<PAGE>
SECURITIES AND EXCHANGE COMMISSION Conformed
Washington, D.C. 20549 Copy
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended June 30, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to
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Commission file number 333-02015
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CYTOGEN Corporation
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(Exact name of Registrant as specified in its charter)
Delaware 22-2322400
- -------------------------------- ---------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
600 College Road East, CN 5308, Princeton, NJ 08540-5308
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(Address of Principal Executive Offices and Zip Code)
Registrant's telephone number, including area code (609) 987-8200
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days: Yes X No .
--- ---
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date:
Class Outstanding at August 6, 1998
- ---------------------------- -----------------------------
Common Stock, $.01 par value 58,591,373
<PAGE>
PART I - FINANCIAL INFORMATION
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Item I: Consolidated Financial Statements
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS: 1998 1997
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<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 3,018 $ 7,401
Accounts receivable, net 1,517 4,064
Inventories 313 443
Other current assets 146 258
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Total current assets 4,994 12,166
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Property and Equipment:
Leasehold improvements 10,128 10,126
Equipment and furniture 7,786 7,696
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17,914 17,822
Less- Accumulated depreciation and amortization (14,587) (13,910)
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Net property and equipment 3,327 3,912
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Investment in Subsidiary 9,376 10,343
Other Assets 1,134 1,134
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$ 18,831 $ 27,555
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable and accrued liabilities $ 5,774 $ 5,662
Current portion of long-term liabilities 1,836 1,739
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Total current liabilities 7,610 7,401
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Long-Term Liabilities 10,177 10,171
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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, 0 and 1,000 shares issued and outstanding
in 1998 and 1997, respectively - -
Series B Convertible Preferred Stock, $.01 par value,
750 shares authorized, 100 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, $.01 par value, 89,600,000 shares authorized,
56,789,000 and 51,170,000 shares issued and outstanding
in 1998 and 1997, respectively 568 512
Additional paid-in capital 298,324 298,212
Accumulated deficit (297,848) (288,741)
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Total stockholders' equity 1,044 9,983
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$ 18,831 $ 27,555
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</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Second Quarter Ended June 30, Year-To-Date Ended June 30,
----------------------------- ---------------------------
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Revenues:
Product Related:
Product Sales
ProstaScint $ 1,458 $ 998 $ 2,996 $ 1,601
Quadramet 220 - 220 -
Others 172 312 468 579
----------- ---------- ----------- ----------
Product Sales 1,850 1,310 3,684 2,180
Quadramet Royalty 33 21 1,664 21
----------- ---------- ----------- ----------
Total Product Related 1,883 1,331 5,348 2,201
License and Contract 579 837 1,246 3,821
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Total Revenues 2,462 2,168 6,594 6,022
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Operating Expenses:
Cost of Product Related and
Contract Manufacturing Revenues 1,935 1,614 3,835 3,009
Research and Development 2,682 3,842 5,763 11,271
Equity Loss in Subsidiary - 452 1,020 740
Selling and Marketing 1,283 1,440 2,334 2,567
General and Administrative 1,216 1,372 2,621 2,902
----------- --------- ----------- ----------
Total Operating Expenses 7,116 8,720 15,573 20,489
----------- --------- ----------- ----------
Operating Loss (4,654) (6,552) (8,979) (14,467)
Interest Income 222 181 428 445
Interest Expense (220) (73) (437) (146)
----------- --------- ----------- ----------
Net Loss (4,652) (6,444) (8,988) (14,168)
Dividends on Series B Preferred Stock (37) - (119) -
----------- -------- ---------- ----------
Net Loss to Common Stockholders $ (4,689) $ (6,444) $ (9,107) $ (14,168)
=========== ========== ========== ===========
Basic and Diluted Net Loss
per Common Share $ (0.08) $ (0.13) $ (0.17) $ (0.28)
=========== ========== ========== ===========
Basic and Diluted Weighted Average
Common Shares Outstanding 55,334 51,129 54,065 51,111
========== ========= ========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Year-To-Date Ended June 30,
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1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (8,988) $ (14,168)
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Adjustments to Reconcile Net Loss to Cash Used for
Operating Activities:
Depreciation and Amortization 677 758
Imputed Interest 81 130
Stock Grants 11 28
Equity Loss in Subsidiary 1,020 770
Changes in Assets and Liabilities:
Accounts receivable, net 2,547 (980)
Inventories 130 99
Other assets 59 (14)
Accounts payable and accrued liabilities 124 (1,046)
Other liabilities 87 -
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Total adjustments 4,736 (255)
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Net cash used for operating activities (4,252) (14,423)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Redemption of Short Term Investments - 4,472
Purchases of Property and Equipment (92) (336)
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Net cash provided by (used for) investing activities (92) 4,136
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Common Stock 26 196
Principal Payment of Capital Lease Obligations (65) (52)
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Net cash provided by (used for) financing activities (39) 144
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Net Decrease in Cash and Cash Equivalents (4,383) (10,143)
Cash and Cash Equivalents, Beginning of Period 7,401 20,296
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Cash and Cash Equivalents, End of Period $ 3,018 $ 10,153
========= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<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 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 an existing financing commitment. 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 existing Preferred Stock financing commitment
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. 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.
5
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
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
losses of Targon Corporation ("Targon") through March 31, 1998, which
are accounted for on the equity method (see Investment in Subsidiary).
Intercompany balances and transactions have been eliminated in consolidation.
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.
Investment in Subsidiary (Targon Corporation)
As discussed in Note 3, on March 31, 1998, the Company's ownership
interest in Targon was reduced from 99.75% to 49.875%. As a result, 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 in its consolidated statement of operations as "Equity Loss in
Subsidiary" with a corresponding reduction in the carrying amount of its
investment. The use of the equity method had no effect on the Company's
previously reported net loss, stockholders' equity or cash flows. Included
in "Investment in Subsidiary" was a $10 million note receivable from Targon
which bears interest at the six month LIBOR plus 1%, and was adjusted on
a semi-annual basis. This amount was reduced by the equity losses discussed
above. Included in long-term liabilities was a $10 million loan payable
to Elan Corporation, plc ("Elan"), the proceed of which was used to fund
Targon. This loan bears interest at the same terms as described above.
6
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
As a result of the restatement, approximately $549,000 and $941,000 of
research and development expenses recorded in the second quarter and
year-to-date periods ended June 30, 1997, respectively, were reclassified
to "Equity Loss in Subsidiary". The primary effect on the December
31, 1997 balance sheet was the reclassification of Restricted Cash to
"Investment in Subsidiary". All other changes were immaterial.
On August 12, 1998 the Company sold its remaining ownership interest
in Targon to Elan for $2.0 million (see Note 3). As a result, the
Company will recognize a gain of approximately $2.6 million in its
statement of operations in the third quarter of 1998. The Company did
not recognize any of Targon's losses after March 31, 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 second quarter and year-to-date
periods ended June 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 Merck Pharmaceutical Company
("DuPont Merck"), for manufacturing and marketing rights to Quadramet,
and also recorded a $4.0 million milestone payment to The Dow Chemical Company
7
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
("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 Merck based on a
percentage of sales of Quadramet or guaranteed contractual minimum
royalty payments, whichever was greater. For the second quarter
and year-to-date periods ended June 30, 1998, CYTOGEN recognized
$33,000 and $1.7 million, respectively, in royalty revenues
compared to $21,000 recorded in each of the comparable periods of
the prior year. Actual sales were substantially less than the
minimum royalties. On June 3, 1998, pursuant to an agreement
between CYTOGEN and DuPont Merck, the minimum royalty arrangement
was discontinued and CYTOGEN reclaimed the marketing rights to
Quadramet. As a result, CYTOGEN is expanding its own sales efforts
to include Quadramet. Through their own technical specialists,
CYTOGEN has been informing the physicians at more than 200 clinical
sites that are certified to use ProstaScint about the benefits of
Quadramet. CYTOGEN will also begin marketing Quadramet directly to
all national cancer centers. CYTOGEN recorded $220,000 of
Quadramet sales in the second quarter of 1998 under the new
arrangement.
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 second quarter and
year-to-date periods ended June 30, 1998, CYTOGEN recorded $125,000
and $250,000, respectively, in royalty expenses compared to $27,000
recorded in each of the comparable periods of 1997.
3. 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). In addition, 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 shall not be payable in cash but shall be added to the
principal for the first 24 months; thereafter, interest shall be payable in
cash. 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.
4. CONVERSION OF CYTOGEN'S SERIES B PREFERRED STOCK:
During the second quarter and year-to-date periods of 1998, the
aggregate face amounts of $3.5 million and $6.5 million, respectively,
of the Company's Series B Preferred Stock ("Series B")
8
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
issued in December 1997 were converted into common stock resulting
in the issuance of 3,422,549 and 5,580,309 shares, respectively, of
CYTOGEN common stock for both the conversion and accrued dividends.
On July 1, 1998, all remaining Series B was converted into common
stock resulting in the issuance of 1,796,745 shares including stock
dividends.
5. SERIES C JUNIOR PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS
One Series C Junior Participating Preferred Stock purchase
right (the "Right") which has a redemption value of $0.01 was
distributed as a dividend for each of CYTOGEN common share
held of record as of the close of June 30, 1998. The Rights will
be exercisable if a person or a group acquires beneficial ownership
of 20% or more of CYTOGEN common stock and can be made exercisable
by action of CYTOGEN'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 CYTOGEN common stock. Each
Right will entitle the holder to buy one one-thousandth of a share
of Series C Junior Participating Preferred Stock for $20. The
Rights will expire on June 19, 2008.
9
<PAGE>
Item 2 - 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 and its wholly owned subsidiaries AxCell and
Cellcor, taken as a whole, where appropriate.
Results of Operations
Background. To date, the Company's revenues have resulted
primarily from (i) sales of ProstaScint and OncoScint, and
starting on June 3, 1998, sales of Quadramet, (ii) royalties
earned through June 2, 1998 on Quadramet sales by DuPont Merck,
(iii) the recovery of costs related to the treatment of patients
receiving autolymphocyte therapy ("ALT") for metastatic renal cell
carcinoma ("mRCC") 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 FDA to receive treatment, (iv) payments received from
contract manufacturing and research services pursuant to agreements,
(v) fees generated from the licensing of its technology and
marketing rights to its products, and (vi) milestone payments
received when events stipulated in the collaborative agreements
with third parties have been achieved.
In May 1997, CYTOGEN launched Quadramet, a drug used to
relieve pain associated with cancers that have spread to the
skeleton and can be visualized on a bone scan. Quadramet was
manufactured and marketed in the United States by DuPont Merck.
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 between CYTOGEN and DuPont Merck, CYTOGEN
reclaimed marketing rights to Quadramet and the minimum royalty
arrangement was terminated. As a result, near-term royalty
revenues are adversely affected and Quadramet revenues are now
based on actual sales.
As part of the agreement, DuPont Merck has begun efforts to
identify a new partner to market Quadramet. DuPont Merck continues
to manufacture Quadramet and CYTOGEN is expanding its own sales
efforts to include Quadramet. Through their own technical
specialists, CYTOGEN has been informing the physicians at more than
200 clinical sites that are certified to use ProstaScint about the
benefits of Quadramet. CYTOGEN will also begin marketing Quadramet
directly to all national cancer centers.
CYTOGEN is currently reviewing its options for sale or
closure of the Cellcor subsidiary to focus on its primary business
of marketing Quadramet and ProstaScint. The Company anticipates
that this action will reduce operating expenses significantly and
permit allocation of additional resources to other Company
priorities. Cellcor management is seeking potential partners for the
future funding and development of ALT, but, operations will cease on or
about mid September 1998 should a transaction appear not likely to be
concluded promptly. Management of Cellcor has expressed interest in a
buyout of the operation, which the Board is considering while remaining
open to discussions with other interested parties.
10
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont'd)
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 did not recognize any of Targon's
losses after March 31, 1998 and will recognize a gain of approximately
$2.6 million in its statement of operations 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 Note 3 to The Consolidated Financial Statements.
Second quarter ended June 30, 1998 and 1997
Revenues. Total revenues for the second quarter in 1998
and 1997 were $2.5 million and $2.2 million, respectively. The
product related revenues, which included product sales and
Quadramet royalties, accounted for 76% of total revenues in 1998
versus 61% from the same period of 1997. License and contract
revenues accounted for the remainder of revenues with 24% and 39%
of total revenues recorded in the second quarter of 1998 and 1997,
respectively.
Product related revenues for the second quarter in 1998 and
1997 were $1.9 million and $1.3 million, respectively. ProstaScint
accounted for 77% and 75% of product related revenues in the second
quarter of 1998 and 1997, respectively, while Quadramet royalties
and sales revenue accounted for 13% and 2% of product related
revenues for the comparable periods in 1998 and 1997, respectively
(see Note 2 to The Consolidated Financial Statements). ProstaScint
and Quadramet were introduced to the market during the first and
second quarter of 1997, respectively. The increase of ProstaScint
sales over prior year period was attributable to the increased
market acceptance of the product, as well as to the increased
number of Partners in Excellence (" PIETM") sites which are
qualified to offer ProstaScint scans. The increase in PIE sites
has included a number of major cancer centers across the country.
Sales of ProstaScint were $1.5 million in the second quarter of
1998 compared to $1.0 million in the second quarter of 1997, while
revenues from Quadramet were $253,000 in the second quarter of 1998
compared to $21,000 in the second quarter of 1997. Revenues from
Others including sales from OncoScint and ALT treatments were
$172,000 in 1998 compared to $312,000 recorded in the comparable
period of 1997.
License and contract revenues for the second quarter in 1998
and 1997 were $579,000 and $837,000, respectively. The second
quarter 1998 license and contract revenues included $427,000 in
contract manufacturing revenues from eight customers and $110,000
from Boston Life Sciences for clinical services. The second
quarter 1997 revenues included $365,000 and $215,000 in research
revenues from DuPont Merck for continued clinical development of
Quadramet and from Elan, respectively, and $257,000 in contract
manufacturing revenues from six customers. License and contract
revenues have fluctuated in the past and may fluctuate in the
future.
Operating Expenses. The current year operating expenses
reflect the Company's continued efforts to control spending. In
the second quarter of 1998, operating expenses were $7.1 million
compared to $8.7 million recorded in the same period of 1997. In
addition to savings attributable to cost containing efforts, the
decrease from the prior year is also due to the absence of Targon's
loss in the second quarter of 1998 (see Note 1 to Consolidated
Financial Statements), partially offset by increased costs in 1998
11
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont'd)
from royalty expenses and manufacturing costs associated with
higher product related and contract manufacturing revenues.
Cost of product related and contract manufacturing revenues
for the second quarter of 1998 were $1.9 million compared to $1.6
million recorded in the same period of the prior year. The
increase from the prior year period is due primarily to increased
manufacturing costs associated with increased revenues in 1998, and
royalty expenses related to Quadramet (see Note 2 to the Consolidated
Financial Statements).
Research and development expenses for the second quarter of
1998 were $2.7 million compared to $3.8 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 various savings from the
Company's product development efforts in 1998.
Equity loss in subsidiary (Targon) for the second quarter of
1998 and 1997 was $0 and $452,000, respectively. As a result of a
sale of CYTOGEN's ownership interest in Targon to Elan, CYTOGEN did
not recognize any of Targon's losses after March 31, 1998 (see Note 1
to the Consolidated Financial Statements). In connection with the sale,
CYTOGEN will recognize a gain of approximately $2.6 million in its
statement of operations for the third quarter of 1998.
Selling and marketing expenses were $1.3 million and $1.4 million for
the second quarter of 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
expenses associated with ProstaScint launch and PIE program.
General and administrative expenses for the second quarter in 1998
were $1.2 million which is lower than the $1.4 million recorded in
the comparable period of 1997 due to cost containment efforts.
Interest Income/Expense. Interest income for the second quarter in
1998 was $222,000 compared to $181,000 realized in the same period of 1997.
The increase from the prior year period is due to the $171,000 interest
income realized in the second quarter of 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. The $10.0 million note was canceled as a result of a sale
to Elan of CYTOGEN's ownership in Targon on August 12, 1998.
Interest expense for the second quarter of 1998 was $220,000
compared to $73,000 recorded in the same period of 1997. The
increase from the prior year period is due to the second quarter
1998 interest expense of $171,000 associated with the $10.0 million
note due to Elan, which was canceled as a result of a sale to Elan of CYTOGEN's
ownership in Targon on August 12, 1998.
12
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont'd)
Net Loss. Net loss to common stockholders for the second
quarter in 1998 was $4.7 million compared to a net loss of $6.4
million incurred in the same period of 1997. The loss per common
share was $0.08 on 55.3 million average common shares outstanding
compared to $0.13 on 51.1 million average common shares outstanding
for the same period in 1997. The 1998 net loss to common stockholders
included $37,000 of accrued dividends on the Series B Preferred Stock.
Year-to-date periods ended June 30, 1998 and 1997
Revenues. Total revenues for the year-to-date periods of
1998 and 1997 were $6.6 million and $6.0 million, respectively.
The product related revenues accounted for 81% of total revenues in
1998 versus 37% from the same period of the prior year. License
and contract revenues accounted for the remainder of revenues with
19% and 63% of total revenues recorded in the year-to-date periods
of 1998 and 1997, respectively.
Product related revenues for the year-to-date periods in
1998 and 1997 were $5.3 million and $2.2 million, respectively.
ProstaScint accounted for 56% and 73% of product related revenues
in 1998 and 1997, respectively, while Quadramet royalty and sales
revenue accounted for 35% and 1% of product related revenues in
1998 and 1997, respectively (see Note 2 to The Consolidated
Financial Statements). Sales from ProstaScint were $3.0 million in
the year-to-date period of 1998 compared to $1.6 million in the
comparable period of 1997. Royalty and sales revenues from
Quadramet were $1.9 million and $21,000 in 1998 and 1997, respectively.
Revenues from Others including sales from OncoScint and
ALT treatments were $468,000 in 1998 compared to $579,000 recorded
in the comparable period of 1997.
License and contract revenues for the year-to-date periods
in 1998 and 1997 were $1.2 million and $3.8 million, respectively.
The 1998 license and contract revenues included $912,000 in
contract manufacturing revenues from nine customers, $176,000 from
Boston Life Sciences for clinical services and $75,000 in a
milestone payment from Faulding (Canada), Inc. The 1997 revenues
included a $2.0 million milestone payment from DuPont Merck,
$729,000 and $532,000 in research revenues from DuPont Merck for
continued clinical development of Quadramet and from Elan,
respectively, and $410,000 in contract manufacturing revenues from
eight customers.
Operating Expenses. As mentioned above, the current year
operating expenses reflect the Company's continued efforts to
control spending. For the year-to-date period in 1998, operating
expenses were $15.6 million compared to $20.5 million recorded in
the same period of 1997. The decrease from the prior year period
is due to 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 the overall savings from cost containing efforts in 1998,
partially offset by increased costs in 1998 from royalty expenses
and manufacturing costs associated with higher product related and
contract manufacturing revenues.
Cost of product related and contract manufacturing revenues
for the year-to-date period in 1998 were $3.8 million compared to
$3.0 million recorded in the same period of 1997. The increase
from the prior period is due primarily to increased manufacturing
13
<PAGE>
Item 2 - Management's Discussion and Anlaysis of Financial
Condition and Results of Operations (Cont'd)
costs associated with increased revenues in 1998, and royalty
expenses related to Quadramet (see Note 2 to the Consolidated
Financial Statements).
Research and development expenses for the year-to-date period
in 1998 were $5.8 million compared to $11.3 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.
Equity loss in subsidiary (Targon) for the year-to date periods
in 1998 and 1997 was $1.0 million and $740,000, respectively. Targon's
expenses reflected product development and clinical trials programs.
During the first quarter of 1998, Targon's program costs and
commitments had increased due to the financial support of the Duke
University research agreement, the addition of costs related to new
products acquired by Targon and the acceleration of clinical programs.
Targon's losses were not recorded after March 31, 1998 as a result of
the sale of CYTOGEN's ownership interest in Targon to Elan (see Note 1
to the Consolidated Financial Statements). In addition, CYTOGEN will
record a gain of approximately $2.6 million in its statement of
operations in the third quarter 1998 for this transaction.
Selling and marketing expenses were $2.3 million and $2.6
million for the year-to-date periods of 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 expenses associated with ProstaScint launch and PIE program.
General and administrative expenses for year-to-date period
in 1998 were $2.6 million which is slightly lower than the $2.9
million recorded in the comparable period of 1997.
Interest Income/Expense. Interest income for the year-to-date
period in 1998 was $428,000 compared to $445,000 realized in
the same period in 1997. The increase from the prior year period
is due to the $339,000 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 year-to-date period in 1998 was $437,000
compared to $146,000 recorded in the same period of 1997. The increase from
the prior year period is due to the 1998 interest expense of $339,000
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 year-to-date
period of 1998 was $9.1 million compared to a net loss of $14.2 million
incurred in the same period of 1997. The loss per common share was $0.17
on 54.1 million average common shares outstanding compared to $0.28
14
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont'd)
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 the Series B Preferred Stock.
Liquidity and Capital Resources
The Company's cash and cash equivalents were $3.0 million as of June 30,
1998, compared to $7.4 million as of December 31, 1997 and $2.5 million
as of March 31, 1998. The cash used for operating activities for the
year-to-date period ended June 30, 1998 was $4.3 million compared to
$14.4 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 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, revenues from contract
manufacturing and research services, fees paid under its license agreements
and interest earned on its note receivable from Targon and its cash and
short term investments.
On August 14, 1998, CYTOGEN received $4.0 million from Elan, $2.0 million
for the purchase 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 shall not be payable in cash but shall be added
to the principal for the first 24 months; thereafter, interest shall be payable
in cash.
In 1997, the Company completed $7.5 million of a $20.0 million financing
commitment with a group of private investors, whereby the Company, on
satisfaction of certain conditions, has the option to draw down the balance
of the commitment or $12.5 million over the course of 1998. The financing is
in the form of a 6% convertible preferred stock which is convertible by the
investors at any time and convertible or redeemable by the Company, at
its option, in three years. The dividend is payable in cash or common stock of
CYTOGEN at the Company's option at the earlier of the conversion date or
when and as declared by the Board of Directors (see Note 4 to the Consolidated
Financial Statements). Currently, the Company does not meet all of the
conditions to draw down the additional funds.
Quadramet. Quadramet was launched by DuPont Merck in June 1997. An
agreement in 1994 between CYTOGEN and DuPont Merck provided for CYTOGEN to
receive from DuPont Merck 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.
For the year-to-date periods ended June 30, 1998 and 1997, CYTOGEN recorded
$1.7 million and $21,000, respectively, in royalty revenues for Quadramet.
The minimum royalty arrangement was discontinued on June 3, 1998 (see
Note 2 to the Consolidated Financial Statements). As a result, near-term
15
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont'd)
royalty revenues are affected adversely. CYTOGEN reclaims
the marketing rights to Quadramet from DuPont Merck and beginning on
June 3, 1998, Quadramet revenues are recorded based on actual sales.
CYTOGEN recorded $220,000 of Quadramet sales for 1998.
CYTOGEN acquired from Dow an exclusive license to Quadramet in the U.S.,
Canada and Latin America. 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 for 1998
are $500,000. For the year-to-date periods ended June 30, 1998 and 1997, the
Company recorded $250,000 and $27,000 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 $300,000 and $217,000,
respectively, for Bard commissions.
OncoScint CR/OV. To date, sales of OncoScint CR/OV have not been
material and are not expected to become a significant source of cash flow
in the future. 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.
In July 1997, the Company obtained a $10.0 million loan from Elan.
The funds were used by CYTOGEN to provide funding to Targon. The note was
canceled as a result of a sale of Targon to Elan (see Note 3 to the
Consolidated Financial Statements). For the year-to-date period in 1998,
the Company recorded $339,000 of interest expense in connection with this
note.
The Company's capital and operating requirements may change depending
upon various factors, including: (i) the ability of DuPont Merck, with
CYTOGEN's collaboration, to successfully identify and engage a third party
to market Quadramet and achieve its full market potential; (ii) the
success of the Company and its strategic partners in manufacturing, marketing
and commercialization of its products; (iii) the amount of resources which
the Company devotes to clinical evaluations and the expansion of marketing
and sales capabilities; (iv) results of preclinical testing, clinical trials
and research and development activities; and (v) competitive and technological
developments.
16
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations (Cont'd)
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 from 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, sales, manufacturing and distribution
activities. The Company expects that its existing capital resources and
other available sources of financing will be adequate, together with decreased
operating costs, to fund the Company's operations into 1999. No assurance
can be given that the Company 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 funds generated from the Company's
product-related and license and contract revenues, together with its
existing capital resources 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. The Company
has a commitment pursuant to which it may issue up to $12.5 million in
additional series of convertible preferred stock, under certain conditions.
Currently, the Company does not meet all of the conditions to draw down the
additional funds. 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
commitment 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, scale
17
<PAGE>
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. However, the Company
believes that it has the ability to reduce its operating expenses so that
it will have adequate cash flow to sustain operations into 1999.
======================
Cautionary Statement
The foregoing discussion contains historical information as well as
forward looking statements that involve a number of risks and uncertainties.
In addition to the risks discussed above, among other factors that could cause
actual results to differ materially from expected results are the following:
(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 timing and results of clinical studies; (iv) market acceptance of
the Company's products, including programs designed to facilitate use of
the products, such as the PIE Program; (v) the decision by the majority
of public and private insurance carriers on whether to reimburse patients
for the Company's products; (vi) the profitability of its products; (vii) the
ability to attract, and the ultimate success of strategic partnering
arrangements, collaborations, and acquisition candidates; (viii) the ability
to attract additional contract manufacturing customers; (ix) 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; (x) 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 (xi) the engagement by the Company of a new partner for the
marketing of Quadramet.
PART II - OTHER INFORMATION
- ------- -----------------
Item 3 - Legal Proceedings
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. During July,
1998, the Company entered into a settlement with Quaker dismissing the
lawsuit and terminating the financing agreement. Although the Company
believes it had substantial defense to the claim and meritorious
claims against Quaker, it settled the case for an amount it believed
appropriate in order to avoid the costs and distractions of
litigation. The amount of the settlement was not material.
Item 4 - Submission of Matters to the Vote of Security Holders
On June 17, 1998, the Company held its annual meeting of
stockholders to elect directors and transact such other
business as might be brought before the meeting.
The following tables set forth information regarding the
number of votes cast for, against or withheld, abstentions
and broker non-votes, with respect to each matter presented
at the meeting. Under the rules of the Nasdaq National
Market, brokers who hold shares in street name for customers
who are beneficial owners of those shares may be prohibited
from giving a proxy to vote shares held for such customers on
certain matters without specific instructions from such
customers ("broker non-votes"). Under Delaware law, abstentions
and broker non-votes are counted as shares represented
at the meeting for purposes of determining the presence or
absence of a quorum at a stockholders' meeting. The election
of directors is decided by a plurality of the votes cast.
Therefore, votes that are withheld have no effect on the
outcome of the vote. Brokers generally have discretionary
authority with respect to the election of directors.
(i) Election of Directors:
Broker
Nominee For Withheld Abstentions Non-Votes
------- --- -------- ----------- ---------
John E. Bagalay Jr. 46,045,347 2,366,208 N/A N/A
Ronald J.Brenner 46,464,040 1,947,515 N/A N/A
James A. Grigsby 46,437,845 1,973,710 N/A N/A
Robert F. Hendrickson 46,426,800 1,984,755 N/A N/A
(ii) No other business was transacted at the meeting.
19
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
1. Rights Agreement, dated as of June 19, 1998, between CYTOGEN
Corporation and Chase Mellon Shareholder Services, L.L.C., as Rights
Agent. The Rights Agreement includes the Form of Certificate of
Designations of Series C Junior Preferred Stock as Exhibit A, the
form of Rights Certificate as Exhibit B and the Summary of Rights as
Exhibit C. Filed as an exhibit to Form 8-K dated June 17, 1998
(Commission File No. 333-020015) and incorporated herein by reference.
10.1 Letter Agreement dated as of June 3, 1998 between CYTOGEN
Corporation and The DuPont Merck Pharmaceutical Company.
Filed herewith.*
10.2 Agreement to Amend the Agreement to Terminate License, Supply
and Marketing Agreement and Letter Agreement by and between
CYTOGEN Corporation and Knoll Pharmaceutical Company, dated as
of July 23, 1998. Filed herewith.
10.3 Reorganization Agreement dated as of August 12, 1998 among CYTOGEN
Corporation, Targon Corporation, Elan, plc. and Elan International
Services, Ltd. Filed herewith.
10.4 Convertible Promissory Note dated as of August 12, 1998 between
CYTOGEN Corporation and Elan International Services, Ltd.
Filed herewith.
27 Financial Data Schedule (Submitted to SEC only in electronic
format).
* CYTOGEN Corporation has requested confidential treatment of certain
provisions contained in this exhibit. The copy filed as an exhibit
omits the information subject to the confidentiality request.
(b) Reports on Form 8-K:
The Company filed three reports on Form 8-K during the three months
ended June 30, 1998 and the dates of such reports were May 22, 1998,
June 8, 1998 and June 17, 1998. The Form 8-K dated May 22, 1998
reported on "Item 5. Other Events" with respect to a press release
announcing a lawsuit instituted by CYTOGEN Corporation against The
DuPont Merck Pharmaceutical Company for breaching the Quadramet
license agreement. The Form 8-K dated June 8, 1998 reported on
"Item 5. Other Events" with respect to a press release announcing
plans for the next phase of marketing for Quadramet. The Form 8-K
dated June 17, 1998 reported on "Item 5. Other Events" regarding the
adoption of Stockholder Rights Plan and the declaration of a dividend
of one preferred share purchase right for each outstanding share of
CYTOGEN's common stock.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CYTOGEN CORPORATION
Date August 14, 1998 By /s/ Jane M. Maida
--------------------- ------------------------
Jane M. Maida
Chief Accounting Officer
21
<PAGE>
EXHIBIT 10.1
[DuPont Merck Letterhead]
June 3, 1998
John E. Bagalay, Ph.D.
President & CEO
Cytogen Corporation
600 College Road East
Princeton, NJ 08540-5308
Dear John:
This Letter Agreement ("Agreement") is intended to confirm our
mutual agreement (i) to terminate the License Agreement dated
December 20, 1994, as amended on March 29, 1996 (collectively,
the "License Agreement") under which the parties collaborated on
the research, development, manufacture, marketing and sale of
Quadramet, and (ii) to enter into an interim arrangement wherein
DuPont Merck would continue to make Quadramet available in the
marketplace while seeking a third party to acquire rights to
Quadramet. It is understood that this letter is a statement of
agreement, binding on the parties, and not merely a statement of
understanding. Towards this, the parties agree as follows:
1. General Principles. The parties intend to dissolve the
relationship created by the License Agreement and to transfer all
rights granted therein to a third party or back to Cytogen. The
parties further intend to release each other from any and all
duties, obligations, payments and the like due now or in the
future under the terms of the License Agreement. The License
Agreement is hereby terminated in its entirety. As of the date
first shown above, all rights, duties, payments and obligations,
except those relating to confidentiality, relating to the License
Agreement are extinguished. Henceforth, no reference shall be
made to the License Agreement. Instead, all aspects of the
parties relationship with respect to Quadramet shall be governed
by this Agreement.
2. Appointment.
(a) Cytogen hereby appoints DuPont Merck, for the term of
this Agreement, as a manufacturer and distributor of Quadramet.
Pursuant to this appointment, DuPont Merck will manufacture, sell
and distribute, but not promote or detail, Quadramet to
physicians and patients requesting it. DuPont Merck will
invoice, ship, record sales and set the price of Quadramet during
the term hereof. As consideration for this appointment, DuPont
Merck will pay Cytogen an amount equal to fifty percent (50%) of
net sales of Quadramet. Within fifteen (15) days following the
end of each month, DuPont Merck will provide Cytogen with a
report of that month's sales of Quadramet, so that Cytogen can
report the revenue. DuPont Merck will include with said report
the payment due for such month.
(b) Cytogen hereby appoints DuPont Merck its exclusive
agent to identify and negotiate with third parties capable of and
interested in acquiring rights to Quadramet. Promptly after the
date first shown above, DuPont Merck will contact selected third
parties and negotiate on Cytogen's behalf for the terms and
conditions of a license agreement for Quadramet. Such agreement
will include a grant by Cytogen to the selected third party under
Cytogen's intellectual property (including, patents, know-how and
trademarks) to make, have made, use and sell Quadramet. [CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED]
<PAGE>
DuPont Merck will not be a party to the contemplated agreement,
rather the parties will be Cytogen and the third party. DuPont
Merck shall not be liable for, nor shall it in anyway be
responsible for the performance of any third party acquiring
rights to Quadramet. DuPont Merck's efforts under this Section
2(b) shall continue until expiration of this agreement of this
Agreement, and shall cease thereafter. In no event shall DuPont
Merck be liable to Cytogen under any theory whatsoever if DuPont
Merck is not successful in identifying and/or concluding
negotiations with any third party.
3. Payments.
(a) Within five (5) days of the date first shown above,
DuPont Merck shall advance Cytogen $3.8MM [CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED]. While this amount is not refundable
(provided Cytogen otherwise complies with the terms and
conditions of this Agreement), [CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED].
(b) In the event DuPont Merck receives the upfront payment
contemplated under Section 2(b), then DuPont Merck will pay
Cytogen any amount it is due in excess of the amount advanced
under Section 3(a). [CONFIDENTIAL TREATMENT HAS BEEN REQUESTED].
4. Subsequent Manufacture. The parties anticipate that DuPont
Merck will continue manufacturing Quadramet for a period of two
(2) years from the date first shown above. In furtherance of
this, the parties shall enter into a separate written agreement
for the manufacture and supply of Quadramet, on terms and
conditions that shall be negotiated by the parties in good faith.
5. Release.
(a) DuPont Merck, for itself and on behalf of its officers,
directors, employees, agents, assigns, predecessors, successors-in-interest,
subsidiaries, and affiliates, hereby releases, remises and discharges
Cytogen and its officers, directors, employees, agents, assigns,
predecessors, successors-in-interest, subsidiaries, and of and from
all debts, payables, receivables, demands, causes of action, suits,
accounts, covenants, contracts, agreements, damages, and any and all
claims, demands, and liabilities involving the development, production,
manufacture, sale or marketing of Quadramet, both in law and in equity, which
DuPont Merck now has or ever has had against Cytogen, whether
known or unknown, from the beginning of the world to this date,
including without limitation all claims involving the
development, production, or marketing of Quadramet under the
License Agreement and/or which were or could have been asserted
in Cytogen Corporation v. The DuPont Merck Pharmaceutical
Company, C.A. No. (NJ), but excluding the obligations of Cytogen
under this Agreement, and any and all existing confidentiality
agreements which shall remain in force and effect from the date
of this release pursuant to their terms.
(b) Cytogen, for itself and on behalf of its officers,
directors, employees, agents, assigns, predecessors,
successors-in-interest, subsidiaries, and affiliates, hereby releases,
remises and discharges DuPont Merck and its officers, directors,
employees, agents, assigns, predecessors, successors-in-interest,
<PAGE>
subsidiaries, and of and from all debts, payables, receivables,
demands, causes of action, suits, accounts, covenants, contracts,
agreements, damages, and any and all claims, demands, and
liabilities involving the development, production, manufacture,
sale or marketing of Quadramet, both in law and in equity, which
Cytogen now has or ever has had against DuPont Merck, whether
known or unknown, from the beginning of the world to this date,
including without limitation all claims under the License
Agreement and/or which were or could have been asserted in
Cytogen Corporation v. The DuPont Merck Pharmaceutical, C.A. No.
(NJ), but excluding the obligations of DuPont Merck under this
Agreement, and any and all existing confidentiality agreements
which shall remain in force and effect from the date of this
release pursuant to their terms.
6. Assignment. DuPont Merck may assign this Agreement without
approval to DuPont Pharmaceuticals Company.
7. Governing Law. This Agreement shall be governed by and
interpreted under the laws of the State of Delaware and the
Delaware courts, without regard to conflict of laws.
8. Term. This Agreement shall be effective as of the date
first shown above and shall continue for a term of [CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED] thereafter or the execution of a
definitive agreement between Cytogen and a third party for Quadramet,
whichever is shorter. Upon expiration of this Agreement all
rights and obligations of the parties created hereby will end.
Thereafter, Cytogen shall be solely responsible for all
activities relating to Quadramet.
If the foregoing is in accordance with your understanding, please
indicate your agreement by signing in the space provided in the
enclosed copy of this letter and promptly return it to us.
Very truly yours,
THE DUPONT MERCK PHARMACEUTICAL COMPANY
By: /s/ Richard Dolighan
-----------------------
Accepted and Agreed:
Cytogen Corp.
By: /s/ John E. Bagalay, Jr.
------------------------
<PAGE>
EXHIBIT 10.2
Agreement to Amend the Agreement to Terminate License,
Supply and Marketing Agreement ("Termination
Agreement") and Letter Agreement Respecting
Reimbursement of Expenses ("Letter Agreement").
This Agreement to Amend the Termination Agreement and the Letter
Agreement by and between Knoll Pharmaceutical Company, with offices
at 3000 Continental Drive - North, Mount Olive, NJ 07828-1234
(hereinafter "Knoll") and Cytogen Corporation, with offices at 600
College Road East, Princeton, NJ 08540 (hereinafter "Cytogen") is
made as of July , 1998.
-----------
Background
Whereas, the parties hereto entered into the Termination Agreement
on November 1, 1994, which, inter alia, provided for a schedule of
payments, the total of which were referred therein as the
Termination Payment;
Whereas, the parties hereto entered into the Letter Agreement on
November 1, 1994, which, inter alia, provided for a schedule of
payments to reimburse Knoll for direct out-of pocket marketing
expenses and certain clinical expenses; and
Whereas, the parties wish to amend the Termination Agreement and
the Letter Agreement on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein recited, and other good and valuable
considerations, the receipt of which is acknowledged, it is agreed
as follows:
Article I - Final Payment under the Termination Agreement.
1.01 Article III "Payments", Paragraph 3.01 is amended to
provide that the date of the final installment of the Termination
Payment shall be revised from July 1, 1998 to December 15, 1998.
1.02 On or before December 15, 1998, Cytogen shall pay to
Knoll, in addition to the final installment of the Termination
Payment of $637,500.00, interest on such amount calculated from
July 1, 1998 through the date of payment at the prevailing prime
<PAGE>
rate of interest as of such date, as such rate is established by
Citibank NA or its successor bank.
1.03 All other terms and conditions of the Termination
Agreement shall remain in full force and effect.
Article II - Final Payment under the Letter Agreement
2.01 Schedule A "Payment Schedule for Prior Obligations" of
the Letter Agreement is amended to provide that the date of the
final payment installment shall be revised from July 1, 1998 to
December 15, 1998.
2.02 On or before December 15, 1998, Cytogen shall pay to
Knoll the final payment installment of $1,062,500 set forth in
Schedule A of the Letter Agreement and interest on such amount
calculated from July 1, 1998 through the date of payment at the
prevailing prime rate of interest as such of such date of payment,
as such rate is established by Citibank NA or its successor bank.
2.03 All other terms and conditions of the Letter Agreement
shall remain in full force and effect.
IN WITNESS WHEREOF, the undersigned have caused this Agreement
to be executed by their duly authorized representatives in the
manner legally binding upon them on the date first written above.
KNOLL PHARMACEUTICAL COMPANY CYTOGEN CORPORATION
/s/ Carter H. Eckert /s/ John E. Bagalay, Jr.
- --------------------- ------------------------
Carter H. Eckert John E. Bagalay, Jr.
Date: 7/6/98 Date: 7/13/98
---------------- -------------------
<PAGE>
EXHIBIT 10.3
AGREEMENT
Agreement dated as of August 12, 1998 among Targon
Corporation, a Delaware corporation ("Targon"), Cytogen
Corporation, a Delaware corporation ("Cytogen"), Elan
Corporation, plc, an Irish public limited company ("Elan"), and
Elan International Services, Ltd., a Bermuda corporation and
wholly-owned subsidiary of Elan ("EIS").
RECITALS:
A. Some or all of the parties hereto are parties to
(1) a Securities Purchase Agreement dated as of September 26,
1996 (the "Securities Purchase Agreement") between Cytogen and
EIS and a Joint Development and Operating Agreement dated as of
September 26, 1996 (the "Development Agreement"; together with
the Securities Purchase Agreement and the other documents and
instruments executed on or about September 26, 1996 in connection
therewith, the "Targon Agreements") among Elan, EIS, Cytogen and
Targon, relating to, among other things, the establishment,
capitalization and operation of Targon, and (2) a Note Purchase
Agreement dated as of July 17, 1997 (the "Note Purchase
Agreement") between Cytogen and EIS and a Securities Purchase
Agreement (the "Cytogen/Targon Morphelan Agreement"; together
with the Note Purchase Agreement and the other documents and
instruments executed on or about July 17, 1997 in connection
therewith, the "Morphelan Agreements") between Targon and
Cytogen. Capitalized terms not defined herein have the meanings
ascribed to them in the applicable Targon Agreements or Morphelan
Agreements. Attached hereto as Exhibits A-1 and A-2 are
complete lists of the Targon Agreements and the Morphelan
Agreements.
B. In connection with the establishment of Targon,
Targon acquired certain intellectual property, including without
limitation, the rights to the Cytogen Compounds and the ATS
Compounds, from each of Cytogen and Elan (or their respective
affiliates), and in connection with the business of Targon,
Targon undertook certain contractual and other relationships with
various third parties.
C. On or about March 31, 1998, EIS exercised the
Exchange Right, thereby becoming an equal stockholder with
Cytogen in Targon.
D. The parties desire to set forth herein their
agreements relating to the reorganization of the business of
Targon and in connection therewith, the transfer of certain
assets to Cytogen; the remaining business of Targon to be
retained by Elan, subject to the other interests referred to
below. This Agreement is intended to be a binding agreement
between the parties hereto. In connection with the transactions
contemplated hereby, however, the parties may subsequently
execute and deliver certain supplementary or definitive documents
(the "Supplemental Agreements"); the Supplemental Agreements, if
executed and delivered, shall supplement and/or supersede, as
appropriate, the provisions hereof.
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AGREEMENT:
The parties agree as follows:
1. Transfer of Certain Targon Products. Targon hereby
transfers, assigns and sets over to Cytogen all of Targon's
right, title and interest in and to each of the Cytogen
Compounds, together with any and all improvements, trade secrets
and intellectual property developed or acquired by Targon since
its date of inception and related thereto. In connection
therewith, each of the parties agrees to the termination of
Documents 1, 3, 4, 6 (as it relates to Cytogen's rights only), 7
and 12 set forth on Exhibit A-1 hereto and that neither party
shall have any further liability or obligation thereunder; it
being understood that the other documents and instruments set
forth on Exhibit A-1 shall remain in full force and effect as
originally stated. The parties agree that the consideration for
the Cytogen Compounds and such related intellectual property and
rights is $3 million.
2. Repayment of Certain Targon Obligations. Within
five business days of the date hereof, Targon shall pay to
Cytogen by wire transfer $7,241,693; such amount, together with
the consideration referred to in Section 1 above (i.e., an
aggregate of $10,241,693, which includes accrued interest of
$241,963) shall constitute payment and satisfaction in full of
Targon's outstanding obligations under the Cytogen/Targon
Morphelan Agreement and the accompanying promissory note and,
accordingly, each of the parties agrees to the termination of
Documents 3 and 4 set forth on Exhibit A-2 hereto and that
subject to the payment of interest by Cytogen to EIS of $241,693
within five business days of the date hereof neither party shall
have any further liability or obligation thereunder; it being
understood that Document 5 on Exhibit A-2 shall remain in full
force and effect as originally stated. The original promissory
note shall, within five business days of the date hereof, be
marked "paid in full" by Cytogen and returned to Targon.
3. Targon Share Purchase; Etc. (a) Cytogen hereby
transfers, assigns and sets over to EIS all of Cytogen's right,
title and interest in and to the 500,000 shares of Common Stock,
par value $.01 per share, of Targon issued to Cytogen on
September 26, 1996 (the "Targon Common Stock"). Cytogen
represents that (i) it owns the Targon Common Stock free and
clear, and not subject to any right, encumbrance, lien or
restriction of any third party (collectively, "Encumbrances"),
(ii) the transactions contemplated by this Agreement will vest in
EIS legal and valid title to such Targon Common Stock, not
subject to any Encumbrance and (iii) to its best knowledge, there
are no other equity owners of Targon (or persons entitled to any
rights, options or warrants therein, other than as previously
disclosed to EIS). The parties agree that the consideration for
such transfer of Targon Common Stock is $10 million, which shall
be paid by the parties hereby agreeing to terminate the Note
Purchase Agreement and accompanying promissory note and,
accordingly, each of the parties agrees to the termination of
Documents 1 and 2 set forth on Exhibit A-2 hereto and that
neither party shall have any further liability or obligation
thereunder. The original promissory note shall, within five
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<PAGE>
business days of the date hereof, be marked "paid in full" by EIS
and returned to Cytogen .
(b) Cytogen agrees that from and after the date
hereof, it fully releases and it shall have no interest or right
in and to Targon, its name or goodwill or any of Targon's
intellectual property, all of which shall be owned by EIS and
certain unaffiliated stockholders and/or option holders.
4. Payment of Certain Fees. In connection with the
reorganization of Targon and the termination of certain of the
agreements referred to herein, Cytogen shall pay to EIS, within
five business days of the date hereof, by wire transfer, a fee of
$5 million.
5. Certain Investment in Cytogen. EIS shall, subject
to the remaining provisions of this Section 5, purchase from
Cytogen, and Cytogen shall issue to EIS, a convertible,
subordinated note in the original principal amount of $2 million
(the "Convertible Note"). The Convertible Note shall be
purchased at 100% of its original principal amount. The terms of
the Convertible Note shall be negotiated in good faith by each of
Cytogen and EIS, who shall use their commercially reasonable
efforts to conclude such negotiation and execution and fund the
Convertible Note as soon as practicable, but in any event within
15 days of the date hereof. The Convertible Note shall (a) bear
interest at 7% per year and be compounded semi-annually, however,
such interest shall not be payable in cash but shall be added to
principal for the first 24 months; thereafter, interest shall be
payable in cash, (b) be subordinated to senior indebtedness of
Cytogen and its subsidiaries on customary market terms, (c) be
convertible into shares of Cytogen common stock, par value $.01
per share (the "Cytogen Common Stock"), at a conversion price of
$2.80 per share, which shall be subject to customary
anti-dilution provisions, (d) have a term of seven years and (e)
contain customary financial and operating covenants for similar
instruments issued by similarly-situated issuers.
6. Certain Representations. (a) Cytogen represents to
Elan the following: (i) Cytogen is duly and validly existing in
good standing in the state of Delaware and each other
jurisdiction in which the conduct of its business requires such
qualification; (ii) Cytogen has full corporate authority to
execute and deliver this Agreement and the Supplemental
Agreements and to consummate the transactions contemplated hereby
and thereby, and this Agreement has been duly executed and
delivered and constitutes the legal and valid obligation of
Cytogen and is enforceable against Cytogen in accordance with its
terms; (iii) the Convertible Note and the shares of Cytogen
Common Stock issuable upon conversion thereof, have been or will
be duly and validly authorized and when issued will be fully paid
and non assessable and free from any and all options, warrants
and preemptive and other rights; (iv) Cytogen is not in default
in any material respect of its charter or by laws, any applicable
laws or regulations or any contract or agreement binding upon or
affecting it or its properties or assets and the execution,
delivery and performance of this Agreement and the transactions
contemplated hereby will not result in any such violation; (v)
after due inquiry, Cytogen is not aware of any liability or
obligation of Targon, for indebtedness, in respect of employee or
development or other matters or otherwise, other than as
previously disclosed in writing to EIS; and (vi) Cytogen has not
retained any broker or finder in connection with the transactions
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<PAGE>
contemplated hereby and no person or entity is entitled to any
fee, commission or other compensation in respect thereof.
(b) Elan and EIS, jointly and severally, represent to
Cytogen the following: (i) each of Elan and EIS is duly and
validly existing in good standing in the jurisdiction of its
incorporation and each other jurisdiction in which the conduct of
its business requires such qualification; (ii) each of Elan and
EIS has full corporate authority to execute and deliver this
Agreement and the Supplemental Agreements and to consummate the
transactions contemplated hereby and thereby; this Agreement has
been duly executed and delivered and constitutes the legal and
valid obligations of each of Elan and EIS and is enforceable
against them in accordance with its terms; (iii) neither Elan nor
EIS is in default in any material respect of its memorandum and
articles of association, any applicable laws or regulations or
any contract or agreement binding upon or affecting it or its
properties or assets and the execution, delivery and performance
of this Agreement and the transactions contemplated hereby will
not result in any such violation and (iv) neither Elan nor EIS
has retained any broker or finder in connection with the
transactions contemplated hereby and no person or entity is
entitled to any fee, commission or other compensation in respect
thereof.
(c) Neither Elan nor EIS has entered into on behalf of
Targon, as of the date hereof, any commercial transactions
relating to the licensing of the intellectual property relating
to Morphelan (as defined in the Morphelan Agreements) or
marketing of Morphelan. In addition, neither Elan nor EIS is, as
of the date hereof, in substantive discussion with any third
party relating to the licensing of the intellectual property
relating to Morphelan or marketing of Morphelan. For greater
clarity EIS, Elan and/or Targon may continue and consummate any
discussions or negotiations currently underway in connection with
such intellectual property or products without breaching this
representation.
7. Certain Indemnifications. (a) Each of Cytogen and
EIS (in such capacity, an "Indemnitor") hereby indemnifies and
holds the other and the other's affiliates and their respective
directors, officers and employees (collectively, the
"Indemnitees") harmless from and against any and all loss, cost
or expense, including without limitation, reasonable attorneys'
fees and disbursements (collectively, "Losses"), incurred by an
Indemnitee as a result of any breach or default of any of the
representations or covenants contained in this Agreement by such
Indemnitor or its affiliates.
(b) In addition to the indemnification provided for in
Section 7(a) above, EIS hereby indemnifies and holds harmless
Cytogen and Cytogen's other Indemnitees from and against any
Losses resulting from the business or operations of Targon from
and after the date hereof, except to the extent that any such
Loss was caused or resulted from any wrongful or improper action
taken by or on behalf of Cytogen or its affiliates.
(c) An Indemnitor (including EIS under Section 7(b)
above) shall have the right to direct any proceeding relating to
third-party claim resulting in any indemnity claim hereunder and
no Indemnitee shall settle any matter that could result in
indemnification hereunder without the consent of the Indemnitor,
which consent shall not be unreasonably withheld. Each of the
4
<PAGE>
parties shall reasonably cooperate with the other in connection
with any third-party claim that could potentially result in
indemnification hereunder.
8. Confidentiality, Non disclosure, Etc. (a) Each of
the parties shall keep and maintain this Agreement and the
Supplemental Agreements and the transactions contemplated hereby
and thereby confidential and not disclose such matters or the
participation of the parties in such transactions to any person
or entity, except (a) to the extent required by applicable law or
administrative or judicial process or (b) for a press release as
may be required by applicable laws, so long as the text thereof
shall have been provided to the other party at least one business
day prior to issuance thereof and such other party shall have
been given the opportunity to approved the text thereof, which
approval shall not be unreasonably withheld.
(b) In addition to the obligations set forth in
Section 8(a) above, Cytogen agrees that it shall, and it shall
cause its officers, directors, employees and agents, to keep and
maintain in confidence and not disclose to any other person or
entity any and all confidential or proprietary information
relating to Targon or the business and affairs of Targon
disclosed to or in the possession of such persons; provided, that
the foregoing shall not apply to the extent required by
applicable law or administrative or judicial process.
Confidential or proprietary information relating to Targon shall
include all information relating to the business or affairs of
Targon derived or relating to any periods ending on or prior to
the date hereof.
9. Further Assurances. Each of the parties hereto
acknowledges that the transactions contemplated by this Agreement
may require additional actions to be taken or additional
documents or instruments to be executed, delivered or filed.
Each of such parties agrees, at its own expense and without
charge to the others, promptly to take such actions and to
execute such documents and instruments that may be reasonably
requested by the other or appropriate in the context of such
transactions.
10. Notices. Notices shall be in writing, given by
facsimile transmission (along with confirming originals),
reputable overnight courier (such as Federal Express) or by hand
and shall be given to the parties at their respective addresses
as set forth in the Securities Purchase Agreement.
11. Miscellaneous. This Agreement (a) shall be
governed by and construed in accordance with the internal laws of
the State of New York, without regard to principles of conflicts
of laws and, in connection therewith, each party consents to the
non exclusive jurisdiction of any federal or state court sitting
in the County, City and State of New York over any dispute
arising from this letter agreement; (b) shall not be assigned or
delegated by either party without the consent of the other (other
than to their respective affiliates) and, subject to the
foregoing provisions of this clause (b), shall be binding upon
the parties' respective successors and assigns; (c) may be
executed in counterparts and delivered by facsimile transmission;
and (d) together with the Supplemental Agreements, constitutes
the entire agreement among the parties and supersedes all prior
agreements or understandings among the parties.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first set forth above.
Targon Corporation
By: /s/ Michael Sember
------------------------
Name: Michael Sember
Title: Chairman and CEO
Cytogen Corporation
By: /s/ John E. Bagalay, Jr.
-------------------------
Name: John E. Bagalay, Jr.
Title: President and
Chief Executive Officer
Elan Corporation, plc
By: /s/ Thomas G. Lynch
---------------------------
Name: Thomas G. Lynch
Title: Director
Elan International Services, Ltd.
By: /s/ Kevin Insley
----------------------------
Name: Kevin Insley
Title: President
6
<PAGE>
Exhibit A-1
[All documents are dated September 26, 1996 unless otherwise indicated]
1. Securities Purchase Agreement between Cytogen and EIS
2. Cytogen Certificate of Designations, Powers, Preferences and
Rights of Series A Preferred Stock
3. Stock Subscription Agreement between Cytogen and Targon
4. Warrant for 1,000,000 shares of Cytogen Common Stock issued
by Cytogen to EIS
5. Registration Rights Agreement between Cytogen and EIS
6. Registration Rights Agreement between Targon, on the one
hand, and EIS and Cytogen, on the other hand
7. Joint Development and Operating Agreement among Elan, Cytogen
and Targon
8. Technology Transfer Agreement between ATS and Targon
9. Letter from Elan to Targon relating to Elan's necessary steps
in connection with the transfer of the ATS Compounds
10. Technology Assignment Agreement between Elan Pharmaceutical
Research Corp. ("EPRC") and Targon
11. Letter from EPRC to Elan relating to the ATS Compounds
12. Technology Transfer Agreement between Cytogen and Targon
7
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Exhibit A-2
[All documents are dated July 17, 1997 unless otherwise indicated]
1. Note Purchase Agreement between Cytogen and EIS
2. Promissory note from Cytogen to EIS
3. Securities Purchase Agreement between Targon and Cytogen
4. Promissory Note from Targon to Cytogen
5. License Agreement from Elan to Targon
8
<PAGE>
EXHIBIT 10.4
CYTOGEN CORPORATION
CONVERTIBLE PROMISSORY NOTE
U.S. $2,000,000 August 12, 1998
New York, New York
The undersigned, Cytogen Corporation, a Delaware
corporation with offices at 600 College Road East, Princeton,
New Jersey 08540 ("Cytogen"), unconditionally promises to pay
to Elan International Services, Ltd., a Bermuda corporation
("EIS") or any of its successors or assigns or any other
holder of this Note (collectively, the "Holder"), on August
12, 2005 (the "Maturity Date"), at such place as may be
designated by the Holder to Cytogen, the principal amount of
$2,000,000, together with interest thereon accrued from and
after the date hereof, at a rate per annum equal to the lesser
of (x) 7%, and (y) the maximum rate of interest permitted by
applicable law, compounded on a semi-annual basis, such
compounding to commence as of the first cash interest payment
date as provided in Section 2(b) below.
SECTION 1. REORGANISATION AGREEMENT
------------------------
(a) This Note is issued pursuant to an unwind
agreement dated as of the date hereof by and between Cytogen
and EIS (the "Reorganisation Agreement"). This Note is the
Convertible Promissory Note referred to in the Reorganisation
Agreement and the Holder is intended to be afforded the
benefits thereof, including the Representations and Warranties
set forth by Cytogen therein.
SECTION 2. PAYMENTS
--------
(a) Unless earlier converted in accordance with the
terms of Section 3 below or prepaid in accordance with the
terms hereof, the entire outstanding principal amount of this
Note, together with any accrued and unpaid interest thereon,
shall be due and payable on the Maturity Date.
(b) During the initial 24-month period from and
after the date hereof, Cytogen shall not be required to pay
accrued interest hereon in cash; such accrued interest shall
be capitalized and added to the principal amount outstanding
hereunder. Thereafter, Cytogen shall pay all accrued interest
to the Holder in cash.
(c) Principal outstanding hereunder, together with
accrued and unpaid interest thereon, may be prepaid by Cytogen
at any time, in whole or in part, upon five-days written
Notice to the Holder; such payments shall be due and payable
on the last business day of each of the second and fourth
calendar quarters of each year, commencing with the calendar
quarter ending in December 2000.
SECTION 3. CONVERSION
----------
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(a) From and after the date hereof and until this
Note is repaid in full, the Holder shall have the right, in
its sole discretion, to convert all principal and accrued
interest then-outstanding hereunder for shares of the common
stock of Cytogen, par value $.01 per share (the "Common
Stock"), at a conversion price of $2.80 per share (the
"Conversion Price"), subject to adjustment as described
herein.
(c) The Holder shall be entitled to exercise the
rights of conversion as described in this Section 3 upon 30
days Notice to Cytogen, such Notice to be in the form attached
hereto as Exhibit A.
SECTION 4. CERTAIN COVENANTS
-----------------
Cytogen covenants and agrees with the Holder
that, so long as any amount remains unpaid on the Note, unless
the consent of the Holder is obtained, Cytogen:
(a) shall not, prior to the payment in full of the
outstanding principal, and accrued and unpaid interest on, the
Note, create, incur, or suffer to exist any indebtedness or
other obligation senior hereto, other than in the ordinary
course of business;
(b) shall not change its primary line of business;
(c) shall not (i) enter into any merger or
consolidation, (ii) liquidate, wind up its affairs or
dissolve, or (iii) except in the ordinary course of business,
convey, sell, lease, transfer or otherwise dispose of, or
purchase or acquire, any business, assets, or other property;
(d) shall not, directly or indirectly, enter into any
transaction with, or for the benefit of, an affiliate (other
than for reasonable compensation);
(e) shall deliver to Holder:
(i) promptly after Cytogen shall obtain knowledge
of the occurrence of any Event of Default (as hereinafter
defined) or any event which with notice or lapse of time or
both would become an Event of Default (an Event of Default or
such other event being a "Default"), a notice specifying that
such notice is a "Notice of Default" and describing such
Default in reasonable detail, and, in such Notice of Default
or as soon thereafter as practicable, a description of the
action Cytogen has taken or proposes to take with respect
thereto; and
(ii) promptly after Cytogen shall obtain knowledge
of such, provide written notice of all legal or arbitral
proceedings, and of all proceedings by or before any
governmental or regulatory authority or agency, and each
material development in respect of such legal or other
proceedings, affecting Cytogen and its subsidiaries; except,
proceedings which, if adversely determined, would not have a
material adverse effect on Cytogen and its subsidiaries taken
as a whole.
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SECTION 5. ADJUSTMENT TO CONVERSION PRICE
------------------------------
The Conversion Price shall be subject to adjustment from
time to time as follows:
(a) (i) If Cytogen shall issue, after the date
hereof, any Additional Stock (as defined below) without
consideration or for a consideration per share less than the
greater of (X) the Conversion Price for such series in effect
immediately prior to the issuance of such Additional Stock and
(Y) the Closing Price on such date, the Conversion Price for
such series in effect immediately prior to each such issuance
shall forthwith (except as otherwise provided in this clause
(i)) be adjusted to a price equal to a price determined by
multiplying such Conversion Price by a fraction, the numerator
of which shall be the sum of (w) the number of shares of
Common Stock outstanding immediately prior to such issuance
and (x) the number of shares of Common Stock that the
aggregate consideration received by the Corporation for such
issuance would purchase at such Conversion Price; and the
denominator of which shall be the sum of (y) the number of
shares of Common Stock outstanding immediately prior to such
issuance and (z) the number of shares of such Additional
Stock. In the event that the the Conversion Price is
adjusted, as set forth above, the number of shares of Common
Stock issuable upon exercise of the conversion right herein
shall be increased by the reciprocal of such Conversion Price
adjustment.
(ii) No adjustment of the Conversion Price
shall be made in an amount less than one cent per share,
provided that any adjustments which are not required to be
made by reason of this sentence shall be carried forward and
shall be either taken into account in any subsequent
adjustment made prior to three years from the date of the
event giving rise to the adjustment being carried forward, or
shall be made at the end of three years from the date of the
event giving rise to the adjustment being carried forward. No
adjustment of such Conversion Price pursuant to this
subsection 5(a)(ii) shall have the effect of increasing the
Conversion Price above the Conversion Price in effect
immediately prior to such adjustment.
(iii) In the case of the issuance of Common
Stock for cash, the consideration shall be deemed to be the
amount of cash paid therefor before deducting any reasonable
discounts, commissions or other expenses allowed, paid or
incurred by Cytogen for any underwriting or otherwise in
connection with the issuance and sale thereof.
(iv) In the case of the issuance of the Common
Stock for a consideration in whole or in part other than cash,
the consideration other than cash shall be deemed to be the
fair value thereof as determined by Cytogen's board of
directors irrespective of any accounting treatment.
(v) In the event that Cytogen causes its
Common Stock to be combined, split or effects other capital
reorganisation that has the effect of changing the number of
outstanding shares of Common Stock, the number of shares of
Common Stock issuable upon exercise of the conversion right
herein shall be adjusted accordingly.
(b) "Additional Stock" shall mean any shares of
Common Stock issued by Cytogen after the Purchase Date to its
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Affiliates or directors, officers, employees or agents of such
Affiliates, other than shares of Common Stock issuable or
issued to employees, consultants or directors of Cytogen
directly or pursuant to a stock option plan, stock purchase
plan, restricted stock plan or contractual obligation
approved by the Board of Directors of Cytogen (provided that
the sum of such number of shares of Common Stock issuable or
issued pursuant to such stock option plan or restricted stock
plan shall in no event represent more than 20% of the
authorized number of shares of Common Stock). "Affiliates"
shall mean, with respect to any party, any entity that,
directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with
such party. For purposes of this definition, "control" means
the power to direct or cause the direction of the management
and policies of an entity, whether through the ownership of
voting securities, by contract or otherwise.
(c) In the event Cytogen should at any time or from
time to time after the date hereof fix a record date for the
effectuation of a split or subdivision of the outstanding
shares of Common Stock or the determination of holders of
Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or
other securities or rights convertible into, or entitling the
holder thereof to receive directly or indirectly, additional
shares of Common Stock (hereinafter referred to as "Common
Stock Equivalents") without payment of any consideration by
such holder for the additional shares of Common Stock or the
Common Stock Equivalents (including the additional shares of
Common Stock issuable upon conversion or exercise thereof),
then, as of such record date (or the date of such dividend
distribution, split or subdivision if no record date is
fixed), the Conversion Price shall be appropriately decreased
so that the number of shares of Common Stock issuable on
conversion of each share of such series shall be increased in
proportion to such increase of the aggregate of shares of
Common Stock outstanding and those issuable with respect to
such Common Stock Equivalents.
(d) If the number of shares of Common Stock
outstanding at any time after the date hereof is decreased by
a combination of the outstanding shares of Common Stock, then,
following the record date of such combination, the Conversion
Price shall be appropriately increased so that the number of
shares of Common Stock issuable on conversion of each share of
such series shall be decreased in proportion to such decrease
in outstanding shares.
SECTION 6. EVENTS OF DEFAULT
-----------------
The occurrence of any of the following events shall
constitute an event of default (an "Event of Default"):
(a) A default in the payment of the principal
amount of this Note, when and as the same shall become due and
payable;
(b) a default in the payment of any accrued and
unpaid interest on any Note, when and as the same shall become
due and payable;
(c) a default in the performance, or a breach of
any other covenant or agreement of Cytogen in this Note, and
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continuance of such default or breach for a period of 10 days
after the Holder has notified Cytogen of its occurrence;
(d) any representation, warranty, or certification
made by Cytogen pursuant to this Note or the Reorganisation
Agreement shall prove to have been false or misleading as of
the date made in any material respect;
(e) (i) the entry of a decree or order by a court
having jurisdiction adjudging Cytogen bankrupt or insolvent,
or approving a petition seeking reorganization, arrangement,
adjustment or composition of or in respect of Cytogen, under
United States bankruptcy or insolvency law, as now or
hereafter constituted, and the continuance of any such decree
or order unstayed and in effect for a period of 60 days; (ii)
the commencement by Cytogen of a voluntary case under United
States bankruptcy law, as now or hereafter constituted, or the
consent by Cytogen to the institution of bankruptcy or
insolvency proceedings against it; (iii) the filing by Cytogen
of a petition or answer or consent seeking reorganization or
relief under United States bankruptcy law; (v) the appointment
of a receiver, liquidator, assignee, trustee, or similar
official of Cytogen or of any substantial part of its property
which is not discharged within 60 days; (vi) the making by
Cytogen of an assignment for the benefit of creditors, or the
admission by it in writing of its inability to pay its debts
generally as they become due, or the taking of corporate
action by Cytogen in furtherance of any such action; or
(f) a material default by Cytogen under the
Reorganisation Agreement.
SECTION 7. REMEDIES IN THE EVENT OF DEFAULT
--------------------------------
(a) In the case of any Event of Default by Cytogen,
the amount of outstanding principal under this Note and
accrued and unpaid interest thereon shall, in addition to all
other rights and remedies of the Holder hereunder and under
applicable law, be and become immediately due and payable upon
written notice delivered by Holder to Cytogen.
(b) Cytogen hereby waives demand and presentment for
payment, notice of nonpayment, protest and notice of protest,
diligence, filing suit, and all other notice and promises to
pay the Holder its costs of collection of all amounts due
hereunder, including reasonable attorneys' fees.
(c) In the case of any Event of Default or breach of
this Note by Cytogen this Note shall continue to bear interest
after such default or breach at the interest rate otherwise in
effect hereunder plus 3% per annum (but in any event not in
excess of the maximum rate of interest permitted by applicable
law).
SECTION 8. RANK
----
This Note shall be subordinated to currently
existing senior indebtedness of Cytogen; provided, that from
and after the date hereof, and for anytime that principal or
accrued interest shall be outstanding hereunder, Cytogen shall
not incur any indebtedness for money borrowed which shall rank
senior to, or pari passu with, this Note without the prior
5
<PAGE>
consent of the Holder. Nothing contained herein shall be
construed as to prevent Cytogen from incurring and paying
obligations in the ordinary course of business, in accordance
with past practice.
SECTION 9. MISCELLANEOUS
(a) EIS may assign this Note to its affiliates.
This Note and all of the provisions hereof shall be binding
upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, that EIS
and Cytogen shall remain liable for their respective
obligations hereunder after any such assignment.
(b) All notices, demands and requests of any kind to
be delivered to any party in connection with this Agreement
shall be in writing and shall be deemed to have been duly
given if personally delivered or if sent by nationally-
recognized overnight courier or by registered or certified
airmail, return receipt requested and postage prepaid,
addressed as follows:
(i) if to Cytogen:
Cytogen Corporation
600 College Road East
Princeton, NJ 08540-5308
Attn: President
(ii) if to EIS, to:
Elan International Services, Ltd.
102 St. James Court
Flatts, Smiths Parish
Bermuda SL04
Attention: Director
with a copy to:
Brock Silverstein McAuliffe LLC
Citicorp Center
153 East 53rd Street
New York, New York 10022
Attention: David Robbins
Each party, by written notice given to the other in
accordance with this Section 9(b) may change the address to
which notices, other communication or documents are to be sent
to such party. All notices, other communications or documents
shall be deemed to have been duly given when received. Any
such notice or communication shall be deemed to have been
received (iv) in the case of personal delivery, on the date of
such delivery, (v) in the case of nationally-recognized
overnight courier, on the second business day after the date
when sent and (vi) in the case of mailing, on the fifth
business day following that day on which the piece of mail
6
<PAGE>
containing such communication is posted. Notice hereunder may
be given on behalf of the parties by their respective
attorneys.
(c) This Note may not be changed or terminated
orally and shall be governed by and construed in accordance
with the laws of the state of New York, without reference to
the principles of conflicts of laws thereof.
[Signature page follows]
7
<PAGE>
IN WITNESS WHEREOF, Cytogen and EIS have executed
this Note on the date first above written.
CYTOGEN CORPORATION
By: /s/ John E. Bagalay, Jr.
---------------------------
Name: John E. Bagalay, Jr.
Title: President and Chief Executive Officer
ELAN INTERNATIONAL SERVICES, LTD.
By: /s/ Kevin Insley
---------------------------
Name: Kevin Insley
Title: President
8
<PAGE>
EXHIBIT A
NOTICE OF ELECTION TO EXERCISE THE CONVERSION RIGHT
---------------------------------------------------
Date:
To: Cytogen Corporation
From: The Holder of the Convertible Promissory Note
dated as of August 12, 1998
Re: Exercise of the Conversion Right
Pursuant to the terms of the Convertible Promissory Note
(the "Note") issued by Cytogen Corporation ("Cytogen") to Elan
International Services, Ltd. ("EIS") as of August 12, 1998,
specifically Section 3 thereof, the Holder hereby notifies
Cytogen of its intention to exercise its right of conversion.
Pursuant to Section 3 of the Note, the Holder hereby
elects to convert the principal and all accrued and unpaid
interest on the Note for shares of the common stock of
Cytogen, par value $.01 per share, based upon a conversion
rate of $2.80 per share.
We have instructed our attorneys to contact Cytogen to
discuss the timing and documentation of the exchange.
Sincerely,
The Holder
______________________________
By:___________________________
Name:
Title:
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1998 AND THE CONSOLIDATED STATEMENTS
OF OPERATIONS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,018,000
<SECURITIES> 0
<RECEIVABLES> 1,567,000
<ALLOWANCES> (50,000)
<INVENTORY> 313,000
<CURRENT-ASSETS> 146,000
<PP&E> 17,914,000
<DEPRECIATION> (14,587,000)
<TOTAL-ASSETS> 18,831,000
<CURRENT-LIABILITIES> 7,610,000
<BONDS> 0
0
0
<COMMON> 568,000
<OTHER-SE> 476,000
<TOTAL-LIABILITY-AND-EQUITY> 18,831,000
<SALES> 3,684,000
<TOTAL-REVENUES> 6,594,000
<CGS> 3,835,000
<TOTAL-COSTS> 6,169,000
<OTHER-EXPENSES> 9,404,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 437,000
<INCOME-PRETAX> (9,107,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,107,000)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
