent Public Accountants . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 . . . . . F-3
Consolidated Statements of Operations--Years Ended December 31, 1997, 1996
and 1995. . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Stockholders' Equity--Years Ended
December 31, 1997, 1996 and 1995. . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows--Years Ended December 31, 1997, 1996
and 1995. . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . F-7
Interim Financial Statements
Consolidated Balance Sheets as of September 30, 1998
and December 31, 1997 . . . . . . . . . . . . . . . . . . . . F-19
Consolidated Statements of Operations--For the Nine Months Ended
September 30, 1998 and 1997 . . . . . . . . . . . . . . . . F-20
Consolidated Statements of Stockholders' Equity (Deficit)--
For the Nine Months Ended September 30, 1998. . . . . . . . F-21
Consolidated Statements of Cash Flows--For the Nine Months Ended
September 30, 1998 and 1997. . . . . . . . . . . . . . . . . F-22
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . F-23
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CYTOGEN CORPORATION:
We have audited the accompanying consolidated balance sheets of CYTOGEN
Corporation (a Delaware Corporation) and Subsidiaries as of December 31, 1997
and 1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CYTOGEN Corporation and
Subsidiaries as of December 31, 1997 and 1996 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company will require additional funding
to continue operations which raises substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.
As explained in Note 11 to the Consolidated Financial Statements, the
Company has given retroactive effect to the change in accounting for its
convertible security having a beneficial conversion feature.
ARTHUR ANDERSEN LLP
Philadelphia, PA
March 31, 1998
F-2
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(all amounts in thousands, except share data)
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1996
-------------------------
Assets:
<S> <C> <C>
Current Assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . $ 7,401 $ 20,296
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . - 4,469
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . 4,064 439
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 443 258
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . 289 241
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 12,197 25,703
---------- ----------
Property and Equipment:
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . 10,126 10,023
Equipment and furniture . . . . . . . . . . . . . . . . . . . . . . . 7,743 7,248
---------- ----------
17,869 17,271
Less-- Accumulated depreciation and amortization . . . . . . . . . . . (13,917) (12,455)
---------- ----------
Net property and equipment . . . . . . . . . . . . . . . . . . . . . 3,952 4,816
---------- ----------
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,486 9,916
Other Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,134 1,509
---------- ----------
$ 27,769 $ 41,944
========== ==========
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . $ 5,876 $ 5,338
Current portion of long-term liabilities . . . . . . . . . . . . . . . 1,739 1,824
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . 7,615 7,162
---------- ----------
Long-Term Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 10,171 1,855
---------- ----------
Commitments and Contingencies (Note 15)
Stockholders' Equity:
Preferred stock, $.01 par value, 5,400,000 shares authorized-
Series A Convertible and Exchangeable Preferred Stock, $.01 par
value, 1,000 shares authorized, issued and outstanding in 1997 and 1996
(liquidation value of $5,000). . . . . . . . . . . . . . . . . . - -
Series B Convertible Preferred Stock, $.01 par value, 750 shares authorized,
issued and outstanding in 1997 (liquidation value of $7,500) . . - -
Common stock, $.01 par value, 89,600,000 shares authorized, 51,170,000 and
51,079,000 shares issued and outstanding in 1997 and 1996,
respectively. . . . . . . . . . . . . . . . . . . . . . . . . . . . 512 511
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . 298,212 289,098
Unrealized (loss) on short-term investments. . . . . . . . . . . . . . - (5)
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . (288,741) (256,677)
--------- ----------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . 9,983 32,927
--------- ----------
$ 27,769 $ 41,944
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(all amounts in thousands except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
---------------------------------
<S> <C> <C> <C>
Revenues:
Product . . . . . . . . . . . . . . . . . . . . . . . $ 5,252 $ 1,507 $ 1,377
Royalties. . . . . . . . . . . . . . . . . . . . . . . 3,282 - -
License and contract . . . . . . . . . . . . . . . . . 5,886 4,223 3,608
--------- --------- ---------
Total Revenues. . . . . . . . . . . . . . . . . . . 14,420 5,730 4,985
Operating Expenses:
Research and development . . . . . . . . . . . . . . . 25,758 20,915 22,594
Acquisition of in-process technology . . . . . . . . . 7,500 - 45,878
Selling and marketing. . . . . . . . . . . . . . . . . 5,492 4,143 4,493
General and administrative . . . . . . . . . . . . . . 6,948 5,534 4,804
--------- --------- ---------
Total Operating Expenses. . . . . . . . . . . . . . 45,698 30,592 77,769
--------- --------- ---------
Operating Loss . . . . . . . . . . . . . . . . . . (31,278) (24,862) (72,784)
Gain on Investments, net . . . . . . . . . . . . . . . . 1,167 1,547 857
Interest Expense . . . . . . . . . . . . . . . . . . . . (601) (451) (593)
--------- --------- ---------
Net Loss . . . . . .. . . . . . . . . . . . . . . . . . . (30,712) (23,766) (72,520)
Dividends Including Deemed Dividends on Preferred Stock . (1,352) (4,571) -
--------- --------- ---------
Net Loss to Common Stockholders . . . . . . . . . . . . . $(32,064) $(28,337) $(72,520)
========= ========= =========
Basic and Diluted Net Loss per Common Share . . . . . . . $ (0.63) $ (0.59) $ (2.11)
========= ========= =========
Basic and Diluted Weighted Average Common
Shares Outstanding . . . . . . . . . . . . . . . . . . 51,134 48,401 34,333
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(All amounts in thousands, except share data)
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
Additional on Accu- Total
Preferred Common Paid-in Short-Term mulated Stockholders'
Stock Stock Capital Investments Deficit Equity
----------- -------- ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ - $247 $159,941 $ - $(155,820) $ 4,368
Issued 5,223,182 shares of common
stock . . . . . . . . . . . . . - 52 21,477 - - 21,529
Conversion of redemable common
stock into common stock. . . . . - 3 1,372 - - 1,375
Issued 10,748,800 shares of common
stock in connection with the
acquisitions of CytoRad Inc. and
Cellcor Inc. . . . . . . . . . . - 107 50,802 - - 50,909
Issued 5,144,388 shares of common
stock in connection with a
subscription offering. . . . . . - 51 19,480 - - 19,531
Granted 15,000 shares of common
stock . . . . . . . . . . . . . - - 50 - - 50
Unrealized gain on investments. . . - - - 34 - 34
Net loss. . . . . . . . . . . . . . - - - - (72,520) (72,520)
------ ----- --------- ------ ----------- ---------
Balance, December 31, 1995 - 460 253,122 34 (228,340) 25,276
Issued 1,000 shares of series A
preferred stock . . . . . . . . - - 4,854 - - 4,854
Series A preferred stock conversion
discount deemed dividends. . . . - - 4,571 - (4,571) -
Issued 5,029,402 shares of common
stock. . . . . . . . . . . . . . - 51 26,525 - - 26,576
Granted 10,000 shares of common
stock. . . . . . . . . . . . . . - - 26 - - 26
Unrealized loss on investments. . . - - - (39) - (39)
Net loss. . . . . . . . . . . . . . - - - - (23,766) (23,766)
------ ----- --------- ------ ------------- ---------
Balance, December 31, 1996 - 511 289,098 (5) (256,677) 32,927
Issued 750 shares of series B
preferred stock . . . . . . . . - - 7,455 - - 7,455
Issued 100,282 shares of common
stock. . . . . . . . . . . . . . - 1 335 - - 336
Series B preferred stock conversion
discount deemed dividends. . . . - - 1,324 - (1,324) -
Accrued dividends on series B
preferred stock. . . . . . . . . - - - - (28) (28)
Unrealized gain on investments. . . - - - 5 - 5
Net loss . . . . . . . . . . . . . - - - - (30,712) (30,712)
------ ----- --------- -------- ----------
Balance, December 31, 1997 $ - $512 $298,212 $ - $(288,741) $ 9,983
====== ===== ========= ======== ========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
-----------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . $(30,712) $(23,766) $(72,520)
--------- --------- ---------
Adjustments to Reconcile Net Loss to Cash Used for
Operating Activities:
Depreciation and Amortization . . . . . . . . . . . . . . 1,518 1,515 1,529
Write Down of Land . . . . . . . . . . . . . . . . . . . . 384 - -
Imputed Interest . . . . . . . . . . . . . . . . . . . . . 261 451 593
Stock and Stock Option Grants . . . . . . . . . . . . . . 45 70 78
Acquisition of In-Process Technology For
Stock Consideration. . . . . . . . . . . . . . . . . . . - - 45,878
Inventory Writedown . . . . . . . . . . . . . . . . . . . - - 2,926
Changes in Assets and Liabilities,
Net of Effect from Acquisitions:
Accounts Receivable, net . . . . . . . . . . . . . . . (3,625) (155) (255)
Inventories . . . . . . . . . . . . . . . . . . . . . . (185) 98 (82)
Other Assets . . . . . . . . . . . . . . . . . . . . . (57) 162 760
Accounts Payable and Accrued Liabilities . . . . . . . 540 (1,091) (2,170)
-------- --------- ---------
Total Adjustments . . . . . . . . . . . . . . . . . . (1,119) 1,050 49,257
-------- --------- ---------
Net Cash Used For Operating Activities . . . . . . . . (31,831) (22,716) (23,263)
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) Decrease in Short-Term Investments . . . . . . . . 4,474 (3,307) (1,167)
(Increase) in Restricted Cash . . . . . . . . . . . . . . . . (570) (9,533) (383)
Purchases of Property and Equipment . . . . . . . . . . . . . (654) (886) (595)
Net Cash Acquired in CytoRad Acquisition . . . . . . . . . . - - 10,455
Net Cash Used to Acquire Cellcor Inc. . . . . . . . . . . . . - - (3,463)
-------- --------- ---------
Net Cash Provided By (Used In) Investing Activities . . 3,250 (13,726) 4,847
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Note Payable . . . . . . . . . . . . . . . . . 10,000 - -
Payments of Long-Term Debt . . . . . . . . . . . . . . . . . (2,030) (2,243) (2,461)
Net Proceeds from Issuance of Common Stock. . . . . . . . . . 261 26,576 41,060
Net Proceeds from Issuance of Series A Preferred Stock. . . . - 4,854 -
Net Proceeds from Issuance of Series B Preferred Stock. . . . 7,455 - -
Redemption of Common Stock . . . . . . . . . . . . . . . . . - - (332)
-------- --------- ---------
Net Cash Provided By Financing Activities . . . . . . . 15,686 29,187 38,267
-------- --------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents. . . . . (12,895) (7,255) 19,851
Cash and Cash Equivalents, Beginning of Year . . . . . . . . 20,296 27,551 7,700
-------- --------- ---------
Cash and Cash Equivalents, End of Year . . . . . . . . . . . $ 7,401 $ 20,296 $ 27,551
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Business
CYTOGEN Corporation ("CYTOGEN" or the "Company") is a biopharmaceutical
company engaged in the development, commercialization and marketing of
products to improve diagnosis and treatment of cancer and other disease.
In March 1997, CYTOGEN received clearance from the U.S. Food and Drug
Administration ("FDA") to market Quadramet , CYTOGEN's product for the
relief of pain due to cancers that have spread to the skeleton and that can
be visualized on a bone scans. In October 1996, CYTOGEN received marketing
approval from FDA for the ProstaScint imaging agent, CYTOGEN's prostate
cancer diagnostic imaging product. In December 1992, FDA approved OncoScint
CR/OV imaging agent, CYTOGEN's colorectal and ovarian cancer specific
diagnostic imaging product, for single administration per patient. In
November 1995, FDA approved an expanded indication allowing for repeat
administration of OncoScint CR/OV. All three products are currently
available in the market place. Operations of the Company are subject to
certain risks and uncertainties including, but not limited to uncertainties
related to access to capital, product market acceptance, product efficacy
and clinical trials, technological uncertainty, uncertainties of future
profitability, dependence on collaborative relationships and key personnel.
The Company has incurred losses since its inception and expects to incur
significant operating losses in the future. There can be no assurance that
the Company will ever be able to commercialize successfully its products or
that profitability will ever be achieved.
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and satisfaction
of liabilities in the normal course of business. Management believes the
Company's existing capital resources and other available sources of
financing will be adequate to fund the Company's operations into 1999.
Additional financings are available under certain conditions through the
sale of Preferred Stock under the financing commitment described in Note 11.
Currently, the Company does not meet all of the conditions to draw down
additional funds. Based on the Company's historical ability to raise
capital and current market conditions, the Company believes other financing
alternatives (including arrangements with collaborative partners) are
available. There can be no assurance that the financing commitment
described in Note 11 or other financial alternatives will be available when
needed or at terms commercially acceptable to the Company. If necessary,
management believes it has the ability to reduce its operating expenses so
the Company will have adequate cash flow to sustain operations into 1999 and
beyond. If an operating expense reduction plan was implemented, it would
require the Company to delay, scale back or eliminate significant aspects
of the Company's operations.
Basis of Consolidation
The consolidated financial statements include the accounts of CYTOGEN and
its subsidiaries, AxCell Biosciences Corporation ("AxCell"), Cellcor Inc.
("Cellcor") and Targon Corporation ("Targon"). Intercompany balances and
transactions have been eliminated in consolidation. Unless the context
otherwise indicates, as used herein, the term "Company" refers to CYTOGEN
and its subsidiaries, taken as a whole.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
F-7
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Restatement and Reclassification
Reference is made to Note 11 regarding the 1996 financial statements
restatement to correct the accounting presentation of a deemed dividend.
Also, restricted cash has been reclassified as non-current in the 1995 and
1996 financial statements since its use is restricted for Targon.
Statement of Cash Flow
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. Cash paid for interest expense was $524,000, $307,000 and
$399,000 in 1997, 1996 and 1995, respectively. See Note 4 for discussion
of Cellcor and CytoRad Incorporated ("CytoRad') acquisitions.
Restricted Cash
Restricted cash consists of cash restricted to use for the operations of
Targon (see Note 2).
Accounts Receivable
As of December 31, 1997 and 1996, accounts receivable were net of an
allowance for doubtful accounts of $576,000 and $546,000, respectively. The
Company charged to expense $30,000 and $10,000 as a provision for doubtful
accounts in 1997 and 1996, respectively. As of December 31, 1997,
approximately 75% of the Company's accounts receivable balance was due from
The DuPont Merck Pharmaceutical Company ("DuPont Merck").
Inventory
The Company's inventory is primarily related to ProstaScint and
OncoScint CR/OV. Inventory is stated at the lower of cost or market using
the first-in, first-out method and consisted of :
1997 1996
---------- ----------
Raw Materials. . . . . . . . . . . . . . . $ 145,000 $ 74,000
Work-in-process. . . . . . . . . . . . . . 158,000 -
Finished Goods . . . . . . . . . . . . . . 140,000 184,000
--------- ---------
$ 443,000 $ 258,000
========= =========
F-8
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Property and Depreciation
Equipment and furniture are stated at cost net of depreciation and a
$215,000 reserve for idle equipment. Leasehold improvements are amortized
on a straight-line basis over the lease period or the estimated useful life,
whichever is shorter. Equipment and furniture are depreciated on a
straight-line basis over five years. Expenditures for repairs and
maintenance are charged to expense as incurred. For 1997, 1996 and 1995,
repairs and maintenance expenses were $350,000, $394,000 and $274,000,
respectively.
Other Assets
Other assets consist primarily of undeveloped real property with a net
book value of $900,000, which is valued at the lower of cost or market.
During 1997, the Company charged to expense $384,000 to write down the
property to estimated market value.
Revenue Recognition
Product and royalty revenues include product sales by CYTOGEN to its
customers. Royalties are earned based on Quadramet sales by DuPont Merck.
Product sales are recognized upon shipment of finished goods. Royalties are
based on a percentage of sales of Quadramet or guaranteed contractual
minimum royalty payments, whichever is greater.
License and contract revenues include milestone payments and fees under
collaborative agreements with third parties, revenues from contract
manufacturing and research services, and revenues from other miscellaneous
sources. The Company's contract manufacturing services include filling,
testing, validation, and process development of monoclonal antibodies;
process development and clinical development of biopharmaceutical products;
and the preclinical manufacturing of an antibody product. 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. Revenues from up-front
payments are recognized when the Company has no obligation to return the
fee under any circumstances.
Research and Development
Research and development expenditures consist of projects conducted by
the Company and payments made to sponsored research programs and
consultants. All research and development costs are expensed as incurred.
Research and development expenditures for customer sponsored programs were
$1.5 million, $1.1 million and $200,000 in 1997, 1996 and 1995,
respectively.
Patent Costs
Patent costs are expensed as incurred.
F-9
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Common Stock Outstanding
As a result of the Cellcor merger, the issued and outstanding shares of
Cellcor common stock and preferred stock ("Cellcor Shares") were converted
into the right to receive shares of CYTOGEN common stock. As of December
31, 1997, certain holders of Cellcor Shares had not yet exchanged their
Cellcor Shares for shares of CYTOGEN common stock. For accounting purposes,
all Cellcor Shares were deemed exchanged for issued and outstanding shares
of CYTOGEN common stock as of the date of the Cellcor merger (see Note 4).
Net Loss Per Share
Effective for the year ended December 31, 1997, the Company adopted
Statement of Financial Accounting Standards ("SFAS"), No. 128, "Earnings Per
Share" ("SFAS 128"). SFAS 128 requires the presentation of basic earnings
(loss) per share and diluted earnings (loss) per share. Basic loss per
share is based on the average numbers of common shares outstanding during
the year. Diluted loss per share is the same as basic loss per share, as
the inclusion of common stock equivalents would be antidilutive since the
Company incurred losses in prior years. This pronouncement had no effect
on the Company's previously reported net loss per share, since the Company
incurred losses in prior years.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, which establishes standards for reporting and disclosure of
comprehensive income is effective for interim and annual periods beginning
after December 15, 1997. Reclassification of financial information for
earlier periods presented for comparative purposes is required under SFAS
No. 130. Although this statement requires additional disclosures in the
Company's consolidated financial statements, its adoption will not have any
impact on the Company's financial position or consolidated results of
operations. The Company will adopt SFAS No. 130 in 1998.
In June 1997, the FASB issued SFAS No. 131, which establishes standards
for reporting of information about operating segments and requires the
reporting of selected information about operating segments in interim
financial statements, is effective for fiscal years beginning after December
15, 1997. Adoption of the statement will have no effect on the Company's
financial position or consolidated results of operations. The Company is
presently studying the future effects of SFAS No. 131 on the presentation
of its segment information and based on current circumstances, does not
believe the effect of the adoption will be material.
In July 1997, the Emerging Issues Task Force (EITF) issued EITF 96-16
which establishes standards for an investee when the investor has a majority
of the voting interest but the minority stockholders have certain approval
or veto rights. EITF 96-16 is effective after July 24, 1997 for all new
investment agreements and is effective in the fourth quarter of 1998 on
agreements in effect prior to July 24, 1997. The Company intended to adopt
EITF 96-16 in the fourth quarter of 1998 for its 99.75% investment in Targon
(see Note 2) since that agreement was entered into in September 1996 and
adopt the equity method of accounting for this investment. As discussed in
Note 2, on March 31, 1998, the Company's ownership interest in Targon was
reduced to 49.875%. As a result, beginning in the first quarter of 1998,
the Company will account for Targon on the equity method and retroactively
adopt 96-16. The use of the equity method would have had no effect in the
Company's previously reported net loss, stockholders' equity or cash flows.
Using the equity method, $7.5 million of charges to in-process technology
F-10
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
and approximately $1.9 million of research and development expense in the
1997 statement of operations, will be reclassified to "Equity in loss in
research and development subsidiary". The effect on the 1996 statement of
operations will be immaterial. The primary effect on the December 31, 1997
balance sheet is the reclassification of restricted cash to "Investment in
Subsidiary". All other changes will be immaterial.
2. TARGON CORPORATION:
Targon was established in September 1996 pursuant to agreements between
CYTOGEN and Elan. Targon is a majority-owned (99.75%) subsidiary of
CYTOGEN. Elan purchased 932,535 shares of CYTOGEN common stock for $5
million and 1,000 shares of CYTOGEN's newly created Series A Convertible
Preferred Stock ("Series A") for $5 million, which proceeds are being used
to fund Targon. The Series A has a liquidation value of $5 million or $5,000
per share. On March 31, 1998 Elan exchanged the Series A for 50% of
CYTOGEN's interest in Targon. Elan is entitled through March 31, 2003 to
exercise a warrant to purchase up to 1 million shares of CYTOGEN common
stock, at an exercise price per share which escalates from $9.00 to $14.00
over the term of the warrant. Prior to the exchange of the Series A into
CYTOGEN's interest in Targon, Elan had a right to convert the Series A into
shares of common stock (see Note 11). As a result of the exchange, all
rights to conversion into common stock were terminated.
In July 1997, Targon acquired from Elan, an exclusive worldwide license
for Morphelan for an up-front license cash payment of $7.5 million (see Note
9). The related technology will be utilized by Targon in the development
and clinical trial testing of an analgesic therapy for moderate and severe
pain. Given the development stage status of the related technology, the
$7.5 million license fee payment was recorded as an in-process research and
development charge in the 1997 statement of operations. Additional payments
may be due Elan by Targon if certain milestones are met.
3. ELAN CORPORATION:
In 1995, CYTOGEN entered into an agreement with Elan under which both
parties initiated a research program to combine CYTOGEN's Genetic Diversity
Library technology with Elan's drug delivery system technology to
collaboratively develop orally administered products. In January 1997,
Elan was granted the worldwide rights to certain oral drug delivery and
other products derived from the collaboration. Elan provided the funding
necessary for the Company to fulfill its obligations under the research
program. During 1997 and 1996, CYTOGEN recorded $924,000 and $1.3 million,
respectively, in contract revenues from Elan. CYTOGEN has charged to
expense all costs incurred in fulfilling its obligation under this
arrangement.
4. CELLCOR, INC. AND CYTORAD INCORPORATED:
In October 1995, CYTOGEN completed its acquisition of Cellcor and the
related subscription offering (the "Subscription Offering"). As a result,
CYTOGEN issued (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 million, and reserved for
issuance up to 606,952 shares of CYTOGEN common stock issuable upon the
exercise of the options that were outstanding under the Cellcor employee
stock option plans at the time of the merger. The transaction was accounted
for by using the purchase method of accounting, whereby the Company recorded
a one-time, non-cash charge of approximately $26.2 million for the
F-11
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
acquisition of technology rights in the 1995 statement of operations,
representing the amount by which the purchase price exceeded the fair value
of net assets acquired from Cellcor.
In February 1995, CYTOGEN completed its acquisition of CytoRad, under
which CYTOGEN exchanged for each outstanding CytoRad unit (i) 1.5 shares of
CYTOGEN common stock, (ii) a warrant to acquire one share of CYTOGEN common
stock (which expired on 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 CYTOGEN common stock. On February 29, 1996,
the Company announced that the CVRs expired by their terms and were of no
further value. Accordingly, the Company no longer had an obligation to
issue shares of its common stock to holders of CVRs on January 31, 1997.
As a result of the merger, the Company acquired $11.7 million of CytoRad's
cash and securities, before payment of certain transaction costs. In
addition, CYTOGEN recorded a charge of approximately $19.7 million for
acquisition of technology and marketing rights, representing the amount by
which the purchase price exceeded the fair value of the net assets acquired
from CytoRad.
The acquisition of technology and marketing rights of Cellcor and CytoRad
was charged to the statement of operations as an in-process research and
development charge given the development stage nature of the related
technology.
5. DUPONT MERCK:
Pursuant to the terms of the DP/Merck Agreement between CYTOGEN and
DuPont Merck, CYTOGEN received from DuPont Merck (i) $1.3 million, $1.5
million and $1.5 million in 1995, 1996 and 1997, respectively, to fund the
clinical programs to expand the use and marketing of Quadramet; and (ii)
$2.0 million milestone payment in 1997 upon the FDA approval of
Quadramet. The DP/Merck Agreement further provides for the Company to
receive royalty revenues based on a percentage of sales of Quadramet or a
guaranteed contractual minimum royalty payments, whichever is greater, and
additional payments upon achievement of certain other milestones. During
1997, the Company recorded $3.3 million in royalty revenues.
6. THE DOW CHEMICAL COMPANY:
In 1993, CYTOGEN acquired from Dow an exclusive license for the treatment
of osteoblastic bone metastases in the U.S. for Quadramet. This license was
amended in 1995 to expand the territory to include Canada and Latin America,
and in 1996 to expand the field to include all osteoblastic diseases. In
1995, upon the filing of the NDA for Quadramet with FDA, the Company
received 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. In 1997, the Company recorded a $4.0 million
milestone payment to Dow upon FDA approval of Quadramet. The agreement
also requires the Company to pay Dow royalties based on a percentage of
net sales of Quadramet, or a guaranteed contractual minimum payments,
whichever is greater, and future payments upon achievement of certain
milestones. During 1997, the Company recorded $375,000 in royalty expense.
F-12
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Future annual minimum royalties due to Dow are as follows:
1998 $ 500,000
1999 500,000
2000 750,000
2001 750,000
2002 through 2012 1,000,000
7. REVENUES FROM MAJOR CUSTOMERS:
Significant revenue concentrations of the Company's total product,
royalties, license and contract revenues were as follows:
Customer 1997 1996 1995
-------- ---- ---- ----
DuPont Merck (Note 5) 47% 27% 27%
Elan (Note 3) 6 23 -
Medi-Physics, Inc. 9 10 12
Dow (Note 6) - - 39
Medi-Physics, Inc. is a chain of radiopharmacies which distributes
ProstaScint and OncoScint kits.
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
1997 1996
------------ ------------
Payroll and related expenses $ 1,754,000 $ 1,974,000
Accounts payable 1,162,000 1,301,000
Research contracts and materials 745,000 1,039,000
Commission and royalties 647,000 -
Professional and legal 840,000 376,000
Other accruals 728,000 648,000
----------- -----------
$ 5,876,000 $ 5,338,000
=========== ===========
9. LONG TERM LIABILITIES:
1997 1996
--------- ---------
Due to Knoll $ 1,619,000 $ 2,993,000
Due to Chiron - 343,000
Due to Elan (Note 2) 10,000,000 -
Capital lease obligations 291,000 343,000
------------ ------------
11,910,000 3,679,000
Less: Current portion (1,739,000) (1,824,000)
------------ ------------
$10,171,000 $ 1,855,000
============ ============
F-13
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
CYTOGEN and Knoll entered into an agreement for the co-promotion of
OncoScint CR/OV in the U.S., which was terminated in 1994 (the "Termination
Agreement"). Pursuant to the Termination Agreement, the Company has
reacquired all the U.S. marketing rights to OncoScint CR/OV, which were
previously granted to Knoll , and was to required to pay Knoll $8.0 million
over a four-year period and without interest. In each of 1996 and 1997,
the Company made payments to Knoll for $1.6 million and is expected to make
its last payment in July 1998 for $1.7 million. Imputed interest of
$227,000, $355,000 and $521,000 relating to the obligation, which was
discounted based upon a 10% interest rate, was recorded in 1997, 1996 and
1995, respectively. The Company has the option to delay any of its
scheduled payments and pay interest on the outstanding liability at the
prevailing prime rate.
In 1994, the Company entered into a disengagement agreement with Chiron
to reacquire the exclusive marketing and distribution rights to OncoScint
CR/OV in Europe (the "European Rights"), which were previously granted to
Chiron, and purchase certain business assets relating to the European
Rights. The resulting liability of CYTOGEN to Chiron was paid over three
years and without interest, as follows: $200,000 in 1995, $300,000 in 1996
and $377,000 in 1997. Imputed interest of $34,000, $58,000 and $71,000
relating to the obligation, which was discounted based upon a 10% interest
rate, was recorded in 1997, 1996 and 1995, respectively.
In July 1997, the Company obtained a $10.0 million loan from Elan. The
loan is payable in full at the end of year three and bears interest at the
six month LIBOR rate plus 1% and is adjusted on a semi-annual basis. The
funds were used by CYTOGEN to provide funding to Targon, including funding
for the $7.5 million license fee paid by Targon to Elan. In 1997, the
Company recorded $310,000 in interest expense for this note.
The Company leases certain equipment under capital leases which will
expire on various dates through 2002. Property and equipment leased under
non-cancelable capital leases have a net book value of $291,000 at December
31, 1997. Payments to be made under capital lease obligations (including
interest of $42,000) are as follows: $142,000 in 1998, $135,000 in 1999,
$30,000 in 2000, $15,000 in 2001 and $11,000 in 2002.
10. COMMON STOCK:
In January 1996, the Company sold to Fletcher Capital Markets, Inc. an
aggregate of 1.0 million shares of CYTOGEN common stock at an aggregate
price of $4.7 million, or $4.70 per share.
The Company also sold to a European institutional investor (i ) 729,394
shares of CYTOGEN common stock in April 1996 for an aggregate price of $5.0
million, (ii) 913,909 shares of CYTOGEN common stock in October 1996 for an
aggregate price of $5.0 million and (iii) 776,791 shares of CYTOGEN common
stock in November 1996 for an aggregate price of $4.0 million.
In September 1996, the Company sold to Fletcher Fund, L.P. 225,000
shares of CYTOGEN common stock for an aggregate price of $1.5 million, or
$6.529 per share.
F-14
<PAGE>
11. CONVERTIBLE PREFERRED STOCK:
In September 1996, CYTOGEN issued 1,000 shares of Series A Convertible
and Exchangeable Preferred Stock ("Series A") in connection with the
formation of Targon (see Note 2). The 1996 results of operations have been
restated to give effect to the accounting treatment announced by the staff
of the Securities and Exchange Commission (SEC) at the March 13, 1997
meeting of the Emerging Issues Task Force relative to the 1996 Series A
issuance. Since the Series A shares were immediately convertible into
common stock, under this accounting treatment, the most beneficial
conversion discount was recorded analogous to a deemed dividend in the
restated 1996 financial statements. The effect of this restatement was to
increase the net loss applicable to common stockholders by $4.6 million and
to increase the loss per common share from $0.49 to $0.59. This restatement
had no effect on the stockholders' equity or cash flows of the Company.
In December 1997, CYTOGEN obtained a financing commitment from private
investors for the purchase of up to $20.0 million of its Convertible
Preferred Stock subject to satisfaction of certain conditions. CYTOGEN
completed the first tranche of the financing in December 1997 by issuing 750
shares of Series B Preferred Stock ("Series B") for an aggregate price of
$7.5 million. The Series B carries a dividend rate of 6% which is payable
in cash or common stock of CYTOGEN at the Company's option at the earlier of
conversion date or when and as declared by the Board of Directors. The
Company has accrued the pro rata portion of the dividend in 1997.
The Company may at its option issue additional securities under the
commitment in up to two additional series, subject to certain conditions.
The purchasers are not obligated to purchase additional securities if the
average closing bid price of the Company's common stock is less than $2.00
per share for a thirty day period, and the maximum funding for each series
is determined by the price of the stock as follows: (i) between $2.01 to
$2.49 per share, $4.0 million; (ii) between $2.50 to $2.99 per share, $5.5
million; (iii) between $3.00 to $3.74 per share, $7.0 million; (iv) between
$3.75 to $4.49 per share, $10.0 million; or (v) $4.50 per share or greater,
$12.5 million. The obligations of the purchasers to purchase additional
securities are subject to additional conditions related to the effectiveness
during certain periods of a secondary registration statement permitting
resale of shares of common stock issued on conversion of the Series B; and
to certain other events.
The conversion of the Series B to common stock is based on the price of
CYTOGEN common stock at the time of conversion. Holders may convert, at
their option, at either $3.4575 per share or at a stated discount to the
price of CYTOGEN common stock at the time of conversion ranging from 5% to
15%, depending on when the conversion occurs. Consequently, the Company has
recorded a deemed dividend of $1.3 million on the first tranche in December
1997, which represented the maximum 15% conversion discount given to the
holders of the Series B. The conversion price may be adjusted under certain
circumstances.
12. STOCK OPTIONS AND GRANTS:
The Company has various stock option plans that provide for the issuance
of incentive and non-qualified stock options to employees, non-employee
directors and outside consultants, for which an aggregate of 6,233,357
shares of common stock have been reserved. The persons to whom options may
be granted and the number, type, and terms of the options vary among the
plans. Options are granted with an exercise term of 10 years and generally
F-15
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
become exercisable in installments over periods of up to 5 years at an
exercise price determined either by the plan or equal to the fair market
value of the common stock at the date of grant. Under certain
circumstances, vesting may accelerate. Activity under these plans was as
follows:
Number of Price Range
Shares Per Share
--------- -----------
Balance at December 31, 1994 2,127,940 $ 1.00 - 17.00
Granted 1,425,607 2.69 - 5.47
Exercised (91,400) 1.00 - 3.88
Cancelled (509,290) 2.69 - 17.00
----------
Balance at December 31, 1995 2,952,857 $ 2.69 - 17.00
Granted 1,073,770 5.00 - 9.28
Exercised (254,907) 2.69 - 7.50
Cancelled (248,780) 2.69 - 7.50
-----------
Balance at December 31, 1996 3,522,940 $ 2.69 - 17.00
Granted 822,400 2.06 - 6.13
Excersised (60,350) 1.77 - 5.47
Cancelled (459,530) 2.69 - 8.88
-----------
Balance at December 31, 1997 3,825,460 $ 2.06 - 17.00
==========
At December 31, 1997, options to purchase 1,424,704 shares of common
stock were exercisable and 1,611,995 shares of common stock were available
for issuance of additional options that may be granted under the plans.
In connection with the Cellcor merger (see Note 4), CYTOGEN reserved for
issuance 606,952 shares of common stock that will become issuable upon the
exercise of the Cellcor stock options. At December 31, 1997, 324,289
Cellcor stock options were outstanding at exercise prices ranging from
$0.83 to $14.58 and 324,269 Cellcor stock options were exercisable.
In January 1998 the Company cancelled approximately 1,800,000 unexercised
stock option grants ranging in price from $3.88 to $16.50 per share and
issued approximately 1,540,000 stock option grants at $1.95 per share which
equaled the fair market per share price. This repricing was not available
to officers, directors, executives and consultants of the Company.
In 1997, the Company adopted an employee stock purchase plan under which
eligible employees may elect to purchase shares of common stock at the lower
of 85% of fair market value as of the first trading day of each quarterly
participation period, or as of the last trading day of each quarterly
participation period. In 1997, employees purchased 16,017 shares for
aggregate proceeds of $34,692. The Company has reserved 483,983 shares for
future issuance under its employee stock purchase plan.
The Company applies Accounting Principle Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and the related interpretations
in accounting for its stock option plans. The disclosure requirement of
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
F-16
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
for Stock-Based Compensation," was adopted by the Company in 1996. Had
compensation cost of the Company's common stock option plan been determined
under SFAS No. 123, the Company's net loss would have been increased to the
following pro forma amounts:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Net loss to common stockholders, as reported $(32,064,000) $(28,337,000) $(72,520,000)
Pro forma net loss to common stockholders $(34,946,000) $(30,594,000) $(72,967,000)
Net loss per common share, as reported $(0.63) $(0.59) $(2.11)
Pro forma net loss per common share $(0.68) $(0.63) $(2.13)
</TABLE>
The average fair value per option of the options granted under the stock
option plans during 1997, 1996 and 1995 is estimated as $2.10, $3.35 and
$3.20, respectively, on the date of grant using the Black-Scholes option
pricing model with the following assumptions for 1997, 1996 and 1995:
dividend yield of zero, volatility of 69.87%, 70.72% and 69.57%,
respectively, risk-free interest rate 6.07%, 5.90% and 6.04%, respectively,
and an expected life of 5 years. The average fair value per option ascribed
to the employee stock purchase plan during 1997 is estimated at $2.17 per
share on the date of grant using the Black-Scholes option pricing model with
the following assumptions; divided yield of zero, volatility of 50.20%, risk
free interest rate of 5.13% and expected life of 3 months. Because the SFAS
No. 123 method of accounting is not required to be applied to options
granted prior to January 1, 1995, the resulting pro forma compensation
charge may not be representative of that to be expected in future years.
13. PENSION PLANS:
The Company maintains a defined contribution pension plan. The
contribution is determined by the Board of Directors each year and is based
upon a percentage of gross wages of eligible employees. The plan provides
for vesting over five years, with credit given for prior service. The
Company also makes contributions under a 401(k) plan in amounts which match
up to 50% of the salary deferred by the participants. Matching is capped
at 6% of deferred salaries. Total pension expense was $405,000, $328,000
and $311,000 for 1997, 1996 and 1995, respectively.
14. INCOME TAXES:
As of December 31, 1997, CYTOGEN had federal net operating loss
carryforwards of approximately $155 million. The Company also had federal
and state research and development tax credit carryforwards of approximately
$5 million. The net operating loss and credit carryforwards began to expire
in 1998.
The Tax Reform Act of 1986 contains provisions that limit the utilization
of net operating loss and tax credit carryforwards if there has been an
"ownership change". Such an "ownership change" as described in Section 382
of the Internal Revenue Code may limit the Company's utilization of its net
operating loss and tax credit carryforwards.
F-17
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amount used for income tax purposes. Based upon
the Company's loss history, a valuation allowance for deferred tax assets
has been provided:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 52,700,000 $ 48,200,000
Capitalized research and development expenses 20,500,000 18,200,000
Research and development credit 5,000,000 5,000,000
Acquisition of in-process technology 2,500,000 -
Other, net 140,000 140,000
------------- -------------
Total deferred tax assets 80,840,000 71,540,000
Valuation allowance for deferred tax assets (80,840,000) (71,540,000)
------------- -------------
Net deferred tax assets $ - $ -
============= =============
</TABLE>
In 1995, CYTOGEN acquired CytoRad and Cellcor (see Note 4), both of which
had net operating loss carryforwards. Due to Section 382 limitation,
approximately $10 million of CytoRad and $12.0 million of Cellcor
carryforwards may be available to offset future taxable income. A 100%
valuation allowance was established on the acquisition dates as realization
of these tax assets is uncertain.
15. COMMITMENTS AND CONTINGENCIES:
The Company leases its facilities and certain equipment under non-cancelable
operating leases that expire at various times through 2003. Rent expense
incurred on these leases was $1.8 million, $1.8 million and $1.2 million in
1997, 1996 and 1995, respectively. Minimum future obligations under the
operating leases total $7.4 million as of December 31, 1997 and will be paid
as follows: $1.9 million in 1998, $1.9 million in 1999, $1.4 million in 2000,
$1.2 million in 2001, $984,000 in 2002 and $108,000 in 2003.
The Company is obligated to make minimum future payments under research
and development contracts that expire at various times. As of December 31,
1997, the minimum future payments under contracts with fixed terms totalled
$3.8 million and will be paid as follows: $1.3 million in 1998, $1.3
million in 1999, and $1.2 million in 2000. Under contracts whose
expirations are not fixed, the annual minimum payments are $105,000 in 1998,
$115,000 in 1999 and $125,000 in 2000 and thereafter. In addition, the
Company is obligated to pay performance-based compensation to its marketing
partner and royalties on revenues from commercial products developed from
the research, including certain guaranteed minimum payments.
During March 1998, a lawsuit was instituted against the Company in the
Federal District Court for the Eastern District of Pennsylvania by Quaker
Capital Group ("Quaker"), claiming rights to fees in connection with a
financing concluded by the Company in December 1997, based on a financing
engagement entered with Quaker during 1997. The Company believes it has
substantial defenses to the claims and intends to defend against the lawsuit
aggressively. The Company does not believe that the claim is likely to have
a materially adverse effect on the Company's financial position, results of
operations or cash flows.
F-18
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------
1998 1997
------------- ------------
ASSETS:
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 3,027 $ 7,401
Accounts receivable, net 1,196 4,064
Inventories 127 443
Other current assets 469 258
--------- ---------
Total current assets 4,819 12,166
--------- ---------
Property and Equipment:
Leasehold improvements 10,128 10,126
Equipment and furniture 7,803 7,696
--------- ---------
17,931 17,822
Less- Accumulated depreciation and amortization (14,884) (13,910)
--------- ---------
Net property and equipment 3,047 3,912
--------- ---------
Investment in Targon Subsidiary - 10,343
Other Assets 1,014 1,134
--------- ---------
$ 8,880 $ 27,555
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current Liabilities:
Accounts payable and accrued liabilities $ 7,472 $ 5,662
Current portion of long-term liabilities 1,836 1,739
--------- ---------
Total current liabilities 9,308 7,401
--------- ---------
Long-Term Liabilities 2,141 10,171
--------- ---------
Stockholders' Equity (Deficit):
Preferred stock, $.01 par value, 5,400,000 shares authorized -
Series A Convertible and Exchangeable Preferred Stock, $.01 par value,
1,000 shares authorized, 0 and 1,000 shares issued and outstanding
in 1998 and 1997, respectively - -
Series B Convertible Preferred Stock, $.01 par value,
750 shares authorized, 0 and 750 shares issued and outstanding
in 1998 and 1997, respectively - -
Series C Junior Participating Preferred Stock, $.01 par value,
200,000 shares authorized, 0 issued and outstanding - -
Common stock, $.01 par value, 89,600,000 shares authorized,
58,603,000 and 51,170,000 shares issued and outstanding
in 1998 and 1997, respectively 586 512
Additional paid-in capital 298,371 298,212
Accumulated deficit (301,526) (288,741)
--------- ---------
Total stockholders' equity (deficit) (2,569) 9,983
--------- ---------
$ 8,880 $ 27,555
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-19
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1998 1997
------- -------
<S> <C> <C>
Revenues:
Product Related:
Product Sales
ProstaScint $ 4,593 $ 2,779
Quadramet 955 -
Others 696 929
----------- ----------
Product Sales 6,244 3,708
Quadramet Royalty 1,664 652
----------- ----------
Total Product Related 7,908 5,360
License and Contract 1,456 4,834
----------- ----------
Total Revenues 9,364 10,194
----------- ----------
Operating Expenses:
Cost of Product Related and
Contract Manufacturing Revenues 6,090 4,604
Research and Development 8,341 14,739
Equity Loss in Targon Subsidiary 1,020 8,709
Selling and Marketing 3,581 3,782
General and Administrative 5,833 4,760
----------- ----------
Total Operating Expenses 24,865 36,594
----------- ----------
Operating Loss (15,501) (26,400)
Gain on Sale of Targon Subsidiary 2,833 -
Interest Income 537 527
Interest Expense (535) (219)
----------- ----------
Net Loss (12,666) (26,092)
Dividends on Series B Preferred Stock (119) -
----------- ----------
Net Loss to Common Stockholders $ (12,785) $ (26,092)
=========== ==========
Basic and Diluted Net Loss
per Common Share $ (0.23) $ (0.51)
=========== ==========
Basic and Diluted Weighted Average
Common Shares Outstanding 55,426 51,124
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-20
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(All amounts in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Additional Accu- Total
Preferred Common Paid-in mulated Stockholders'
Stock Stock Capital Deficit Equity (Deficit)
--------- ------- ---------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $ - $512 $298,212 $(288,741) $9,983
Issued 56,193 shares of common
stock. . . . . . . . . . . . . . . . . . . - - 104 - 104
Issued 7,377,054 shares of common stock
upon conversion of series B preferred stock
(See Note 4). . . . . . . . . . . . . . . - 74 55 - 129
Accrued dividends on series B
preferred stock. . . . . . . . . . . . . . - - - (119) (119)
Net loss . . . . . . . . . . . . . . . . . . - - - (12,666) (12,666)
Balance, September 30, 1998 $ - $586 $298,371 $(301,526) $(2,569)
===== ==== ======== ========== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-21
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------
1998 1997
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Loss $ (12,666) $ (26,092)
---------- ----------
Adjustments to Reconcile Net Loss to Cash Used for
Operating Activities:
Depreciation and Amortization 974 1,139
Imputed Interest 81 195
Stock Grants 32 42
Equity Loss in Targon Subsidiary 1,020 8,709
Gain on Sale of Targon Subsidiary (2,833) -
Changes in Assets and Liabilities:
Accounts receivable, net 2,868 (2,660)
Inventories 316 152
Other assets (91) (218)
Accounts payable and accrued liabilities 2,010 748
Other liabilities 87 58
---------- ----------
Total adjustments 4,464 8,165
---------- ----------
Net cash used for operating activities (8,202) (17,927)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Redemption of Short Term Investments - 4,474
Investment in Targon Subsidiary - (10,000)
Proceed from Sale of Targon Subsidiary 2,000 -
Purchases of Property and Equipment (109) (520)
--------- ---------
Net cash provided by (used for) investing activities 1,891 (6,046)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Notes Payable 2,000 10,000
Payment of Note Payable - (1,600)
Principal Payment of Capital Lease Obligations (100) (81)
Proceeds from Issuance of Common Stock 37 231
--------- ---------
Net cash provided by financing activities 1,937 8,550
--------- ---------
Net Decrease in Cash and Cash Equivalents (4,374) (15,423)
Cash and Cash Equivalents, Beginning of Period 7,401 20,296
--------- ---------
Cash and Cash Equivalents, End of Period $ 3,027 $ 4,873
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-22
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company
CYTOGEN Corporation ("CYTOGEN" or the "Company") is a biopharmaceutical
company engaged in the development, commercialization and marketing of
products to improve diagnosis and treatment of cancer and other disease. In
March 1997, CYTOGEN received approval from U.S. Food and Drug Administration
("FDA") to market Quadramet , CYTOGEN's product for the relief of pain due
to cancers that have spread to the skeleton and that can be visualized on a
bone scan. In October 1996, CYTOGEN received marketing approval from FDA
for the ProstaScint imaging agent, CYTOGEN's prostate cancer diagnostic
imaging product. In December 1992, FDA approved OncoScint CR/OV imaging
agent, CYTOGEN's colorectal and ovarian cancer specific diagnostic imaging
product, for single administration per patient. In November 1995, FDA
approved an expanded indication allowing for repeat administration of
OncoScint CR/OV. All three products are currently available in the market
place. Operations of the Company are subject to certain risks and
uncertainties including, but not limited to uncertainties related to access
to capital, product market acceptance, product efficacy and clinical trials,
technological uncertainty, uncertainties of future profitability, dependence
on collaborative relationships and key personnel. The Company has incurred
losses since its inception and expects to incur operating losses in the near
future. There can be no assurance that the Company will ever be able to
commercialize successfully its products or that profitability will ever be
achieved.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. During the third quarter of
1998, management implemented a restructuring plan including operating expense
reductions. Management believes the Company's existing capital resources
together with decreased operating costs, the $750,000 proceeds from the term
loan (see Note 5), the $4 million net receipt from Berlex Laboratories
("Berlex") anticipated in the fourth quarter of 1998 (see Note 2), but
exclusive of the Equity Line Agreement (see Note 6) will be adequate to fund
the Company's operations into 1999. Management believes the addition of the
Equity Line Agreement will provide the Company with adequate cash flow to
sustain operations into 2000. Based on the Company's historical ability to
raise capital and current market conditions, the Company believes other
financing alternatives (including accounts receivable financing) are
available. There can be no assurance that the Equity Line Agreement or other
financial alternatives will be available when needed or at terms commercially
acceptable to the Company.
Basis of Consolidation
The consolidated financial statements include the accounts of CYTOGEN and
its wholly- owned subsidiaries, AxCell Biosciences Corporation ("AxCell") and
Cellcor, Inc. ("Cellcor"). The financial statements also include the
investment results of Targon Corporation ("Targon"), which were accounted for
on the equity method (see Investment in Targon Subsidiary). Intercompany
balances and transactions have been eliminated in consolidation.
F-23
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
As of September 30, 1998, the Cellcor and Targon subsidiaries were closed
and sold, respectively.
Basis of Presentation
The consolidated financial statements of CYTOGEN Corporation are unaudited
and include all adjustments which, in the opinion of management, are
necessary to present fairly the financial condition and results of operations
as of and for the periods set forth in the Consolidated Balance Sheets,
Consolidated Statements of Operations and Consolidated Statements of Cash
Flows. All such accounting adjustments are of a normal, recurring nature.
The consolidated financial statements do not include all of the information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles and should be
read in conjunction with the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K/A, filed with
the Securities and Exchange Commission, which includes financial statements
as of and for the year ended December 31, 1997. The results of the Company's
operations for any interim period are not necessarily indicative of the
results of the Company's operations for any other interim period or for a
full year.
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.
Cost of Product Related and Contract Manufacturing Revenues
Beginning in 1997, the Company began providing contract manufacturing
services to third parties, and its second product ProstaScint was approved
resulting in significantly higher product sales. Prior to 1997, product
sales were minimal and no revenues derived from contract manufacturing,
therefore cost of product sales was immaterial.
Investment in Targon Subsidiary
As a result of the 1998 reduction of CYTOGEN's ownership interest in
Targon, the Company began accounting for its investment in Targon using the
equity method. In addition, the Company retroactively adopted Emerging Issues
Task Force (EITF) 96-16. Under the equity method, the Company recognized 100%
of Targon's losses through March 31, 1998 in its consolidated statement of
operations as "Equity Loss in Targon Subsidiary" with a corresponding
reduction in the carrying amount of its investment. The Company did not
recognize Targon's losses after March 31, 1998 based on the completion of the
sale of Targon (see Note 3).
As a result of the adoption of EITF 96-16 and the equity method,
approximately $461,000 and $1.4 million of research and development expenses
recorded in the third quarter and year-to-date periods ended September 30,
1997, respectively, and $7.5 million of acquisition of product rights expense
recorded in the third quarter of 1997, were reclassified to "Equity Loss in
Targon Subsidiary". The primary effect on the December 31, 1997 balance
sheet was the reclassification of Restricted Cash to "Investment in Targon
Subsidiary". All other changes were immaterial.
F-24
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
On August 12, 1998 the Company sold its remaining ownership interest in
Targon to Elan Corporation, plc ("Elan") for $2.0 million (see Note 3). As a
result, the Company recorded a gain of approximately $2.8 million in the
statement of operations in the third quarter of 1998.
Net Loss Per Share
Basic net loss per common share is based upon the weighted average common
shares outstanding during each period. Diluted net loss per common share is
the same as basic net loss per common share, as the inclusion of common stock
equivalents would be antidilutive.
Reclassifications
Certain reclassifications have been reflected in the 1997 financial
statements to conform with the 1998 presentation.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, which establishes standards
for reporting and disclosure of comprehensive income. SFAS No. 130 is
effective for interim and annual periods beginning after December 15, 1997.
SFAS No. 130 requires additional disclosures in the Company's consolidated
financial statements, but does not have any impact on the Company's financial
position or consolidated results of operations. The Company has reviewed
SFAS No. 130 and determined that for the third quarter and year-to-date
periods ended September 30, 1998 and 1997, no items meeting the definition of
comprehensive income as specified in SFAS No. 130 existed in the financial
statements. As a result, no disclosure is necessary to comply with SFAS No.
130.
2. QUADRAMET RELATED REVENUES/EXPENSES:
In March 1997, the Company received marketing approval from FDA for
Quadramet. As a result of the approval CYTOGEN recorded a milestone payment
of $2.0 million from The DuPont Pharmaceutical Company, formerly the
Radiopharmaceutical Division of The DuPont Merck Pharmaceutical Company
("DuPont"), for manufacturing and marketing rights to Quadramet, and also
recorded a $4.0 million milestone payment to The Dow Chemical Company ("Dow")
for the exclusive license to Quadramet. From the time of product launch in
the second quarter of 1997 up to June 3, 1998, CYTOGEN recorded royalty
revenues from DuPont based on minimum contractual payments, which were in
excess of actual sales. On June 3, 1998, pursuant to an agreement between
CYTOGEN and DuPont, the minimum royalty arrangement was discontinued and
CYTOGEN reclaimed the marketing rights to Quadramet. Subsequent to June 3,
1998, CYTOGEN has recorded product revenues from Quadramet based on actual
sales. For the third quarter and year-to-date periods ended September 30,
1998, CYTOGEN recognized $735,000 and $2.6 million, respectively, in sales
and royalties from Quadramet compared to $1.6 million and $1.7 million,
respectively, in each of the comparable periods of the prior year.
F-25
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
On October 29, 1998 CYTOGEN announced an exclusive license and marketing
agreement ("Berlex Agreement") with Berlex for the manufacture and sale of
Quadramet. CYTOGEN and Berlex are jointly finalizing a long-term supply
agreement with DuPont, the current contract manufacturer of Quadramet. Under
the terms of the Berlex Agreement, CYTOGEN will receive an $8 million up
front payment upon completion of the supply agreement with DuPont, of which
$4 million will be paid to DuPont upon completion of the supply agreement
with DuPont to secure a long-term manufacturing commitment. Berlex will pay
CYTOGEN royalties on net sales of Quadramet, as well as milestone payments
based on achievement of certain sales levels. In connection with the Berlex
Agreement, CYTOGEN granted Berlex a warrant to purchase 1 million shares of
CYTOGEN common stock at an exercise price of $1.002 per share through October
2003 and exercisable after the earlier of one year or the achievement of
defined sales levels.
CYTOGEN has also paid royalty expenses to Dow since the product launch in
1997. The royalty expenses are based on a percentage of sales of Quadramet
or guaranteed contractual minimum royalty payments, whichever is greater.
For the third quarter and year-to-date periods ended September 30, 1998,
CYTOGEN recorded $125,000 and $375,000, respectively, in royalty expenses
compared to $161,000 and $189,000, respectively, recorded in each of the
comparable periods of 1997.
3. SALE OF TARGON CORPORATION:
Targon was established in September 1996 pursuant to agreements between
CYTOGEN and Elan, and was a majority-owned (99.75%) subsidiary of CYTOGEN.
On March 31, 1998, Elan exchanged its shares of the Company's Series A
Convertible Preferred Stock for 50% of CYTOGEN's interest in Targon. On
August 12, 1998, CYTOGEN sold its remaining 49.875% interest in Targon to
Elan for $2.0 million (see Note 1). As a result of the sale, the warrant to
purchase up to 1 million shares of CYTOGEN common stock previously granted to
Elan and all notes among CYTOGEN, Elan and Targon were canceled. In addition
to the sale of Targon, on August 14, 1998, CYTOGEN received $2.0 million from
Elan in exchange for a convertible promissory note. See Note 5.
4. CONVERSION OF CYTOGEN'S SERIES B PREFERRED STOCK:
During the third quarter and year-to-date periods of 1998, the aggregate
face amounts of $1.0 million and $7.5 million, respectively, of the Company's
Series B Preferred Stock ("Series B") issued in December 1997 were converted
into common stock resulting in the issuance of 1,796,745 and 7,377,054
shares, respectively, of CYTOGEN common stock for both the conversion and
accrued dividends. At September 30, 1998, all of Series B was converted and
therefore, none was outstanding.
5. LONG TERM DEBT:
On August 14, 1998, CYTOGEN received $2.0 million from Elan in exchange for
a convertible promissory note. The note is convertible into CYTOGEN common
shares at $2.80 per share, subject to adjustments and matures in seven years.
The note bears interest of 7% compounded semi-annually, however, such
interest is not payable in cash but be added to the principal for the first
24 months; thereafter, interest will be payable in cash.
F-26
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
On October 19, 1998, the Company entered into a $750,000 term loan
agreement with The CIT Group/Credit Finance Inc., using the Company's tangible
assets as collateral. The note bears interest at prime plus 3%. The note is
payable over 35 monthly principal payments of $12,500 plus interest with the
remaining balance due October 2001.
6. COMMON STOCK:
On October 23, 1998, the Company entered into an agreement (the "Equity
Line Agreement") with an institutional investor (the "Investor") for a $12
million common stock equity line. Pursuant to the Equity Line Agreement, the
Company, subject to the satisfaction of certain conditions including the
effective registration of such shares, was granted the right to issue and
sell to the Investor, and the Investor would be obligated to purchase up to
$12 million of CYTOGEN common stock from time to time (collectively, the "Put
Rights") over a two year period at a purchase price per share equal to 85% of
the average of lowest trade prices of CYTOGEN common stock during five
designated trading days as determined under the Equity Line Agreement. The
Company can exercise the Put Rights every 20 trading days in the amounts
ranging from $150,000 to $1 million, subject to the satisfaction of minimum
trading volume, market price of CYTOGEN common stock and registration of the
shares of common stock under the Securities Act of 1933, as amended. The
Company is required to exercise Put Rights with respect to a minimum of $3
million over the life of the Equity Line Agreement. In addition, the Company
granted to the Investor a warrant to purchase up to 200,000 shares of CYTOGEN
common stock at an exercise price of $1.016 per share through April 2002.
F-27
<PAGE>
8,000,000 Shares
CYTOGEN CORPORATION
Common Stock
____________________
PROSPECTUS
____________________
________ __, 1998
<PAGE>
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. Other Expenses of Issuance and Distribution
The following is an itemized statement of the estimated
amounts of all expenses payable by the Registrant in connection
with the registration of the common stock offered hereby, other
than underwriting discounts and commissions:
Registration Fee-Securities and Exchange Commission........... $ 2,155
Blue Sky fees and expenses.................................... -
Accountants' fees and expenses................................ 7,500
Legal fees and expenses....................................... 25,000
Printing and engraving expenses............................... -
Transfer agent and registrar fees............................. 250
Miscellaneous................................................. 500
Total.................................................... $ 35,405
=========
ITEM 14. Indemnification of Directors and Officers
Section 145(a) of the General Corporation Law of the State
of Delaware (the "DGCL") provides that a Delaware corporation
may indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that he is
or was a director, officer, employee or agent of the corporation
or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or
enterprise, against expenses, judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in
good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no cause to
believe his conduct was unlawful.
Section 145(b) of the DGCL provides that a Delaware
corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation
to procure a judgment in its favor by reason of the fact that
such person acted in any of the capacities set forth above,
against expenses actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit
if he acted under similar standards, except that no
indemnification may be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the
court in which such action or suit was brought shall determine
that despite the adjudication of liability, such person is
fairly and reasonably entitled to be indemnified for such
expenses which the court shall deem proper.
Section 145 of the DGCL further provides that to the extent
a director or officer of a corporation has been successful in
the defense of any action, suit or proceeding referred to in
subsections (a) and (b) or in the defense of any claim, issue,
or matter therein, he shall be indemnified against any expenses
actually and reasonably incurred by him in connection therewith;
that indemnification provided for by Section 145 shall not be
deemed exclusive of any rights to which the indemnified party
may be entitled; and that the corporation may purchase and
maintain insurance on behalf of a director or officer of the
II-1
<PAGE>
corporation against any liability asserted against him or
incurred by him in any such capacity or arising out of his
status as such whether or not the corporation would have the
power to indemnify him against such liabilities under Section
145.
Section 102(b)(7) of the DGCL provides that a corporation
in its original certificate of incorporation or an amendment
thereto validly approved by stockholders may eliminate or limit
personal liability of members of its board of directors or
governing body for breach of a director's fiduciary duty.
However, no such provision may eliminate or limit the liability
of a director for breaching his duty of loyalty, failing to
action good faith, engaging in intentional misconduct or
knowingly violating a law, paying a dividend or approving a
stock repurchase which was illegal, or obtaining an improper
personal benefit. A provision of this type has no effect on the
availability of equitable remedies, such as injunction or
rescission, for breach of fiduciary duty. The Company's
Restated Certificate of Incorporation contains such a provision.
The Company's Certificate of Incorporation and By-Laws
provide that the Company shall indemnify officers and directors
and, to the extent permitted by the Board of Directors,
employees and agents of the Company, to the full extent
permitted by and in the manner permissible under the laws of the
State of Delaware. In addition, the By-Laws permit the Board of
Directors to authorize the Company to purchase and maintain
insurance against any liability asserted against any director,
officer, employee or agent of the Company arising out of his
capacity as such.
ITEM 15. Recent Sales of Unregistered Securities
In the three years preceding the filing of this
Registration Statement, the Company has issued securities that
were not registered under the Securities Act of 1933, as amended
(the "Securities Act") to a limited number of persons, as
described below.
On October, 1998, the Company entered into the Equity Line
Agreement with Kingsbridge, pursuant to which the Company may
issue and sell, from time to time, shares of its Common Stock
for cash consideration up to an aggregate of $12 million.
Pursuant to the requirements of the Equity Line Agreement, the
Company has filed this Registration Statement in order to permit
the investor to resell to the public any shares that it acquires
pursuant to the Equity Line Agreement. Commencing as of the
date this Registration Statement is declared effective by the
Securities and Exchange Commission and continuing for a period
of 24 months thereafter, the Company may from time to time at
its sole discretion, and subject to certain restrictions set
forth in the Equity Line Agreement, sell ("put") shares of its
Common Stock to the investor at a price equal to 85 percent of
the then current average market price of the Company's Common
Stock, as determined under the Equity Line Agreement. Puts can
be made every 20 trading days in amounts ranging from a minimum
of $150,000 to a maximum of $1,000,000, depending on the trading
volume and the market price of the Common Stock at the time of
each put. The Company is required to put at least $3,000,000 of
its Common Stock to the investor over the life of the Equity
Line Agreement. To date, no shares of Common Stock have been
issued under the Equity Line Agreement.
In conjunction with the Equity Line Agreement, in October,
1998, the Company issued to the investor a warrant (the
"Warrant") which entitles the holder to purchase 200,000 shares
of Common Stock of the Company at a price of $1.0165 per share.
The Warrant is exercisable at any time beginning in April, 1999
and ending in April, 2002. The Warrant contains provisions that
protect against dilution by adjustment of the exercise price and
the number of shares issuable thereunder upon the occurrence of
certain events, such as a merger, stock split or reverse stock
split, stock dividend or recapitalization. The exercise price
II-2
<PAGE>
of the Warrant is payable either (i) in cash or (ii) by a
"cashless exercise", in which that number of shares of Common
Stock underlying the Warrant having a fair market value at the
time of exercise equal to the aggregate exercise price are
cancelled as payment of the exercise price. Also in connection
with the Equity Line Agreement, in October, 1998, the Company
issued currently exercisable warrants for 100,000 shares of
common stock to the Placement Agent. Such warrants expire in
October, 2001.
In December 1997, the Company issued $7.5 million of
convertible preferred stock to a group of private investors in a
private placement. The preferred stock and the underlying
common shares into which it was convertible were subsequently
registered for resale.
In November 1995, the Company sold 1,256,565 shares of
CYTOGEN common stock to a European institutional investor (the
"Investor") in a private placement transaction pursuant to
Regulation S of the Securities Act for an aggregate price of
$5.0 million. The Company also sold to the Investor (i) 729,394
shares of CYTOGEN common stock in April 1996 for an aggregate
price of $5.0 million, (ii) 913,909 shares of CYTOGEN common
stock in October 1996 for an aggregate price of $5.0 million
pursuant to a Stock Purchase Agreement between CYTOGEN and the
Investor, dated as of August 27, 1996, as amended (the "Purchase
Agreement"), and (iii) 776,791 shares of CYTOGEN common stock in
November 1996 for an aggregate price of $4.0 million under the
Purchase Agreement.
The securities issued and to be issued by the Company
pursuant to the transactions described above have been and will
be issued without registration under the Securities Act of 1933
in reliance upon the exemptions from registration provided under
Section 4(2) of the Securities Act and Rule 506 of Regulation D
promulgated thereunder, or other exemptions. The foregoing
transactions did not involve any public offering, the investors
either received or had access to adequate information about the
Company in order to make an informed investment decision, and
the Company reasonably believed that each of the investors was
"sophisticated" within the meaning of Section 4(2) of the
Securities Act.
ITEM 16. Exhibits and Financial Statement Schedules
(a) Exhibits
3.1 - Certificate of Incorporation of the Registrant, restated
and amended. Filed as an exhibit to Form 10-Q Quarterly
Report for the quarter ended June 30, 1996 (Commission File
No. 0-14879) and incorporated herein by reference.
3.2 - By-Laws of the Registrant, as amended. Filed as an exhibit to
Form S-4 Registration Statement (No. 33-88612) and incorporated
herein by reference.
4.1 - Specimen Certificate for common stock of the Registrant.
Filed as an exhibit to Amendment No. 1 to Form S-1
Registration Statement (No. 33-5533) and incorporated
herein by reference.
5.1 - Opinion of Donald F. Crane, Jr. Filed herewith.
21.1 - List of Subsidiaries. Filed as an exhibit to Form 10-K/A
Annual Report for the year ended December 31, 1997
(Commission File No. 0-14879) and incorporated herein by
reference.
II-3
<PAGE>
23.1 - Consent of Arthur Andersen LLP. Filed herewith.
23.2 - Consent of counsel as to legal opinion. (included in Exhibit 5.1)
24.1 - Power of Attorney (included on page II-5)
27.1 - Financial Data Schedule
_________________
(b) Consolidated Financial Statement Schedules
All schedules have been omitted because they are not
required or because the required information is given in the
Consolidated Financial Statements or Notes thereto.
ITEM 17. Undertakings
The undersigned Registrant hereby undertakes to provide to
the underwriters, at the closing specified in the underwriting
agreement, certificates in such denominations and registered in
such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant to
the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under
the Securities Act of 1933, the information omitted from
the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall
be deemed to be part of this registration statement as of
the time it was declared effective.
(2) For the purpose of determining any liability
under the Securities Act of 1933, each post-effective
amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such
securities at the time shall be deemed to be the initial
bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Princeton, State of New Jersey, on
December 10, 1998.
CYTOGEN CORPORATION
By: /s/ H. Joseph Reiser
------------------------
H. Joseph Reiser
Chief Executive Officer
and President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints
H. Joseph Reiser, Jane M. Maida, or Donald F. Crane, Jr.,
and each of them, as his or her true and lawful attorney-in-fact and
agents, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities,
to sign any and all amendments (including post-effective amendments)
and supplements to this registration statement or any prospectus included
herein, and to file the same, with the Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act and thing requisite and necessary
to be done in connection therewith, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agents, or any of them, or their or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933,
as amended, this Registration Statement has been signed by the
following persons on December 10, 1998 in the capacities
indicated:
Signature Title Date
- --------- ------- ----
/s/ H. Joseph Reiser Chief Executive Officer and December 11, 1998
- -------------------- President (Principal Executive
H. Jospeh Reiser Officer and Director
/s/ Jane M. Maida Chief Accounting Officer December 11, 1998
- -------------------- (Principal Accounting Officer)
Jane M. Maida
/s/ Director December 11, 1998
- --------------------
John E. Bagalay
/s/ * Director December 11, 1998
- ----------------------
Ronald J. Brenner
/s/ Director December 11, 1998
- ----------------------
Stephen K. Carter
/s/ * Director and December 11, 1998
- --------------------- Chairman of the Board
James A. Grigsby
/s/ * Director December 11, 1998
- ---------------------
Robert F. Hendrickson
II-5
EXHIBIT 5.1
December 11, 1998
Cytogen Corporation
600 College Road East
Princeton, New Jersey 08540
Ladies and Gentlemen:
The undersigned has acted as counsel to Cytogen Corporation, a Delaware
corporation (the "Company"), in connection with the preparation and filing by
the Company of a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Act"), for the
registration of 8,000,000 shares of common stock, $.01 par value per share (the
"Common Stock"), of the Company which may be issued.
I have examined and am familiar with originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and officers of the Company and such other
instruments as I have deemed necessary or appropriate as a basis for the
opinions expressed below, including the Registration Statement, the Restated
Certificate of Incorporation of the Company and the By-laws of the Company.
Based on the foregoing, I am of the opinion that the Common Stock issuable
pursuant to the registration statement authorized and reserved for issuance and,
when duly issued and delivered, will be validly issued, fully paid and
nonassessable.
I hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement. In giving such consent, I do not thereby admit
that we come within the category of persons whose consent is required under
Section 7 of the Act or the rules and regulations of the Securities and Exchange
Commission thereunder.
I express no opinion as to the laws of any jurisdiction other than the general
corporate laws of the State of Delaware and the federal law of the United States
of America. The foregoing opinion is rendered as of the date hereof, and I
assume no obligation to update such opinion to reflect any facts or
circumstances which may hereafter come to my attention or any changes in
the law which may hereafter occur.
Very truly yours,
/s/ Donald F. Crane
-------------------------
Donald F. Crane, Jr.
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of
our report and to all references to our Firm included in or made a
part of this S-1 Registration Statement.
ARTHUR ANDERSEN LLP
Philadelphia, PA
December 11, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1998 AND THE CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,027,000
<SECURITIES> 0
<RECEIVABLES> 1,246,000
<ALLOWANCES> (50,000)
<INVENTORY> 127,000
<CURRENT-ASSETS> 469,000
<PP&E> 17,931,000
<DEPRECIATION> (14,884,000)
<TOTAL-ASSETS> 8,880,000
<CURRENT-LIABILITIES> 9,308,000
<BONDS> 0
0
0
<COMMON> 586,000
<OTHER-SE> (3,155,000)
<TOTAL-LIABILITY-AND-EQUITY> 8,880,000
<SALES> 6,244,000
<TOTAL-REVENUES> 9,364,000
<CGS> 6,090,000
<TOTAL-COSTS> 9,671,000
<OTHER-EXPENSES> 15,194,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 535,000
<INCOME-PRETAX> (12,785,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,785,000)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> (0.23)
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