<PAGE>
PROSPECTUS Filed Pursuant to Rule 424(b)(4)
Registration No. 333-67947
475,330 Shares
CYTOGEN CORPORATION
Common Stock
CYTOGEN Corporation is selling 475,330 shares of its common stock
pursuant to a private equity line agreement.
This Prospectus may be used only in connection with the
resale by Kingsbridge Capital Limited ("Kingsbridge" or the
"Selling Stockholder"), from time to time, of
up to 6,200,000 shares of the common stock of CYTOGEN
Corporation, as follows:
- 6,000,000 shares of common stock which may be issued
by the Company to Kingsbridge pursuant to an equity
line agreement (of this amount, 5,524,470 shares
remain subject to future sale); and
- 200,000 shares of common stock issuable upon
exercise of a warrant held by Kingsbridge.
The shares of common stock offered hereby may be sold from time to time for
the account of the Selling Stockholder. The Company will not receive any of the
proceeds from the sale of the shares by the Selling Stockholder. The Company has
agreed to pay the Selling Stockholder's costs of registering the shares
hereunder, including legal fees up to a maximum of $5,000, commissions, transfer
taxes and certain other expenses of resale of the common stock. The Company also
agreed to pay the Placement Agent a fee equal to 6% of the proceeds to the
Company from sales pursuant to the equity line agreement.
The price at which the common stock will be issued by the Company to
Kingsbridge will be 85% of the market price of such stock on the date the
Company issues shares, as defined in the equity line agreement. The 475,330
shares of common stock offered pursuant to this prospectus are being sold to
Kingsbridge pursuant to the equity line agreement at a price of $1.0519 per
share, which price was 85% of $1.2375 per share, the market price of CYTOGEN's
common stock during the relevant pricing period.
The Selling Stockholder may offer, pursuant to this
prospectus, shares of common stock to purchasers from time to
time in transactions on the Nasdaq Stock Market, in negotiated
transactions, or otherwise, or by a combination of these methods,
at fixed prices that may be changed, at market prices prevailing
at the time of sale, at prices related to such market prices or
at negotiated prices. Sales of the shares may be effected
through broker-dealers, who may receive compensation from
Kingsbridge in the form of discounts or commissions. Kingsbridge
is an "underwriter" within the meaning of the Securities Act of
1933, as amended, in connection with such sales.
The Company's common stock is listed on the Nasdaq Stock
Market under the symbol "CYTO." The average of the high and low
bid prices for the Company's common stock on the Nasdaq Stock
Market on February 5, 1999 was $1.1565 per share.
Investing in the common stock involves certain risks which are described in
the "Risk Factors" section beginning on page 9.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
CYTOGEN's principal executive offices are located at 600
College Road East, CN 5308, Princeton, New Jersey 08540-5308,
(609) 987-8200.
<PAGE>
TABLE OF CONTENTS
Page
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The Equity Line Agreement. . . . . . . . . . . . . . . . . . . . 24
Determination of the Offering Price. . . . . . . . . . . . . . . 25
Price Range of our Common Stock. . . . . . . . . . . . . . . . . 26
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . . 26
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . 26
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . 27
Selected Consolidated Financial Data . . . . . . . . . . . . . . 28
Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . 29
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Available Information. . . . . . . . . . . . . . . . . . . . . . 56
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Executive Compensation . . . . . . . . . . . . . . . . . . . . . 60
Description of Capital Stock . . . . . . . . . . . . . . . . . . 68
Selling Stockholder . . . . . . . . . . . . . . . . . . . . . . 71
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . 72
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . 74
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Index to Consolidated Financial Statements . . . . . . . . . . . F-1
__________________________
ProstaScint and OncoScint are registered trademarks of
CYTOGEN. PIE and SynGene are trademarks of CYTOGEN,
pending registration. Quadramet is a trademark of Dow,
licensed to CYTOGEN
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in
this prospectus. It is not complete and may not contain all the
information that you should consider before investing in the
common stock. You should read the entire prospectus carefully,
including the "Risk Factors" section, the financial statements
and the notes to the financial statements.
The Company
CYTOGEN Corporation ("CYTOGEN" or the "Company") is a
biopharmaceutical company engaged in the development,
commercialization and marketing of products to improve diagnosis
and treatment of cancer and other diseases. CYTOGEN was
incorporated in Delaware in 1981. Unless the context otherwise
indicates, as used herein, the term "Company" refers to CYTOGEN
and its subsidiaries, taken as a whole.
Our Products
We introduced to the market during 1997 our two principal
products, each of which have been approved by the U.S. Food and
Drug Administration ("FDA"):
- ProstaScint (kit for the preparation of Indium In111
Capromab Pendetide). ProstaScint has been approved as
a diagnostic imaging agent for prostate cancer, the most
frequently diagnosed malignancy and second leading
cause of cancer death in men.
- Quadramet (Samarium Sm153 Lexidronam Injection).
Quadramet has been approved for the treatment of
bone pain due to cancers that have spread to the
skeleton and that can be visualized on a bone scan.
Our OncoScint CR/OV imaging agent is also approved and
marketed as a diagnostic imaging agent for colorectal and ovarian
cancer.
We believe that our products represent a significant
improvement over existing technologies because our products
provide improved diagnostic information and/or treatment in a
site-specific manner with relatively low levels of toxicity.
We also develop other products and technologies, both
directly and through subsidiaries, and have engaged in
development efforts with other parties.
Research and Development
Historically, we have emphasized research and development of
a broad array of potential products, based on monoclonal
antibodies and other technologies. Having identified and
commercialized products which we believe have substantial
potential, we have:
- Conducted or sponsored clinical studies to evaluate
existing products in additional indications;
- Focused on development of technology with near term
commercial significance;
- Reviewed all current research and development
programs to assess their commercial potential; and
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- Recently curtailed basic research expenditures in
order to allocate resources toward implementing our
business strategy.
Business Strategy
Our business strategy calls for:
- Devoting our primary efforts to the marketing of
ProstaScint and Quadramet to increase revenue and
achieve profitability;
- Expanding the use of ProstaScint and other products
into foreign markets;
- Developing products utilizing our proprietary
technology;
- Expanding our current product portfolio through the
continued in-licensing of additional products and
related technologies, in the same manner as Quadramet;
- Establishing strategic alliances; and
- Acquiring other companies with related or
complementary products, technologies and/or services.
We cannot predict, however, whether we can accomplish these
objectives or whether accomplishment of these objectives will
lead to new commercially viable products or technologies. In
addition, our efforts to develop or acquire new products depend
on our available resources, our ability to commit resources to
potential products or strategic activities without unduly
impacting current operations or financial results, and whether or
not such activities in the near term would affect the marketing
of our products or the efforts of management to commercialize the
Company successfully.
Restructuring Activities
During 1998, we reviewed our assets and business prospects
to determine which projects demonstrated adequate potential for a
continued investment of corporate resources. As a result of this
review, we:
- Terminated our ALT program.
Our subsidiary Cellcor, Inc. ("Cellcor") had been
developing Autologous Lymphocyte Therapy ("ALT")
for the treatment of metastatic renal cell
carcinoma ("mRCC"), a life threatening kidney
cancer for which there are no adequate therapies.
We had planned to submit a Biologics License
Application for ALT. Cellcor completed pivotal
Phase III clinical trials of ALT in mRCC patients
in January 1997. Although we believe the results
of the trials are favorable, ALT was not
considered a priority for allocation of available
resources. We halted our preparation for
submission of the Biologics License Application
and closed our Cellcor facility in September 1998.
- Sold our interest in Targon Corporation.
Our review determined that the projects under
development by Targon Corporation ("Targon") were
not consistent with our corporate strategies.
During August 1998, we sold our interest in Targon
to our partner in the venture, Elan Corporation
plc ("Elan") for $2 million in cash. In addition,
we received $2 million from Elan in exchange for a
convertible promissory note.
- Sold our manufacturing facility and effectively outsourced
manufacturing.
We determined that outsourcing manufacturing of the Company's
products would be more economical and consistent with our
strategies.
During early January, 1999, we sold our manufacturing facility
and entered a three year agreement in which the Company's
ProstaScint and OncoScint products would continue to be
manufactured at the facility (see Recent Developments).
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- Reduced expenses.
We have downsized the workforce by eliminating
positions which were no longer critical to our
strategic plans and have curtailed expenses for
basic research.
Recent Developments.
- We raised $4.5 million in equity capital by selling 6 million shares of
common stock to our two largest investors, a subsidiary of the Hillman
Company and the State of Wisconsin Investment Board. The price the
investors paid for the common stock was $.75 per share, the market price
at the time we agreed to terms with the investors. We did not pay any
commissions to any underwriters or agents and received all of the
proceeds from the sale.
- We sold our manufacturing facility to Bard Bio Pharma L.P., a subsidiary
of Norwalk, CT based pharmaceutical company Purdue Pharma L.P. We
received $3.9 million in cash for the assets in the facility, and the
lease to the building. We also signed an agreement with Purdue to share
space in the building to continue to manufacture our ProstaScint and
OncoScint products at the same location. Employees involved in
maufacturing will remain CYTOGEN employees, but Purdue will pay for
their labor costs except while they are working on our products.
5
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The Offering
CYTOGEN Corporation and Kingsbridge entered into a Private
Equity Line of Credit Agreement on October 23, 1998 (the "Equity
Line Agreement"). This agreement entitles us to sell, from time
to time, up to $12,000,000 (after deducting Kingsbridge's
discount) of our common stock to Kingsbridge.
Pursuant to the agreement, we have:
- Filed a registration statement for 6,000,000 shares
of common stock which we may sell to Kingsbridge
pursuant to this agreement, which Kingsbridge may
offer to the public through this prospectus;
- Issued to Kingsbridge a warrant to purchase 200,000
shares of our common stock at an exercise price of
$1.016 per share (the "Kingsbridge Warrant").
Shares issuable on exercise of the Kingsbridge
Warrant may also be offered to the public through
this prospectus;
- Issued to our placement agent, May Davis Group, Inc., a
warrant to purchase 100,000 shares of common stock at an
exercise price of $2.00 per share (the "Placement Agent
Warrant, and
- Agreed to pay the May Davis Group, Inc., a placement agent
(the "Placement Agent")a fee equal to 6% of the net proceeds
from the sale of common stock purchased by Kingsbridge
pursuant to the Equity Line Agreement.
Pursuant to the private equity line agreement, CYTOGEN offered 475,330
shares of its common stock to Kingsbridge on February 5, 1999 at a price of
$1.0519 per share.
Pursuant to this prospectus, the Selling Stockholder may offer to the
public the common stock acquired pursuant to the Equity Line Agreement and the
Warrants.
Offered by the Selling Stockholder . . . . . . . . Up to 6,200,000 shares of
common stock of CYTOGEN
Corporation, par value $.01
per share.
Offering Price . . . . . . . . . . . . . . . . . . Determined at the time of
sale by the Selling
Stockholder.
Common stock outstanding as of
September 30, 1998 . . . . . . . . . . . . . . . 58,602,852 shares*
Use of Proceeds . . . . . . . . . . . . . . . . . We will not receive any of
the proceeds of the offering
of the shares hereby by the
Selling Stockholder. Any
proceeds we receive from the
sale of common stock pursuant
to the Equity Line Agreement
and the exercise of the
Warrant will be used for
general corporate purposes.
See "The Equity Line
Agreement."
Dividend Policy. . . . . . . . . . . . . . . . . . We currently intend to retain
any future earnings to fund
the development and growth of
our business. Therefore, we
do not currently anticipate
paying cash dividends. See
"Dividend Policy."
6
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Nasdaq Stock Market Symbol . . . . . . . . . . . . CYTO
*Does not include:
- 560,000 shares of common stock issuable upon exercise
of warrants outstanding as of September 30, 1998
(including 200,000 shares issuable upon exercise of the
Warrant);
- 6,235,578 shares of common stock issuable upon exercise
of stock options outstanding as of September 30, 1998;
and
- Shares of common stock issuable to Kingsbridge pursuant
to the Equity Line Agreement.
- 6,000,000 shares of common stock sold during December 1998
and January 1999. See "Prospectus Summary - Recent Development."
7
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Summary Consolidated Financial Information
(In thousands, except per share data)
The summary consolidated financial information below has
been derived from the audited and unaudited Consolidated
Financial Statements of CYTOGEN Corporation included elsewhere in
this prospectus. This information should be read in conjunction
with our Unaudited Financial Statements and the Audited Financial
Statements, and the Notes thereto, which are included in this
prospectus. Results of operations for the nine months ended
September 30, 1998 are not necessarily indicative of results of
operations for the whole year. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Product.................................... $ 6,244 $ 3,708 $ 5,252 $ 1,507 $ 1,377 $ 1,411 $ 1,591
Royalties.................................. 1,664 1,652 3,282 - - - -
License and contract....................... 1,456 4,834 5,886 4,223 3,608 1,047 8,763
--------- --------- --------- --------- --------- --------- ---------
Total revenues........................... 9,364 10,194 14,420 5,730 4,985 2,458 10,354
--------- --------- --------- --------- --------- --------- ---------
Operating Expenses:
Cost of product related and contract
manufacturing revenues (1).............. 6,090 4,604 5,939 - - - -
Research and development.................. 8,341 14,739 17,913 20,539 22,594 20,321 24,844
Acquisition of in-process
technology.............................. - - - - 45,878 4,647 -
Equity loss in Targon subsidiary (2)..... 1,020 8,709 9,232 288 - - -
Selling and marketing.................... 3,581 3,782 5,492 4,143 4,493 5,536 9,399
General and administrative............... 5,833 4,760 6,871 5,494 4,804 3,962 7,016
--------- -------- -------- --------- --------- --------- ---------
Total operating expenses............... 24,865 36,594 45,447 30,464 77,769 34,466 41,259
--------- -------- -------- --------- --------- --------- ---------
Operating Loss......................... (15,501) (26,400) (31,027) (24,734) (72,784) (32,008) (30,905)
Gain on sale of Targon subsidiary........ 2,833 - - - - - -
Other non-operating income (expense)..... 2 308 315 968 264 (798) 1,676
--------- -------- -------- --------- --------- --------- ---------
Net loss................................. (12,666) (26,092) (30,712) (23,766) (72,520) (32,806) (29,229)
Dividends, including deemed
dividends on preferred stock........... (119) - (1,352) (4,571) - - -
--------- -------- --------- --------- --------- --------- ---------
Net loss to common stockholders......... $(12,785) $(26,092) $(32,064) $(28,337) $(72,520) $(32,806) $(29,229)
========= ========= ========= ========= ========= ========= =========
Basic and diluted net loss per common
share.................................. $ (0.23) $ (0.51) $ (0.63) $ (0.59) $ (2.11) $ (1.38) $ (1.38)
========= ========= ========= ========== ========= ========= =========
Basic and diluted weighted average
common shares outstanding.............. 55,426 51,124 51,134 48,401 34,333 23,822 21,121
========== ======== ========= ========== ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Consolidated Balance Sheet Data: September 30, December 31,
---------------------------------------------------
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Cash, short term investments and
restricted cash(3)......................... $ 3,027 $ 7,401 $24,765 $29,135 $ 7,700 $23,764
Total assets............................... 8,880 27,555 41,543 37,149 19,690 34,635
Long term liabilities...................... 2,141 10,171 1,855 3,275 4,310 192
Redeemable common stock.................... - - - 2,000 2,000
Stockholder's equity (deficit)(3).......... (2,569) 9,983 32,927 25,276 4,368 21,731
</TABLE>
(1) Prior to 1997, product sales were minimal and no revenues
were derived from contract manufacturing, therefore cost of
product sales were immaterial and included in research and
development expenses.
(2) Restated in 1997 and 1996 to give retroactive effect to the
change in accounting for its investment in Targon. See Notes
to the Consolidated Financial Statements.
(3) As a result of recent transactions (see "Prospectus Summary - Recent
Developments"), at January 14, 1999, the Company's cash on hand was
approximately $10 million and net tangible assets were approximately
$5.3 million.
8
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RISK FACTORS
Prospective investors in the common stock offered hereby
should carefully consider the following risk factors, in addition
to the other information contained in this prospectus. This
prospectus contains forward-looking statements which involve
risks and uncertainties. Our actual results could differ
materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set
forth in the following risk factors and elsewhere in this
prospectus.
History of Losses and Accumulated Deficit
We have a history of losses as follows:
Operating Net Loss to Common
Losses Stockholders
------ ------------
Nine months
ended September 30, 1998 $15,501,000 $ 12,785,000
Year Ended December 31, 1997 31,027,000 32,064,000
Year Ended December 31, 1996 24,734,000 28,337,000
The losses were due in part to limited revenues and to
various expenditures, including:
- - Research and development activities;
- - Acquiring of complementary products and technologies;
- - Seeking regulatory approvals for our products;
- - Preclinical and clinical studies related to our products;
- - Preparing of submissions to the United States Food and Drug Administration;
- - Developing of sales, marketing, manufacturing and distribution channels;
- - Developing of internal manufacturing capabilities relating to ProstaScint; and
- - General and administrative expenses.
We expect to incur operating losses in the future due
primarily to:
- - Continuing product development;
- - Acquiring, developing and commercializing complementary products and
technologies; and
- - Expansion of our sales and marketing activities.
As a result of these losses, as of September 30, 1998, we
had an accumulated deficit of approximately $302 million.
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Uncertainty of Profitability
Our ability to achieve and maintain profitability is highly
dependent upon the successful commercialization of our products,
including Quadramet and ProstaScint. There can be no assurance
that we will ever be able to successfully commercialize our
products or that we will ever achieve profitability.
Fluctuating Results of Operations
Our results of operations have fluctuated on an annual and
quarterly basis and may fluctuate significantly from period to
period in the future, due to, among other factors:
- - Variations in revenue from sales of and royalties from our products;
- - Timing of regulatory approvals and other regulatory announcements
relating to our products;
- - Variations in our marketing, manufacturing and distribution channels;
- - Timing of the acquisition and successful integration of complementary
products and technologies;
- - Timing of new product announcements and introductions by the Company
and its competitors, and
- - Product obsolescence resulting from new product introductions.
Many of these factors, and others not listed above, are
outside our control. Due to one or more of these factors, our
results of operations may fall below the expectations of
securities analysts and investors in one or more future quarters.
If this happens, the market price of our common stock could be
materially and adversely affected.
Risk of possible delisting from the Nasdaq Stock Market
There is a possibility that our common stock could be
delisted from the Nasdaq Stock Market ("NSM"). While our common
stock is currently quoted on the NSM, in order to remain quoted
on the NSM, we must meet certain requirements with respect to:
- - Market capitalization (the market value of all
outstanding shares of our common stock);
- - Public float (the number of outstanding shares of
common stock held by non-affiliates of the Company);
- - Market value of public float;
- - Market price of the common stock;
- - Number of market makers;
- - Number of shareholders; and
- - Net tangible assets (total assets minus total
liabilities and goodwill).
At September 30, 1998, net tangible assets was below the $4 million
minimum level required for continued quotation on the NSM. We
have been in discussions with the NSM as to our failure to meet
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<PAGE>
the minimum net tangible assets standard, as to the fact that our common
stock could be delisted as a result, as to seeking an exception to this
requirement as we restructure, and as to our plans for achieving
compliance. As of January 14, 1999 our net tangible assets were in excess of
$5.3 million. In addition, our stock recently has at times fallen below the
NSM $1 bid price requirement. To remain listed, we must continue to meet
these requirements. There can be no assurance that we will be granted an
exemption, if needed, or that our common stock will not be delisted from
quotation on the NSM if we are not able to continue to meet
these standards. If our common stock is delisted from the NSM, we could
apply to have the common stock quoted on the Nasdaq SmallCap Market. The
Nasdaq SmallCap Market has a similar set of criteria for initial and
continued quotation. There can be no assurance that we would meet the
requirements for initial or continued quotation on the Nasdaq SmallCap
Market, however. If we were to fail to meet the requirements of the Nasdaq
SmallCap Market, trading of our common stock could be conducted on an
electronic bulletin board established for securities that do not meet the
Nasdaq SmallCap Market listing requirements, in what is commonly referred
to as the "pink sheets." If our common stock were delisted from the NSM, we
would not have the right to obtain funds under the Equity Line Agreement
and it could be more difficult for us to obtain future financing. In
addition, if our common stock is delisted, investors' interest in our
common stock would be reduced, which would materially and adversely affect
trading in, and the price of, our common stock.
Need for Additional Capital
We have incurred negative cash flows from operations since
inception, and have expended, and will need to expend,
substantial funds to complete our planned product development
efforts, including:
- - Acquisition of products and complementary technologies;
- - Research and development;
- - Clinical studies and regulatory activities; and
- - Expansion of our marketing, sales and distribution activities.
In addition to the above requirements, we expect that we will
require additional capital either in the form of debt or equity,
irrespective of whether and when we reach profitability, for the
following activities:
- - Working capital;
- - Acquisitions of additional products and technologies; and
- - Further product development.
Our future capital requirements and the adequacy of our
available funds depend on numerous factors, including:
- - Successful commercialization of our products;
- - Acquisition of complementary products and technologies;
- - Magnitude, scope and results of our product development efforts;
- - Progress of preclinical studies and clinical trials;
- - Progress of regulatory affairs activities;
- - Costs of filing, prosecuting, defending and enforcing patent claims and
other intellectual property rights;
- - Competing technological and market developments; and
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- - Expansion of strategic alliances for the sale, marketing and distribution
of our products.
We currently expect that our existing cash, together with decreased operating
costs, and revenues generated by product sales and royalties excluding any funds
obtained through the Equity Line Agreement, will be adequate to fund our
operations into the year 2000. While we believe the addition of the Equity Line
Agreement will provide us with additional cash to fund operations, there are
certain conditions we must meet in order to obtain financing under the Equity
Line Agreement. There can be no assurance that we will not consume our available
capital resources before that time. If we experience unanticipated cash
requirements, we may require additional capital to:
- Fund operations;
- Continue research and development programs;
- Continue pre-clinical and clinical testing of
potential products; or
- Commercialize any products that may be developed.
Possible Unavailability of Other Financing
Our ability to raise capital through the Equity Line
Agreement is subject to the satisfaction of certain conditions at
the time of each sale of common stock to Kingsbridge. There can
be no assurance that we will satisfy all conditions of the Equity
Line Agreement or sell shares pursuant thereto.
There can be no assurance we will be able to obtain
additional financing on acceptable terms, if at all. We may seek
to raise additional capital through public or private offerings
of equity or debt or through collaborative agreements, strategic
alliances with corporate partners and others, or through other
contractual arrangements with third parties. We may receive
additional funds upon the exercise of common stock purchase
warrants and stock options, but there can be no assurance that
any warrants or stock options will be exercised or that the
amounts received will be sufficient to meet our capital needs.
If adequate funds are not available, we may be required to delay,
scale back or eliminate one or more of our development programs
or certain aspects of our operations, or to obtain funds by
entering into arrangements with collaborative partners or others
that may require us to relinquish rights to certain of our
products, product candidates, technologies or potential markets,
that we would otherwise not relinquish. If adequate funds are
not available, our business, financial condition and results of
operations will be materially and adversely affected. Our
ability to raise capital through the Equity Line Agreement is
subject to the satisfaction of certain conditions at the time of
each sale of common stock to Kingsbridge.
Possible Dilution or Requirement to Comply with Covenants
Additional equity financing may result in substantial
dilution to shareholders, and additional debt financing may limit
our ability to declare dividends, or may require us to comply
with covenants that would alter the way we conduct business.
Uncertainty Regarding Ability to Continue as a Going Concern
Our independent public accountants, Arthur Andersen LLP, in
their audit report on the consolidated financial statements for
the year ended December 31, 1997 contained in our Annual Report
and elsewhere in this prospectus included an explanatory
paragraph indicating their view that the Company would require
12
<PAGE>
additional funding to continue operations which raised
substantial doubt about our ability to continue as a going
concern.
The Company had a cash balance of approximately $10,000,000 as of January 14,
1999. These funds along with the anticipated sales revenues and reduced expense
levels should be adequate to support the Company's cash needs into the year
2000.
There can be no assurance that Arthur Andersen LLP's
opinion on future financial statements will not include a similar
explanatory paragraph if we are unable to raise sufficient funds
or generate sufficient cash flow from operations to cover the
cost of our operations. The inclusion of such an explanatory
paragraph could raise concerns about our ability to fulfill our
contractual obligations, thereby adversely affecting our
relationships with third parties, and could impact our ability to
complete future financings. Accordingly, the inclusion of such a
paragraph in Arthur Andersen LLP's opinion on any future
financial statements could have a material adverse effect on our
business, business prospects, financial condition and results of
operations.
Dependence on Market Acceptance of ProstaScint and Quadramet for Revenues
None of our products has a significant history of revenues.
ProstaScint and Quadramet were introduced to the market during
the first half of 1997 and are expected to account for a
significant percentage of our product-related revenues in the
foreseeable future. For the year ended December 31, 1997,
revenues from ProstaScint and Quadramet accounted for over 86% of
our product related revenues.
Because these products contribute the majority of our
revenues, our business, financial condition and results of
operations depend on their acceptance as safe, effective and cost
efficient alternatives to other available treatment and
diagnostic protocols by the medical community, including:
- health care providers, such as hospitals and physicians
- third-party payors, including Medicare, Medicaid,
private insurance carriers and health maintenance organizations
Market Acceptance of ProstaScint
ProstaScint is marketed by the urological division
of C. R. Bard, Inc. ("BARD"), with CYTOGEN retaining co-
marketing rights. We believe that efforts to market
ProstaScint to physicians and hospitals have been well
received, based on increasing sales, statements by
physicians to our employees as to the benefits of
ProstaScint and presentations on ProstaScint by physicians
at medical association meetings. However, training by
physicians, technicians and other health care professionals
is required before certain of our products can be used for
diagnosis or therapy. In order to use ProstaScint, our
customers, including technologists and physicians, must
successfully complete our Partners in Excellence Program
("PIE Program"), a proprietary training program designed
to promote the correct acquisition and interpretation of
ProstaScint images. This approach is, therefore, technique
dependent and requires a learning commitment on the part of
users. There can be no assurance that additional physicians
will make this commitment or otherwise accept this product
as part of their treatment practices.
CYTOGEN has a program dedicated to providing information to
and resolving issues with managed care organization ("MCOs")
relating to reimbursement. BARD is obligated to market
ProstaScint to MCOs, but has not yet implemented a
significant program in this area. Failure to market
ProstaScint to MCOs could hinder acceptance or
reimbursement, although we cannot quantify what impact, if
any, this marketing effort could have on sales of
ProstaScint.
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Market Acceptance of Quadramet
Berlex Laboratories, Inc. ("Berlex") is responsible for
the marketing of Quadramet, including marketing to MCOs, by
an agreement entered in October 1998, with marketing efforts
to begin in the first quarter of 1999.
Berlex has no previous experience with the marketing of Quadramet.
There can be no assurance that Berlex will be able to successfully market
Quadramet, or that this agreement will be profitable for the Company.
We have licensed the rights to Quadramet from The Dow
Chemical Company ("Dow"). Such rights are currently limited
to North and Latin America with respect to currently
approved indications. We also hold a license from Dow for
use of Quadramet in treatment of refractory rheumatoid
arthritis in North and Latin America and in other
countries, including European countries and Japan. There
can be no assurance that Quadramet will be accepted in the
United States and Canada, where the product is currently
approved. We also can not give any assurance that Quadramet
will be accepted in any markets outside the United States
and Canada, or approved for additional indications in any
locations, due to the influence of established medical
practices and other social and economic factors beyond our
control.
Accordingly, there can be no assurance that ProstaScint
or Quadramet will achieve market acceptance on a timely
basis, or at all. The failure of ProstaScint or Quadramet
to achieve market acceptance would have a material adverse
effect on the Company's business, financial condition and
results of operations.
Risks Relating to Potential Additional Cuts in Company Programs
We are reviewing and prioritizing programs, and there can be
no assurance that we will not cut programs to conserve capital.
After reviewing and prioritizing our business opportunities, we
ceased various developmental and research programs,
including submission of a Biologics License Application for ALT.
In addition, we ceased basic research in our Genetic
Diversity Library ("GDL") program. Any additional cuts would
increase our dependence on our remaining programs, and would
increase the risk from such programs to the Company as a whole,
which could materially and adversely affect our chances of
obtaining profitability. While we plan to allocate our resources
to those programs with the greatest potential to contribute to a
sound financial and operating position, there can be no assurance
that we will be successful in doing so.
Dependence on our Collaborative Partners
Our success depends in significant part upon the success of
our collaborative partners. We have entered into the following
agreements for the sales, marketing, distribution and manufacture
of our products, product candidates and technologies:
- - Sub-license and marketing agreement with Berlex relating to the
Quadramet technology that we have licensed from Dow. Berlex is
responsible for marketing, selling and arranging manufacturing and
distribution of Quadramet in the United States, Canada, and Latin America.
This agreement expires on the later of December 20, 2014 or upon the
expiration of the patents covering Quadramet.
- - Co-promotion agreement with BARD, granting BARD's Urological Division
the exclusive right to market ProstaScint to urologists; and
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- - Agreement for manufacture of Quadramet by The DuPont Pharmaceuticals
Company (formerly the radiopharmaceuticals division of the DuPont Merck
Company, "DuPont").
- - Agreement by which we will manufacture ProstaScint and OncoScint
in the facilities we sold to Purdue Pharma.
Because our collaborative partners are responsible for certain of
our sales, marketing, manufacturing and distribution activities,
these activities are outside our direct control. There can be no
assurance that our partners will perform their obligations under
these arrangements with the Company. In the event that our
collaborative partners do not successfully market and sell our
products, or breach their obligations under the above agreements,
the successful commercialization of Quadramet and ProstaScint
would not be achieved or would be delayed, and new product
development could be inhibited, which could have a material
adverse effect on our business, financial condition and results
of operations.
There can be no assurance that we will be able to maintain
our existing collaborative arrangements; if they expire or are
terminated, there can be no assurance that they will be renewed,
or that new arrangements will be available on acceptable terms,
if at all. In addition, there can be no assurance that any new
arrangements or renewals of existing arrangements will be
successful, that the parties to any new or renewed agreements
will perform their obligations thereunder, or that any potential
collaborators will not compete with us.
There can also be no assurance that our existing or future
collaborations will lead to the development of product candidates
or technologies with commercial potential, that we will be able
to obtain proprietary rights or licenses for proprietary rights
for our product candidates or technologies developed in
connection with these arrangements, or that we will be able to
ensure the confidentiality of proprietary rights and information
developed in such arrangements or prevent the public disclosure
thereof.
Limited Sales, Marketing and Distribution Capabilities
We have limited internal sales, marketing and distribution
capabilities. We are substantially dependent on Berlex for the
sales, marketing and distribution of Quadramet, and on BARD for
the sale and marketing of ProstaScint. If we are unable to
establish and maintain significant sales, marketing and
distribution efforts, either internally or through arrangements
with third parties, our business, financial condition and results
of operations could be materially adversely effected.
We have limited marketing history for our products.
- - ProstaScint was approved for marketing by the FDA in October 1996,
and commercially launched in February 1997. ProstaScint sales have
experienced growth since product launch. However, there can be no
assurance that such growth will continue.
- - Quadramet was approved for marketing by the FDA in March 1997 and
launched by DuPont in June 1997. Quadramet sales during the period from
initial launch were below the levels of minimum royalty payments we
recorded under our agreement with DuPont. Growth during early months was
limited by the need for hospitals to obtain license amendments
under federal and state law to receive and handle this new radioactive
product. In addition, initial marketing efforts by DuPont were directed
primarily to nuclear medicine physicians who directly administer the product
to patients. While we believe this approach was necessary to generate
product understanding, marketing to primary caregivers for likely candidates
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for treatment with Quadramet is necessary for extensive penetration
into the market. Berlex maintains a sales force which calls on the physician
oncological community; however, there is no significant experience with
sales efforts for Quadramet and there can be no assurance that sales efforts
will be successful.
The failure of our marketing efforts to achieve commercial
success would have a material adverse effect on our business and
results of operations.
Risks Associated with Manufacturing; Third-Party Manufacturers'
Dependence on Single Source Suppliers; Need to Comply with
Manufacturing Regulations
Our products must be manufactured in compliance with regulatory requirements
and at acceptable costs. While we believe that our manufacturing arrangements
currently address our needs for the production of our products, there can be no
assurance that we will be able to continue to arrange for manufacture on a
commercially reasonable basis, or successfully outsource the manufacturing of
our products. If we are unable to successfully arrange for the manufacture of
our products and product candidates, there would be a material adverse effect on
our business, financial condition and results of operations.
Quadramet is manufactured by DuPont pursuant to an agreement
with both Berlex and CYTOGEN. Certain components of Quadramet,
particularly Samarium-153 and EDTMP, are provided to DuPont by
outside suppliers. Due to radioactive decay, Samarium-153 must
be produced on a weekly basis. On one occasion, DuPont was
unable to manufacture Quadramet on a timely basis due to the
failure of a supplier to provide Samarium-153. If DuPont cannot
obtain sufficient quantities of such components on commercially
reasonable terms, or in a timely manner, it would be unable to
manufacture Quadramet on a timely and cost-effective basis which
could have a material adverse effect on our business, financial
condition and results of operations. Alternative sources for
these components may not be readily available. If DuPont were to
lose its sources of supply for such components, production of
Quadramet would be interrupted, which could have a material
adverse effect on our business, financial condition and results
of operations.
ProstaScint and OncoScint are manufactured in a facility owned by Purdue
Pharma, which we sold to Purdue in January, 1999. We have access to the
facility for three years for our manufacturing needs, and employees involved in
manufacturing will remain our employees. Purdue Pharma is responsible for
maintaining the overall facility. We are dependent on Purdue Pharma for
maintaining the facility to standards needed for our products. If they do not
perform adequately, or retain employees with skills needed, we would be unable
to manufacture ProstaScint and OncoScint which would have a material adverse
effect on our business and financial condition and results of operations. In
addition, at the end of the three year agreeemnt we may need to locate alternate
manufacturers of ProstScint and OncoScint. We can not give any assurances as to
the costs of supply or our ability to locate suitable alternate manufacture.
The Company and its third party manufacturers are required
to adhere to FDA regulations setting forth requirements for
current Good Manufacturing Practices ("cGMP") and similar
regulations in other countries, which include extensive testing,
control and documentation requirements. Ongoing compliance with
cGMP, labeling and other applicable regulatory requirements is
monitored through periodic inspections and market surveillance by
state and federal agencies, including the FDA, and by comparable
agencies in other countries. Failure of the Company and its
third-party manufacturers to comply with applicable regulations
could result in sanctions being imposed on us, including fines,
injunctions, civil penalties, failure of the government to grant
premarket clearance or premarket approval of drugs, delays,
suspension or withdrawal of approvals, seizures or recalls of
products, operating restrictions and criminal prosecutions.
Risks Associated with Reimbursement by Third-Party Payors
Our business, financial condition and results of operations
will continue to be affected by the efforts of governments and
other third-party payors to contain or reduce the costs of
healthcare through various means. There have been, and we expect
that there will continue to be, a number of federal and state
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proposals to implement government control of pricing and
profitability of therapeutic and diagnostic imaging agents such
as our products. In addition, an emphasis on managed increases
possible pressure on pricing of these products. While we cannot
predict whether such legislative or regulatory proposals will be
adopted or the effects such proposals or managed care efforts may
have on our business, the announcement of such proposals and the
adoption of such proposals or efforts could have a material
adverse effect on our business, financial condition and results
of operations. Further, to the extent such proposals or efforts
have a material adverse effect on other companies that are
prospective corporate partners for the Company, our ability to
establish strategic alliances may be materially and adversely
affected.
Sales of our products depend in part on the availability of
reimbursement to the consumer from third-party payors, including
Medicare, Medicaid, and private health insurance plans. Third-
party payors are increasingly challenging the prices charged for
medical products and services. There can be no assurance that
our products will be considered cost-effective and that
reimbursement to consumers will continue to be available, or will
be sufficient to allow us to sell our products on a competitive
basis. Approval of our products for reimbursement by a third
party payor may depend on a number of factors, including the
payor's determination that our products are clinically useful and
cost-effective, medically necessary and not experimental or
investigational. Reimbursement is determined by each payor
individually and in specific cases. The reimbursement process
can be time consuming and costly. If we cannot secure adequate
third party reimbursement for our products, there would be a
material adverse effect on our business, financial condition and
results of operations.
Intense Competition in the Biotechnology and Pharmaceutical Industries
The biotechnology and pharmaceutical industries are subject
to intense competition from large pharmaceutical, biotechnology
and other companies, as well as universities and research
institutions.
Many of these competitors have, compared to us, substantial
advantages with respect to their:
- - Financial, marketing, sales, manufacturing, distribution and technological
resources;
- - Sales and marketing expertise;
- - Distribution channels;
- - Experience in establishing third-party reimbursement for their products;
- - Research and development expertise;
- - Experience in conducting clinical trials;
- - Experience in regulatory matters;
- - Manufacturing efficiency; and
- - Name recognition.
Due to this intensely competitive environment, there can be
no assurance that we will be able to compete effectively against
such existing or potential competitors or that competition will
not have a material adverse effect on our business, financial
condition and results of operations.
Quadramet competes with other more traditional treatments or
therapies, such as:
- - External beam radiation;
- - Chemotherapy agents;
- - Narcotic analgesics; and
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- - Radiopharmaceuticals.
In addition, certain of our competitors may be in the
process of seeking FDA or foreign regulatory approval for their
own products, which compete directly or indirectly with ours.
We are highly dependent upon proprietary technology and seek
to protect such technology through a combination of patents,
licenses and trade secrets. We have applied for, obtained and
licensed patents for certain proprietary aspects of our
technology and processes in the U.S. and other countries. We are
particularly dependent upon the enforceability of our license
with Dow with respect to Quadramet. There can be no assurance
that our owned and licensed patents will prove to be enforceable
or that additional patents will be issued. Neither can assurance
be given that the technologies we use do not infringe upon the
proprietary rights of others, although we are not aware of any
such infringement or any adverse claim. Insofar as we rely in
part on trade secrets and unpatented know-how to maintain our
competitive position, there can be no assurance that others will
not independently develop similar or superior technologies or
that our trade secrets and know-how will not become known to
others. We could incur substantial costs in seeking enforcement
of our patents against infringement or preventing unauthorized
use of our trade secrets by others, or in defending patent
infringement claims brought against the Company.
Our success depends, in part, on our ability, and the
ability of our collaborators or licensors, to obtain protection
for products and technologies under United States and foreign
patent laws, to preserve trade secrets, and to operate without
infringing the proprietary rights of third parties. Because of
the substantial length of time and expense associated with
development of new products, the biopharmaceutical industry
places considerable importance on obtaining, and maintaining,
patent and trade secret protection for new technologies, products
and processes. We have obtained rights to certain patents and
patent applications and may obtain or seek rights from third
parties to additional patents and patent applications. There can
be no assurance that patent applications relating to our products
or technologies will result in patents being issued, that any
issued patents will afford us adequate protection, or that such
patents will not be challenged, invalidated, infringed or
circumvented. Furthermore, there can be no assurance that others
have not developed, or will not develop, similar products or
technologies that will compete with ours without infringing upon
our intellectual property rights.
Legal standards relating to the scope of claims and the
validity of patents in the biopharmaceutical industry are
uncertain and still evolving, and no assurance can be given as to
the degree of protection that will be afforded any patents we are
issued or license from others. There can be no assurance that,
if challenged by others in litigation, the patents we have been
assigned or have licensed from others will not be found invalid.
There can be no assurance that our activities would not infringe
patents owned by others. Defense and prosecution of patent
matters can be expensive and time-consuming and, regardless of
whether the outcome is favorable to us, can result in the
diversion of substantial financial, management and other
resources. An adverse outcome could:
- - Subject us to significant liability to third parties,
- - Require us to cease any related research and development activities and
product sales; or
- - Require us to obtain licenses from third parties.
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No assurance can be given that any licenses required under
any such patents or proprietary rights would be made available on
terms acceptable to us, if at all. Moreover, the laws of certain
countries may not protect our proprietary rights to the same
extent as United States law.
Our success also depends on the skill, knowledge, and
experience of our scientific and technical personnel. To help
protect our rights, we require all employees, consultants,
advisors and collaborators to enter into confidentiality
agreements that require disclosure, and in most cases, assignment
to us, of their ideas, developments, discoveries and inventions,
and that prohibit the disclosure of confidential information to
anyone outside the Company. There can be no assurance, however,
that these agreements will provide adequate protection for our
trade secrets, know-how or other proprietary information in the
event of any unauthorized use or disclosure.
Product Development
Product development involves a high degree of risk. There
can be no assurance that the product candidates we develop,
pursue or offer will prove to be safe and effective, will receive
the necessary regulatory approvals or will ultimately achieve
market acceptance. These product candidates will require
substantial additional investment, laboratory development,
clinical testing and regulatory approvals prior to their
commercialization. There can be no assurance that we will not
experience difficulties that could delay or prevent the
successful development, introduction and marketing of new
products. If we are unable to successfully develop and
commercialize products on a timely basis or at all, or achieve
market acceptance of such products, there could be a material
adverse effect on our business, financial condition and results
of operations.
Before we obtain regulatory approvals for the commercial
sale of any of our products under development, we must
demonstrate through preclinical studies and clinical trials that
the product is safe and efficacious for use in each target
indication. The results from preclinical studies and early
clinical trials may not be predictive of results that will be
obtained in large-scale testing, and there can be no assurance
that the our clinical trials will demonstrate the safety and
efficacy of any products or will result in marketable products.
A number of companies in the biotechnology industry have suffered
significant setbacks in advanced clinical trials, even after
promising results in earlier trials. In addition, there can be
no assurance that product issues will not arise following
successful clinical trials and FDA approval.
The rate of completion of the our clinical trials is
dependent upon, among other factors, the rate of patient
enrollment. Patient enrollment depends on many factors,
including the size of the patient population, the nature of the
protocol, the proximity of patients to clinical sites and the
eligibility criteria for the study. Delays in planned patient
enrollment may result in increased costs and delays, which could
have a material adverse effect on our business, financial
condition and results of operations.
Government Regulation
Any products tested, manufactured or distributed by us or on
our behalf pursuant to FDA clearances or approvals are subject to
pervasive and continuing regulation by numerous regulatory
authorities, including primarily the FDA. Changes in existing
requirements or adoption of new requirements or policies could
adversely affect our ability to comply with regulatory
requirements. If we fail to comply with regulatory requirements,
there could be a material adverse effect on our business,
financial condition and results of operations. There can be no
assurance that we will not be required to incur significant costs
to comply with laws and regulations in the future or that laws or
regulations will not have a material adverse effect upon our
business, financial condition and results of operations.
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Numerous federal, state and local governmental authorities
(each a "Regulatory Agency"), principally the FDA, and similar
agencies in other countries, regulate the preclinical testing,
clinical trials, manufacture and promotion of any compounds we or
our collaborative partners develop and the manufacturing and
marketing of any resulting drugs. The drug development and
regulatory approval process is lengthy, expensive, uncertain and
subject to delays.
- - Any compound we or our collaborative partners
develop must receive Regulatory Agency approval
before it may be marketed as a drug in a particular
country.
- - The regulatory process, which includes preclinical
testing and clinical trials of each compound in
order to establish its safety and efficacy, varies
from country to country, can take many years and
requires the expenditure of substantial resources.
- - In all circumstances, approval of the use of
previously unapproved radioisotopes in certain of
our products requires approval of either the Nuclear
Regulatory Commission or equivalent state regulatory
agencies. A radioisotope is an unstable form of an
element which undergoes radioactive decay, thereby
emitting radiation which may be used, for example,
to image or destroy harmful growths or tissue.
There can be no assurance that such approvals will
be obtained on a timely basis, or at all.
- - Data obtained from preclinical and clinical
activities are susceptible to varying
interpretations which could delay, limit or prevent
Regulatory Agency approval.
- - Delays or rejections may be encountered based upon
changes in Regulatory Agency policy during the
period of drug development and/or the period of
review of any application for Regulatory Agency
approval for a compound. These delays could
adversely affect the marketing of any products we or
our collaborative partners develop, impose costly
procedures upon our activities, diminish any
competitive advantages we or collaborative partners
may attain and adversely affect our ability to
receive royalties.
There can be no assurance that, even after such time and
expenditures, Regulatory Agency approvals will be obtained for
any compounds developed by or in collaboration with the Company.
Moreover, if Regulatory Agency approval for a drug is granted,
such approval may entail limitations on the indicated uses for
which it may be marketed that could limit the potential market
for any such drug. Furthermore, if and when such approval is
obtained, the marketing, manufacture, labeling, storage and
record keeping related to our products would remain subject to
extensive regulatory requirements. Discovery of previously
unknown problems with a drug, its manufacture, or its
manufacturer may result in restrictions on such drug, manufacture
or manufacturer, including withdrawal of the drug from the
market. Failure to comply with regulatory requirements could
result in fines, suspension of regulatory approvals, operating
restrictions and criminal prosecution.
The U. S. Food, Drug and Cosmetics Act requires that our
products be manufactured in FDA registered facilities subject to
inspection. The manufacturer must be in compliance with current
good manufacturing practices, or, cGMP, which imposes certain
procedural and documentation requirements upon us, and our
manufacturing partners with respect to manufacturing and quality
assurance activities. Noncompliance with cGMP can result in,
among other things, fines, injunctions, civil penalties, recalls
or seizures of products, total or partial suspension of
production, failure of the government to grant premarket
clearance or premarket approval for drugs, withdrawal of
marketing approvals and criminal prosecution. If we or our
manufacturing partners were to fail to comply with the
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requirements of cGMP, there could be a material adverse effect on
the Company's business, financial condition and results of
operations.
Attraction and Retention of Key Personnel
We are highly dependent on the principal members of our
management and scientific staff, the loss of whose services might
significantly delay or prevent the achievement of research,
development or strategic objectives. Our success depends on our
ability to retain key employees and to attract additional
qualified employees. Competition for such personnel is intense,
and there can be no assurance that we will be able to retain
existing personnel and to attract, assimilate or retain
additional highly qualified employees in the future.
We have an employment agreement with our President and Chief
Executive Officer, H. Joseph Reiser, Ph.D., which provides for
bonuses and vesting of options for the purchase of shares of
common stock based on continued employment and on the achievement
of performance objectives defined by the Board of Directors. We
do not have employment agreements with our other key personnel.
If we are unable to hire and retain personnel in key positions,
there could be a material adverse effect on the Company's
business, financial condition and results of operations.
Potential Inadequacy of Product Liability Insurance
Our business is subject to product liability risks inherent
in the testing, manufacturing and marketing of our products.
There can be no assurance that product liability claims will not
be asserted against us, our collaborators or licensees. While we
currently maintain product liability insurance in amounts we
believe are adequate, there can be no assurance that such
coverage will be adequate to protect us against future product
liability claims or that product liability insurance will be
available to us in the future on commercially reasonable terms,
if at all. Furthermore, there can be no assurance that we will
be able to avoid significant product liability claims and adverse
publicity. Consequently, a product liability claim or other
claim with respect to uninsured or underinsured liabilities could
have a material adverse effect on our business, financial
condition and results of operations.
Environmental Regulation
We are subject to a variety of local, state and federal
government regulations relating to:
- Storage
- Discharge;
- Handling;
- Emission;
- Generation;
- Manufacture; and
- Disposal
of toxic, infectious or other hazardous substances used to
manufacture our products. If we fail to comply with these
regulations, we could be subject to significant liabilities,
which could have a material adverse effect on our business,
financial condition and results of operations.
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Volatility of Stock Price
The market prices for securities of biotechnology and
pharmaceutical companies have historically been highly volatile,
and the market has from time to time experienced significant
price and volume fluctuations that are unrelated to the operating
performance of particular companies. The market price of our
common stock has fluctuated over a wide range and may continue to
fluctuate for various reasons, including, but not limited to,
announcements concerning the Company or our competitors
regarding:
- - Results of clinical trials;
- - Technological innovations or new commercial products;
- - Changes in governmental regulation or the status of our regulatory approvals
or applications;
- - Changes in earnings;
- - Changes in health care policies and practices;
- - Developments or disputes concerning proprietary rights;
- - Litigation or public concern as to safety of the our potential products; and
- - Changes in general market conditions.
Fluctuations or decreases in the trading price of the common
stock may adversely affect the Company's ability to raise capital
through the Equity Line Agreement or through other future equity
financings.
Impact of Anti-takeover Provisions on the Market Price of Common Stock
We have adopted various anti-takeover provisions which may
affect the market price of the common stock.
Our Board of Directors has the authority, without further
action by the holders of common stock, to issue from time to
time, up to 5,200,000 additional shares of preferred stock in one
or more classes or series, and to fix the rights and preferences
of such preferred stock. Pursuant to these provisions, we have
implemented a Stockholder Rights Plan by which one preferred
stock purchase right is attached to each share of common stock,
as a means to deter coercive takeover tactics and to prevent an
acquirer from gaining control of the Company without some
mechanism to secure a fair price for all of our stockholders if
an acquisition was completed. These rights will be exercisable
if a person or group acquires beneficial ownership of 20% or more
of our common stock and can be made exercisable by action of our
Board of Directors if a person or group commences a tender offer
which would result in such person or group beneficially owning
20% or more of our common stock. Each right will entitle the
holder to buy one one-thousandth of a share of a new series of
junior participating preferred stock for $20. If any person or
group becomes the beneficial owner of 20% or more of CYTOGEN 's
common stock (with certain limited exceptions), then each right
not owned by the 20% stockholder will entitle its holder to
purchase, at the right's then current exercise price, common
shares having a market value of twice the exercise price. In
addition, if after any person has become a 20% stockholder, we
are involved in a merger or other business combination
transaction with another person, each right will entitle its
holder (other than the 20% stockholder) to purchase, at the
right's then current exercise price, common shares of the
acquiring company having a value of twice the right's then
current exercise price.
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We are subject to provisions of Delaware corporate law
which, subject to certain exceptions, will prohibit us from
engaging in any "business combination" with a person who,
together with affiliates and associates, owns 15% or more of our
common stock (an "Interested Stockholder") for a period of three
years following the date that such person became an Interested
Stockholder, unless the business combination is approved in a
prescribed manner.
These provisions of the Stockholder Rights Plan, our
Certificate of Incorporation, and of Delaware law may have the
effect of delaying, deterring or preventing a change in control
of the Company, may discourage bids for the common stock at a
premium over market price and may adversely affect the market
price, and the voting and other rights of the holders, of the
common stock.
Impact of Shares Eligible for Future Sale on the Market Price of
the Common Stock
A large number of shares of common stock already
outstanding, or issuable upon exercise of options and warrants,
are eligible for resale, which may adversely affect the market
price of the common stock. As of September 30, 1998, the Company
had 58,602,852 shares of common stock outstanding. After September 30, 1998,
we issued an additional 6 million shares directly to investment funds which
are the Company's current largest stockholders. An additional
6,795,578 shares of common stock are issuable upon the exercise
of outstanding options and warrants (including 300,000 shares
issuable upon exercise of the Warrants). Substantially all of
such shares subject to outstanding options and warrants will,
when issued upon exercise thereof, be available for immediate
resale in the public market pursuant to currently effective
registration statements under the Securities Act of 1933, as
amended, or pursuant to Rule 701 promulgated thereunder. In
addition, the Equity Line Agreement provides that we are
obligated to issue at least $3,000,000, after deducting
discounts, (up to a maximum of $12,000,000, after deducting
discounts) of common stock during its term, which continues until
the earlier of when:
- We sell $12,000,000 (after deducting discounts) of common stock
to Kingsbridge;
- We fail to meet certain conditions of the Equity Line Agreement; or
- 24 months from the date of this prospectus.
The shares of stock which may be acquired by the Selling
Stockholders under the Equity Line Agreement and Warrants will be
available for immediate resale in the public market pursuant to
this prospectus. Such resales, or the prospect of such resales,
may have an adverse effect on the market price of the common
stock.
Dilutive Effects of Equity Line Agreement
The sale of shares pursuant to the Equity Line Agreement
will have a dilutive impact on our stockholders. As a result, our
net income or loss per share could be materially decreased in
future periods, and the market price of our common stock could be
materially and adversely affected. In addition, the common stock
to be issued under the Equity Line Agreement will be issued at a
discount to the then-prevailing market price of the common stock.
These discounted sales could have an immediate adverse effect on
the market price of the common stock. We also issued to
Kingsbridge a warrant for 200,000 shares of common stock
exercisable until April 2002 at an exercise price of $1.016 per
share and warrants to the May Davis Group for 100,000 shares of
common stock exercisable until October, 2001 at an exercise price
of $2.00 per share. The issuance or resale of such shares and the
shares issuable upon exercise of these warrants would have a
further dilutive effect on our common stock and could adversely
affect on its price.
23
<PAGE>
THE EQUITY LINE AGREEMENT
On October 23, 1998, we entered into the Equity Line
Agreement with Kingsbridge, pursuant to which, subject to the
satisfaction of certain conditions, we may issue and sell, from
time to time, up to an aggregate of $12,000,000, after deducting
discounts, of our common stock.
Beginning on the date the registration statement, of which
this prospectus forms a part, is declared effective by the
Securities and Exchange Commission (the "Commission"), and
continuing for a period of 24 months thereafter, we may from time
to time, in our sole discretion, sell ("put") shares of our
common stock to Kingsbridge at a price equal to 85% of the then
current average market price of our common stock. The current
average market price of our common stock, for purposes of
calculating the purchase price, is the average of the lowest
trading prices of our common stock on the NSM for the five days
beginning two days before and ending two days after we notify
Kingsbridge of our intention to put common stock.
Certain conditions must be satisfied before we can put
shares of common stock, and before Kingsbridge becomes obligated
to purchase shares including, but not limited to, the following:
- - The registration statement, of which this Prospectus forms a part, must
have been declared effective by the Commission;
- - Our representations and warranties to Kingsbridge set forth in the Equity
Line Agreement must be accurate as of the date of each put;
- - No statute, rule, regulation, executive order, decree, ruling or injunction
shall be in effect which prohibits or directly and adversely affects any of
the transactions contemplated by the Equity Line Agreement;
- - At the time of a put, there shall have been no material adverse change in
our business, operations, properties, prospects or financial condition since
the date of filing of our most recent report with the Commission pursuant to
the Securities Exchange Act of 1934;
- - Our common stock shall not have been delisted from the Nasdaq Stock Market
nor suspended from trading;
- - The number of shares already held by Kingsbridge, together with those shares
we are proposing to put, shall not exceed 9.9% of the total amount of our
common stock that would be outstanding upon completion of the put;
- - Our common stock must have a minimum bid price of $.75 per share at the time
of the put;
- - At least 20 trading days must have elapsed since the date of the last put
notice; and
- - The average trading volume of our common stock must be at least 50,000 shares
per day.
Kingsbridge, or other underwriters of the securities, have the right to review
this registration statement and our records and properties to obtain information
about us and the accuracy of this registration statement and prospectus.
Kingsbridge has the opportunity to comment on the registration statement and
prospectus, but is not entitled to reject a put by us based on their review.
Kingsbridge may be entitled to indemnification by us for any lawsuits based on
language in this prospectus with which they do not agree.
There can be no assurance that we will satisfy all
conditions required under the Equity Line Agreement, or will be
able to sell any shares to Kingsbridge thereunder. Currently,
there exists the possibility that our common stock may be
delisted from quotation on the NSM. If we were to fail to
maintain the quotation of our common stock on the NSM, we would
not be able to sell common stock pursuant to the Equity Line
Agreement. See "Risk Factors - Risk of possible delisting from
the Nasdaq Stock Market." Kingsbridge has agreed that it will
not engage in short sales of our common stock except that it may
engage in short sales or other hedging investments for three days
after we notify Kingsbridge of a put, as long as the number of
shares sold short or used for hedging does not exceed the number
of shares being sold to Kingsbridge under the put.
24
<PAGE>
We have filed a registration statement, of which this
Prospectus forms a part, in order to permit Kingsbridge to resell
to the public any common stock it buys pursuant to the Equity
Line Agreement.
In conjunction with the Equity Line Agreement, on October 23, 1998, we issued
to Kingsbridge a warrant to purchase 200,000 shares of our common stock at an
exercise price of $1.016 per share. The Kingsbridge Warrant is exercisable
through April 2002. Also in connection with the Equity Line Agreement, we issued
to the Placement Agent a warrant to purchase 100,000 shares of our common stock
at an exercise price of $2.00 per share. The Placement Agent Warrant is
exercisable at any time from the present to October 23, 2001.
The Warrant contains provisions that protect the Selling
Stockholder against dilution by adjustment of the exercise price
and the number of shares issuable thereunder upon the occurrence
of certain events, such as a merger, stock split or reverse stock
split, stock dividend or recapitalization. The exercise price of
the Kingsbridge Warrants is payable either in cash or by cashless
exercise, in which that number of shares of common stock issuable
pursuant to the Warrants, having a fair market value at the time
of exercise equal to the aggregate exercise price, are cancelled
as payment of the exercise price. The Placement Agent Warrant is
exercisable only for cash.
Under the Equity Line Agreement, we agreed to register the
common stock for resale by Kingsbridge to permit the resale from
time to time in the market or in privately-negotiated
transactions. We will prepare and file such amendments and
supplements to the registration statement as may be necessary in
accordance with the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder, in order to keep it
effective as long as registrable securities are outstanding. We
have agreed to bear certain expenses (other than broker discounts
and commissions, if any) in connection with the registration
statement.
DETERMINATION OF THE OFFERING PRICE
The common stock offered by this prospectus may be offered
for sale, by the Selling Stockholder, from time to time in
transactions on the NSM, in negotiated transactions, or
otherwise, or by a combination of these methods, at fixed prices
which may be changed, at market prices at the time of sale, at
prices related to market prices or at negotiated prices. As
such, the offering price is indeterminate as of the date of this
prospectus. See "Plan of Distribution."
25
<PAGE>
PRICE RANGE OF OUR COMMON STOCK
Our common stock is currently listed on the Nasdaq Stock
Market under the symbol "CYTO." For each quarter since the
beginning of 1996, the high and low bid quotations for our common
stock, as reported by Nasdaq, were as follows:
1996 High Low
- ---- ---- ---
First Quarter..................... 10 5 1/8
Second Quarter.................... 9 1/2 5 13/16
Third Quarter..................... 9 5 3/16
Fourth Quarter.................... 7 7/8 4 7/16
1997
- ----
First Quarter..................... 6 1/2 4 3/4
Second Quarter.................... 6 5/16 4 11/16
Third Quarter..................... 5 1/16 3 5/8
Fourth Quarter.................... 4 3/4 1 7/16
1998
- ----
First Quarter..................... 2 7/16 1 1/4
Second Quarter.................... 2 5/8
Third Quarter..................... 2 9/16 3/4
Fourth Quarter.................... 1 13/16 21/32
The foregoing bid quotations reflect inter-dealer prices,
without retail mark-ups, mark-downs or commissions, and may not
represent actual transactions.
DIVIDEND POLICY
We have never paid or declared any cash dividends on our
common stock. We currently intend to retain any future earnings
for our business and, therefore, do not anticipate paying cash
dividends in the foreseeable future. Future dividends, if any,
will depend on, among other things, our results of operations,
capital requirements, restrictions in loan agreements and on such
other factors as our Board of Directors, in its discretion, may
consider relevant.
USE OF PROCEEDS
The proceeds from the sale of the common stock will be
received directly by the Selling Stockholders. No proceeds will
be received by the Company from the sale of the common stock
offered hereby. However, the Company will receive the put price
pursuant to the Equity Line Agreement if and to the extent common
stock is sold by the Company pursuant thereto. The put price
equals 85% of the then current average market price of the
Company's common stock, as determined under the Equity Line
Agreement. The Company will also receive the proceeds, if any,
relating to the exercise of the Warrants. See "The Equity Line
Agreement." All proceeds from the sale of common stock under the
Equity Line Agreement and from the exercise of the Warrants will
be used for general corporate purposes.
Pursuant to the private equity line agreement, CYTOGEN offered 475,330 shares
of its common stock to Kingsbridge on February 5, 1999 at a price of $1.0519 per
share, resulting in net proceeds to the Company of $455,000.00, after deducting
expenses of the offering, all of which will be used for general corporate
purposes.
26
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the
Company as of September 30, 1998. This table should be read in
conjunction with the Company's Consolidated Financial Statements
and the Notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
September 30, 1998 (1)
-------------------
(All amounts in thousands
except share data)
<S> <C>
Long-term Liabilities (2) $ 2,141
-----------
Stockholders' Deficit
Preferred stock, $.01 par value, 5,400,000 shares authorized--
Series C Junior Participating Preferred Stock, $.01 par value
200,000 shares authorized, 0 shares issued and outstanding -
Common Stock, $.01 par value, 89,600,000 shares authorized,
58,602,852 shares issued and outstanding actual 586
Additional paid-in capital 298,371
Accumulated deficit (301,526)
----------
Total Stockholders' Deficit (2,569)
----------
Total Capitalization $ (428)
===========
</TABLE>
(1) Subsequent to September 30, 1998 the Company sold 6,000,000
shares of common stock for $4.5 million. (See "Prospectus Summary -
Recent Developments").
(2) For information concerning the Company's long-term debt, see
"Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources"
and Notes to Consolidated Financial Statements.
27
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands except per share data)
The selected consolidated financial data as of and for each
of the five years in the period ended December 31, 1997 have been
derived from the Consolidated Financial Statements of the Company
which have been audited by Arthur Andersen LLP, independent
public accountants, included elsewhere in this Prospectus. The
selected consolidated financial data as of September 30, 1998 and
for the nine months ended September 30, 1998 and 1997 has been
derived from the unaudited Consolidated Financial Statements of
the Company included elsewhere in this Prospectus. The unaudited
financial statements, in the opinion of the Company, include all
adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results of operations
for the full year.
The information set forth below should be read in
conjunction with the Consolidated Financial Statements of the
Company and the notes thereto included elsewhere in this
Prospectus. Results of operations for the nine months ended
September 30, 1998 are not necessarily indicative of results of
operations for future periods. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
------------------ -------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenues:
Product................................ $ 6,244 $ 3,708 $ 5,252 $ 1,507 $ 1,377 $ 1,411 $ 1,591
Royalties.............................. 1,664 1,652 3,282 - - - -
License and contract................... 1,456 4,834 5,886 4,223 3,608 1,047 8,763
--------- --------- --------- --------- --------- --------- ---------
Total revenues..................... 9,364 10,194 14,420 5,730 4,985 2,458 10,354
--------- --------- --------- --------- --------- --------- ---------
Operating Expenses:
Cost of product related and contract
manufacturing revenues (1)............. 6,090 4,604 5,939 - - - -
Research and development................ 8,341 14,739 17,913 20,539 22,594 20,321 24,844
Acquisition of in-process technology.... - - - - 45,878 4,647 -
Equity loss in Targon subsidiary (2).... 1,020 8,709 9,232 288 - - -
Selling and marketing................... 3,581 3,782 5,492 4,143 4,493 5,536 9,399
General and administrative.............. 5,833 4,760 6,871 5,494 4,804 3,962 7,016
--------- -------- -------- -------- --------- --------- ---------
Total operating expenses............ 24,865 36,594 45,447 30,464 77,769 34,466 41,259
--------- -------- -------- -------- --------- --------- ---------
Operating Loss...................... (15,501) (26,400) (31,027) (24,734) (72,784) (32,008) (30,905)
Gain on sale of Targon subsidiary....... 2,833 - - - - - -
Other non-operating income (expense).... 2 308 315 968 264 (798) 1,676
--------- --------- -------- -------- --------- --------- ---------
Net loss................................ (12,666) (26,092) (30,712) (23,766) (72,520) (32,806) (29,229)
Dividends, including deemed
dividends on preferred stock........... (119) - (1,352) (4,571) - - -
--------- --------- --------- --------- --------- --------- ---------
Net loss to common stockholders......... $(12,785) $(26,092) $(32,064) $(28,337) $(72,520) $(32,806) $(29,229)
========= ========= ========= ========= ========= ========= =========
Basic and diluted net loss per common
share.................................. $ (0.23) $ (0.51) $ (0.63) $ (0.59) $ (2.11) $ (1.38) $ (1.38)
========= ========= ========= ========= ========= ========= =========
Basic and diluted weighted average
common shares outstanding.............. 55,426 51,124 51,134 48,401 34,333 23,822 21,121
========= ========= ========= ========= ========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
Consolidated Balance Sheet Data: September 30, December 31,
------------- -------------------------------------------------
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Cash, short term investments and
restricted cash(3)......................... $ 3,027 $ 7,401 $24,765 $29,135 $ 7,700 $23,764
Total assets................................ 8,880 27,555 41,543 37,149 19,690 34,635
Long term liabilities....................... 2,141 10,171 1,855 3,275 4,310 192
Redeemable common stock..................... - - - - 2,000 2,000
Stockholder's equity (deficit)(3)........... (2,569) 9,983 32,927 25,276 4,368 21,731
</TABLE>
(1) Prior to 1997, product sales were minimal and no revenues were
derived from contract manufacturing, therefore cost of product sales
were immaterial and included in research and development expenses.
(2) Restated in 1997 and 1996 to give retroactive effect to the change in
accounting for its investment in Targon. See Notes to the Consolidated
Financial Statements.
(3) As a result of recent transactions (see "Prospectus Summary - Recent
Developments"), at January 14, 1999, the Company's cash on hand was
approximately $10 million and net tangible assets were approximately
$5.3 million.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
From time to time, as used herein, the term "Company" may
include CYTOGEN Corporation and its subsidiaries AxCell
Biosciences Corporation ("AxCell"), Cellcor and Targon, taken as
a whole, where appropriate. In 1998, we sold our interest in
Targon and closed our Cellcor facility. See "Business of the
Company."
Results of Operations
Background. To date, the Company's revenues have resulted
primarily from (i) sales and royalties from ProstaScint,
Quadramet and OncoScint CR/OV, (ii) the cost recovery related to
the treatment of patients receiving ALT for metastatic renal cell
carcinoma under a Treatment Investigational New Drug program and
compassionate protocol which permits patients who do not qualify
for or have completed treatment under an ongoing study approved
by the FDA to receive treatment, (iii) payments received from
contract manufacturing and research services pursuant to
agreements, (iv) fees generated from the licensing of its
technology and marketing rights to its products, and (v)
milestone payments received when events stipulated in the
collaborative agreements with third parties have been achieved.
CYTOGEN launched its second FDA-approved product,
ProstaScint, a monoclonal antibody-based imaging agent developed
to detect the presence and extent of metastatic prostate cancer,
in February 1997. In connection with the launch, CYTOGEN has
developed its PIE accreditation program by establishing a
network of qualified nuclear medicine sites and physicians. Each
site is trained and certified in acquiring, processing and
interpreting the antibody-derived images. As of November 1998
there were 228 PIE Sites in operation. ProstaScint is available
for use only at qualified PIE Sites, thus providing quality
control and support. BARD is currently marketing ProstaScint to
urologists while CYTOGEN markets ProstaScint to the medical
imaging community and oncologists through its PIE Program. Both
companies are responsible for marketing ProstaScint to MCOs.
CYTOGEN's focus is to increase the MCOs' awareness of and to
obtain coverage for ProstaScint while Bard is working with the
MCOs to incorporate ProstaScint in the MCOs' patient practice
guidelines. CYTOGEN's costs of its efforts related to marketing
to MCOs are immaterial and primarily attributable to its own
marketing personnel.
In October 1998 CYTOGEN announced an exclusive license and
marketing agreement ("Berlex Agreement") with Berlex for the
manufacture and sale of its third FDA approved product,
Quadramet, a treatment for bone pain arising from cancers which
have spread to the skeleton and that can be visualized on
standard bone scans. CYTOGEN and Berlex, in November 1998,
jointly finalized a long-term supply agreement with DuPont, the
current contract manufacturer of Quadramet. Under the terms of
the Berlex Agreement, CYTOGEN received an $8 million up-front
payment upon completion of the supply agreement with DuPont, of
which $4 million is payable to DuPont for securing a long-term
manufacturing commitment. Berlex will pay CYTOGEN royalties on
net sales of Quadramet, as well as milestone payments based on
achievement of certain sales levels. See Note 2 of Notes to the
Interim Consolidated Financial Statements.
Quadramet was previously marketed in the United States
beginning in June 1997 by DuPont. Under this arrangement,
CYTOGEN recorded royalty revenues based on a percentage of sales
of Quadramet or guaranteed contractual minimum royalty payments,
whichever was greater. Actual sales were substantially less than
the minimum royalties. On June 3, 1998, pursuant to an agreement
(the "Termination Agreement") between CYTOGEN and DuPont, CYTOGEN
reclaimed marketing rights to Quadramet and the minimum royalty
29
<PAGE>
arrangement was terminated. All terms of the Termination
Agreement have been met. As a result, near-term royalty revenues
were adversely affected and Quadramet revenues are now based on
actual sales.
On September 15, 1998, CYTOGEN implemented a restructuring
plan including operating expense reductions with the closure of
the Cellcor subsidiary and a corporate downsizing. As a result,
significant aspects of the Company's operations were scaled back
or eliminated to increase its focus on marketing of its products,
Quadramet, ProstaScint and OncoScint CR/OV. In conjunction with
this restructuring plan, CYTOGEN recorded a charge of $1.7
million in the third quarter of 1998 to its general and
administrative expenses for severances, other closure related
expenses and costs to implement a corporate turn-around plan.
On August 12, 1998, CYTOGEN completed the sale of its
remaining 49.875% ownership interest of Targon to Elan for $2.0
million As a result, the Company recognized a non-operating gain
of approximately $2.8 million in the third quarter of 1998. All
previous notes among CYTOGEN, Targon and Elan were canceled.
Also on August 14, 1998, CYTOGEN received $2.0 million from Elan
in exchange for a convertible promissory note. See Notes 3 and 5
of Notes to the Interim Consolidated Financial Statements.
On January 7, 1999, CYTOGEN sold its manufacturing facilities to Bard
BioPharma for $3.9 million. CYTOGEN will continue to manufacture its ProstaScint
and OncoScint products with Bard BioPharma under a three year agreement which
provides access to the facility for this manufacturing. Manufacturing employees
will remain on CYTOGEN's payroll, but Bard BioPharma will absorb their labor
costs except for time spent on manufacturing CYTOGEN products.
Years Ended 1997, 1996 and 1995
Revenues. Total revenues were $14.4 million in 1997, $5.7
million in 1996 and $5.0 million in 1995. Product related
revenues, including product and royalty revenues, accounted for
59%, 26% and 28% of revenues in 1997, 1996 and 1995,
respectively. The 1997 growth was due to the launch and revenues
generated from ProstaScint and Quadramet. License and contract
revenues accounted for the remainder of revenues with 41%, 74%
and 72% of the revenues in 1997, 1996 and 1995, respectively.
Product revenues were $5.3 million, $1.5 million and $1.4
million in 1997, 1996 and 1995, respectively. ProstaScint
accounted for 77% and 4% of the revenues in 1997 and 1996,
respectively, while OncoScint accounted for 18%, 85% and 99% of
the revenues in 1997, 1996 and 1995, respectively. Sales from
ProstaScint were $4.1 million and $55,000, in 1997 and 1996,
respectively. Sales from OncoScint CR/OV were $950,000, $1.3
million and $1.4 million in 1997, 1996 and 1995, respectively.
Revenues from ALT treatments for mRCC were $245,000 in 1997,
$178,000 in 1996 and $16,000 in 1995. Due to the discontinuance
of the program in September 1998, the Company will receive no
additional revenues from ALT. No significant history of
revenues exists with respect to the Company's products,
ProstaScint and Quadramet. The Company's future product and
royalty revenues will be dependent upon the market place
acceptance of its products.
Product related revenues from royalties for 1997 were $3.3
million or 38% of the revenues. All royalty revenues were
related to the sales of Quadramet. From the time of product
launch in the second quarter of 1997 up to June 3, 1998, CYTOGEN
recorded royalty revenues from DuPont based on minimum
contractual payments, which were in excess of actual sales.
Subsequent to June 3, 1998, the minimum royalty arrangement was
discontinued and CYTOGEN has recorded product revenues from
Quadramet based on actual sales.
License and contract revenues for 1997, 1996 and 1995 were
$5.9 million, $4.2 million and $3.6 million, respectively, and
included up-front and milestone payments, contract manufacturing
and research revenues. License and contract revenues have
fluctuated in the past and may fluctuate in the future. Revenues
from up-front and milestone payments were $2.1 million, $845,000
30
<PAGE>
and $2.1 million in 1997, 1996 and 1995, respectively. In 1997,
CYTOGEN received a $2.0 million milestone payment from DuPont
Merck upon FDA approval of Quadramet. In 1996, the payments were
derived primarily from BARD and CIS biointernational ("CISbio"),
the Company's marketing partners, and in 1995, the payments
consisted primarily of $2.0 million from Dow, which was received
upon the Company's filing of the New Drug Application ("NDA") for
Quadramet with FDA (see Note 6 of Notes to the Annual
Consolidated Financial Statements).
Revenues from contract manufacturing and research revenues were $3.9 million,
$3.4 million and $1.5 million in 1997, 1996, and 1995, respectively. The Company
is phasing out contract manufacturing services, concurrent with the sale of the
manufacturing facility, and expects to receive no further revenues from this
source after 1999. The 1997 revenues included $1.5 million from DuPont Merck for
the continued clinical development of Quadramet (see Note 5 of Notes to the
Annual Consolidated Financial Statements), $924,000 from Elan for a combined
research program between CYTOGEN and Elan to collaboratively develop orally
administered products (see Note 3 to the Annual Consolidated Financial
Statements), and $984,000 from eleven contract manufacturing customers. The 1996
revenues included $1.5 million from DuPont, $1.3 million from Elan, and $405,000
from three customers for contract manufacturing services. In 1995, CYTOGEN
recorded $1.3 million of research revenue from DuPont.
Operating Expenses. Total operating expenses were $45.4
million in 1997, $30.5 million in 1996, and $77.8 million in
1995. The operating expenses in 1997 reflect the Company's
efforts in acquiring, developing and marketing of new products.
The 1997 Operating expenses included a one-time license fee of
$7.5 million for the acquisition of Morphelan (see Note 2 of
Notes to the Annual Financial Statements) and a milestone payment
of $4.0 million to Dow upon FDA approval of Quadramet. The 1995
operating expenses included one-time non-cash charges of $45.9
million for acquisition of in-process technology from CytoRad
Incorporated ("CytoRad") and Cellcor (see Note 4 of Notes to the
Annual Financial Statements). Even excluding the aforementioned
one-time charges, the operating expenses in 1997 were higher
than prior year periods due to $5.9 million in cost of sales
attributable to increased revenues, product development efforts
by Targon and AxCell, two new strategic business units
established during the second half of 1996, higher administrative
costs and increased selling and marketing efforts to promote
ProstaScint and to establish and maintain PIE Sites. The
operating expenses are composed of cost of product related and
contract manufacturing revenues, research and development
expenses, acquisition of in-process technology expenses, equity
loss in Targon subsidiary, selling and marketing expenses, and
general and administrative expenses. The Company continues to
incur significant research and development and other costs. In
addition, selling and marketing expenses are expected to increase
as the Company continues to generate increased revenues from its
products.
Cost of product related and contract manufacturing revenues
was $5.9 million in 1997. Prior to 1997, product sales were
minimal and no revenues were derived from contract manufacturing;
therefore, costs of products were immaterial and included in
research and development expenses.
Research and development expenses were $17.9 million in 1997,
$20.5 million in 1996 and $22.6 million in 1995. These expenses
principally reflect product development efforts and support for
various ongoing clinical trials. The 1997 research and
development expenses included a one-time milestone payment of
$4.0 million to Dow and increased expenses associated with
AxCell. The 1995 expenses included a charge of $2.9 million to
research and development for write downs of commercial inventory
relating to OncoScint CR/OV.
Acquisition of in-process technology expenses was $45.9
million in 1995 which included $19.7 million and $26.2 million of
one-time non-cash charges representing the amounts by which the
purchase prices exceeded the fair value of net assets acquired in
connection with the CytoRad and Cellcor mergers, respectively.
31
<PAGE>
These acquisitions were recorded as in-process technology given
the development stage nature of the related technology.
Equity loss in Targon was $9.2 million in 1997 and $288,000
in 1996. The expense included a $7.5 million one-time product
acquisition fee and various product development and clinical
support programs.
Selling and marketing expenses were $5.5 million in 1997,
$4.1 million in 1996 and $4.5 million in 1995. The 1997 increase
from the prior year periods is primarily attributable to expenses
associated with the launch of ProstaScint, including expenses to
establish the PIE Program. The 1996 decrease compared to 1995 is
primarily attributable to the reduction of promotional expenses
associated with OncoScint CR/OV.
General and administrative expenses were $6.9 million in
1997, $5.5 million in 1996 and $4.8 million in 1995. The
increase over prior year periods is attributable to the expansion
of the Company's insurance program, the addition of consultants
to support the Company's investor relations efforts, and
increased legal costs for general corporate purposes.
Other Income/Expense. Net gains on investments for 1997,
1996 and 1995 were $606,000, $1.4 million and $857,000,
respectively. The changes from the prior year periods is due
primarily to changes in the average cash and short term
investment balances for the periods.
Interest expense was $291,000 in 1997, $451,000 in 1996 and
$593,000 in 1995. In addition to the imputed interest on
liabilities associated with CYTOGEN's termination agreements with
Knoll Pharmaceuticals Company ("Knoll") and Chiron B.V.
("Chiron"), in 1997, the Company recorded $310,000 of interest
expense in connection to the $10.0 million note due to Elan.
Net Loss. Net losses to common stockholders were $32.1
million, $28.3 million and $72.5 million in 1997, 1996 and 1995,
respectively. Losses per common share were $0.63, $0.59 and
$2.11 in 1997, 1996, and 1995, respectively, on 51.1 million,
48.4 million and 34.3 million average common shares outstanding
in each year, respectively. The 1997 loss was increased by the
$1.4 million deemed and accrued dividends on the Series B
Preferred Stock and the $9.2 million equity loss in Targon
subsidiary. The 1996 loss was increased by a $4.6 million deemed
dividend on the Series A Preferred Stock (see Note 11 of Notes to
the Annual Consolidated Financial Statements). The net loss for
1996 decreased in comparison to 1995 primarily due to the 1995
charges to the statement of operations for the acquisition of in-
process technology.
Nine Months Ended September 30, 1998 and 1997
Revenues. Total revenues for the nine months ended September
30, 1998 and 1997 were $9.4 million and $10.2 million,
respectively. The product related revenues accounted for 84% of
total revenues in 1998 versus 53% from the same period of the
prior year. License and contract revenues accounted for the
remainder of revenues with 16% and 47% of total revenues recorded
in the nine months ended September 30, 1998 and 1997,
respectively.
Product related revenues for the nine months ended September
30, 1998 and 1997 were $7.9 million and $5.4 million,
respectively. ProstaScint accounted for 58% and 52% of product
related revenues in 1998 and 1997, respectively, while Quadramet
royalty and sales revenue accounted for 33% and 31% of product
related revenues in 1998 and 1997, respectively (see Note 2 of
Notes to the Interim Consolidated Financial Statements). Sales
from ProstaScint were $4.6 million in the nine months ended
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September 30, 1998 compared to $2.8 million in the comparable
period of 1997. Royalty and sales revenues from Quadramet were
$2.6 million and $1.7 million in 1998 and 1997, respectively.
During the interim period until the re-launch of Quadramet by
Berlex in the first quarter of 1999, the Company does not expect
Quadramet sales to be significant. Although CYTOGEN believes
that Berlex is an advantageous marketing partner, there can be no
assurance that Quadramet will following re-launch of the product
achieve market acceptance on a timely basis or sufficiently to
result in significant revenues for CYTOGEN. Other Revenues,
including sales from OncoScint CR/OV and ALT treatments, were
$696,000 in 1998 compared to $929,000 recorded in the comparable
period of 1997. There is no revenue from ALT treatment after
September 15, 1998 as a result of closure of Cellcor.
License and contract revenues for the nine months ended
September 30, 1998 and 1997 were $1.5 million and $4.8 million,
respectively. The 1998 license and contract revenues included
$1.1 million in contract manufacturing revenues from eleven
customers, $127,000 from Boston Life Sciences for clinical
services and $100,000 license fee from Antisoma. The 1997
revenues included a $2.0 million milestone payment from DuPont,
$1.1 million and $810,000 in research revenues from DuPont for
continued clinical development of Quadramet and from Elan,
respectively, and $781,000 in contract manufacturing revenues
from eleven customers.
Operating Expenses. The current year operating expenses
reflect the Company's continued efforts to control spending. For
the nine months ended September 30, 1998, operating expenses were
$24.9 million compared to $36.6 million recorded in the same
period of 1997. The decrease from the prior year period is due
to the overall savings from cost containment efforts in 1998, a
one-time $4.0 million milestone payment to Dow recorded in the
first quarter of 1997 upon the approval of Quadramet by FDA, and
a one-time $7.5 million charge recorded in the third quarter of
1997 for product acquisition by Targon. The decrease is
partially offset by a $1.5 million increase in costs of sales,
and $1.7 million in restructuring charges and in costs related to
the implementation of a turn-around plan recorded in the third
quarter of 1998.
Cost of product related and contract manufacturing revenues
for the nine months ended September 30, 1998 were $6.1 million
compared to $4.6 million recorded in the same period of 1997.
The increase from the prior period is due primarily to increased
manufacturing costs associated with increased revenues in 1998,
and to expenses related to Quadramet including royalty,
manufacturing and distribution costs (see Note 2 of Notes to the
Audited Financial Statements).
Research and development expenses for the nine months ended
September 30, 1998 were $8.3 million compared to $14.7 million
recorded in the same period of 1997. These expenses principally
reflect product development efforts and support of clinical
trials. The decrease from the prior year period is due to the
aforementioned $4.0 million milestone payment to Dow in the first
quarter of 1997 combined with various savings from the Company's
product development efforts in 1998 including the scale back of
the GDL program and AxCell subsidiary. Pursuant to the Company's
restructuring, research and development expenses have been
curtailed significantly. See "Business of the Company - Research
and Development."
Equity loss in Targon subsidiary for the nine months ended
September 30, 1998 was $1.0 million reflecting Targon's product
development and clinical trials programs. The Company did not
recognize Targon's losses after March 31, 1998, based on the
completion of the sale of Targon. For the comparable period in
1997, the Company recorded $8.7 million for equity loss in Targon
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subsidiary which included a one-time charge of $7.5 million
recorded in the third quarter of 1997 for a product acquisition
Selling and marketing expenses were $3.6 million and $3.8
million for the nine months ended September 30, 1998 and 1997,
respectively. The 1998 expenses reflected the marketing efforts
to increase ProstaScint sales and expenses to establish and
maintain PIE sites. The 1997 expenses included costs associated
with ProstaScint launch and PIE program.
General and administrative expenses for the nine months ended
September 30, 1998 were $5.8 million which included $1.2 million
of restructuring costs associated with the closure of Cellcor and
work force reduction and $500,000 of expenses related to the
implementation of a corporate turn-around plan. Excluding the
aforementioned charges, the 1998 general and administrative
expenses were lower than the $4.8 million recorded in the
comparable period of 1997 reflecting cost containment efforts.
Gain on sale of Targon subsidiary was $2.8 million recorded
in the third quarter of 1998, a result of a sale of CYTOGEN's
ownership interest in Targon to Elan (see Note 3 of Notes to the
Interim Consolidated Financial Statements).
Interest Income/Expense. Interest income for the nine months
ended September 30, 1998 was $537,000 compared to $527,000
realized in the same period in 1997. The increase from the prior
year period is due to the $410,000 interest income realized in
1998 from the $10.0 million note due to CYTOGEN from Targon,
partially offset by lower investment income due to lower cash
and short term investment balances for the periods. As mentioned
above, the note was canceled as a result of a sale of Targon to
Elan.
Interest expense for the nine months ended September 30, 1998
was $535,000 compared to $219,000 recorded in the same period of
1997. The increase from the prior year period is due to the 1998
interest expense of $410,000 associated with the $10.0 million
note due to Elan which was canceled as a result of a sale of
Targon to Elan in August 1998.
Net Loss. Net loss to common stockholders for the nine
months ended September 30, 1998 was $12.8 million compared to a
net loss of $26.1 million incurred in the same period of 1997.
The loss per common share was $0.23 on 55.4 million average
common shares outstanding compared to $0.51 on 51.1 million
average common shares outstanding for the same period in 1997.
The 1998 net loss to common stockholders included $119,000 of
accrued dividends on Series B Preferred Stock. The 1997 net
loss to common stockholders included a one-time $7.5 million
charge or a $0.15 per share loss for the product acquisition.
Liquidity and Capital Resources
The Company's cash and cash equivalents were $3.0 million as
of September 30, 1998, compared to $7.4 million as of December
31, 1997 and $24.8 million as of December 31, 1996. The cash
used for operating activities for the nine months ended September
30, 1998 was $8.2 million compared to $17.9 million in the same
period of 1997. The decrease in cash usage for operating
activities from the prior year period was primarily due to lower
research and development spendings and to the receipts of
revenues generated by sales and royalties from Quadramet and
ProstaScint.
Historically, the Company's primary sources of cash have been
proceeds from the issuance and sale of its stock through public
offerings and private placements, product related revenues,
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revenues from contract manufacturing and research services, fees
paid under its license agreements and interest earned on its cash
and short term investments.
On October 23, 1998, the Company entered into an agreement
with Kingsbridge for a $12,000,000 common stock equity line.
Pursuant to the Equity Line Agreement, the Company, subject to
the satisfaction of certain conditions including the effective
registration of such shares, was granted the right to issue and
sell to the Kingsbridge, and the Kingsbridge would be obligated
to purchase up to $12,000,000 of CYTOGEN common stock from time
to time (collectively, the "Put Rights") over a two year period
at a purchase price per share equal to 85% of the average of
lowest trading prices of CYTOGEN common stock during five
designated trading days as determined under the Equity Line
Agreement. The Company can put shares every 20 trading days in
the amounts ranging from $150,000 to $1,000,000, subject to the
satisfaction of minimum trading volume, market price of CYTOGEN
common stock and registration of the shares of common stock
under the Securities Act of 1933, as amended. The Company is
required to put shares with respect to a minimum of $3 million
over the life of the Equity Line Agreement. In addition, the
Company granted to the Kingsbridge a warrant to purchase up to
200,000 shares of CYTOGEN common stock at an exercise price of
$1.016 per share through April 2002.
On October 19, 1998, the Company entered into a $750,000 term
loan agreement with The CIT Group/Credit Finance Inc., using the
Company's tangible assets as collateral. The note bears interest
at prime plus 3%. The note was repaid in January 1999.
On August 14, 1998, CYTOGEN received $4.0 million from Elan
consisting of $2.0 million for the sale of CYTOGEN's remaining
interest in Targon and $2.0 million in exchange for a convertible
promissory note. The note is convertible into CYTOGEN common
shares at $2.80 per share, subject to adjustments, and matures
in seven years. The note bears interest of 7% compounded semi-
annually; however, such interest is not payable in cash but will
be added to the principal for the first 24 months; thereafter,
interest will be payable in cash.
In December 1998 and January 1999, CYTOGEN sold 6 million shares directly to
the Company's two largest investors, a subsidiary of The Hillman Company and The
State of Wisconsin Investment Board at $.75 per share, the market price on the
date we agreed in principle to the transactions. The Company received $4.5
million in cash by selling these shares; no underwriters or agent fees were
paid. The shares were sold under a registration statement.
In January 1999, the Company sold its manufacturing facility for $4
million in cash, $3.9 million of which was received at closing. The
proceeds of sale were used to repay the outstanding principal balance of
the $750,000 term loan agreement entered with the CIT Group/Credit Finance,
Inc., in October 1998.
Quadramet. On October 29, 1998 CYTOGEN announced an
exclusive license agreement with Berlex for the manufacture and
sale of Quadramet. Under the terms of the Berlex Agreement,
CYTOGEN received an $8 million up front payment, of which $4
million is payable to DuPont for securing a long-term
manufacturing commitment. Berlex will pay CYTOGEN royalties on
net sales of Quadramet, as well as milestone payments based on
achievement of certain sales levels (see Note 2 of Notes to the
Annual Financial Statements). In connection with the Berlex
Agreement, CYTOGEN granted Berlex a warrant to purchase 1 million
shares of CYTOGEN common stock at an exercise price of $1.002 per
share through October 2003 and exercisable after the earlier of
one year or the achievement of defined sales levels.
CYTOGEN acquired an exclusive license to Quadramet in the
U.S., Canada and Latin America from Dow. The agreement requires
the Company to pay Dow royalties based on a percentage of net
sales of Quadramet, or guaranteed contractual minimum payments,
whichever is greater, and future payments upon achievement of
certain milestones. Minimum royalties due Dow are $500,000
during 1998 and 1999, $750,000 in 2000 and 2001 and $1.0 million
per year for the following 11 years. For the nine months ended
September 30, 1998 and 1997, the Company recorded $375,000 and
$189,000 in royalty expenses for Quadramet.
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ProstaScint. ProstaScint was launched in February 1997.
Significant cash will be required to support the Company's
marketing program and expansion and maintenance of the PIE
program.
In 1996, CYTOGEN entered into an agreement with BARD (the
"Co-Promotion Agreement") to market and promote ProstaScint,
pursuant to which BARD will make payments upon the occurrence of
certain milestones, which include expansion of co-marketing
rights in selected countries outside the U.S. During the term of
the Co-Promotion Agreement, BARD will receive performance-based
compensation for its services. For the year-to-date periods in
1998 and 1997, the Company recorded $550,000 and $393,000,
respectively, for BARD commissions.
OncoScint CR/OV. To date, sales of OncoScint CR/OV have not
been material. In 1994, the Company reacquired all U.S.
marketing rights to OncoScint from Knoll Pharmaceuticals Company
("Knoll") and is required to pay Knoll $1.7 million on or before
December 15, 1998 in addition to accrued interest from July 1,
1998 (the original due date) through the date of payment at the
prevailing prime rate of interest as of such date. The Company
will fund this payment from product related revenues and other
sources.
The Company's capital and operating requirements may change
depending upon various factors, including: (i) the success of the
Company and its strategic partners in manufacturing, marketing
and commercialization of its other products; (ii) the amount of
resources which the Company devotes to clinical evaluations and
the expansion of marketing and sales capabilities; (iii) results
of preclinical testing, clinical trials and research and
development activities; and (iv) competitive and technological
developments.
The Company's financial objectives are to meet its capital
and operating requirements through revenues from existing
products, contract manufacturing, license and research contracts,
and control of spending. To achieve its strategic objectives,
the Company may enter into research and development partnerships
and acquire, in-license and develop other technologies, products
or services. Certain of these strategies may require payments by
the Company in either cash or stock in addition to the costs
associated with developing and marketing a product or technology.
The Company currently has no commitments or specific plans for
acquisitions or strategic alliances. However, the Company
believes that, if successful, such strategies may increase long
term revenues. There can be no assurance as to the success of
such strategies or that resulting funds will be sufficient to
meet cash requirements until product revenues are sufficient to
cover operating expenses. To fund these strategic and operating
activities, the Company may sell equity and debt securities as
market conditions permit or enter into credit facilities.
The Company has incurred negative cash flows from operations since its
inception, and has expended, and expects to continue to expend in the future,
substantial funds to complete its planned product development efforts, including
acquisition of products and complementary technologies, research and
development, clinical studies and regulatory activities, and to further expand
its marketing and sales. The Company expects that its existing capital
resources, together with decreased operating costs, the $4.0 million net cash
receipt from Berlex, the $4.5 million received from the sale of common stock,
and the $3.9 million received from the sale of the manufacturing facility but
exclusive of the Equity Line Agreement, will be adequate to fund the Company's
operations into the year 2000. Management believes the
addition of the Equity Line Agreement, will provide the Company with additional
cash flow to sustain operations. 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
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acquisition costs, and working capital. The Company's future
capital requirements and the adequacy of available funds will
depend on numerous factors, including the successful
commercialization of its products, the costs associated with the
acquisition of complementary products and technologies, progress
in its product development efforts, the magnitude and scope of
such efforts, progress with preclinical studies and clinical
trials, progress with regulatory affairs activities, the cost of
filing, prosecuting, defending and enforcing patent claims and
other intellectual property rights, competing technological and
market developments, and the expansion of strategic alliances for
the sales, marketing, manufacturing and distribution of its
products. To the extent that the currently available funds and
revenues including the Equity Line Agreement, $750,000 proceeds
from the term loan, and the $4.0 million net cash receipt from
Berlex are insufficient to meet current or planned operating
requirements, the Company will be required to obtain additional
funds through equity or debt financing, strategic alliances with
corporate partners and others, or through other sources. Based
on the Company's historical ability to raise capital and current
market conditions, the Company believes other financing
alternatives are available. There can be no assurance that the
financing commitments described above or other financial
alternatives will be available when needed or at terms
commercially acceptable to the Company. If adequate funds are
not available, the Company may be required to delay, further
scale back or eliminate certain aspects of its operations or
attempt to obtain funds through arrangements with collaborative
partners or others that may require the Company to relinquish
rights to certain of its technologies, product candidates,
products or potential markets. If adequate funds are not
available, the Company's business, financial condition and
results of operations will be materially and adversely affected.
Year 2000 Compliance
The "Year 2000 problem" describes the concern that certain
computer applications, which use two digits rather than four to
represent dates, will interpret the year 2000 as 1900 and
malfunction on January 1, 2000.
CYTOGEN's Internal Systems. The efficient operation of the
Company's business is dependent in part on its computer software
programs and operating systems (collectively, Programs and
Systems). These Programs and Systems are used in several key
areas of the Company's business, including clinical, purchasing,
inventory management, sales, shipping, and financial reporting,
as well as in various administrative functions. The Company has
completed its evaluation of the Program and Systems to identify
any potential year 2000 compliance problem. Based on present
information, the Company believes that it will be able to achieve
year 2000 compliance through combination of modification of some
existing Programs and Systems and replacement of others with new
Programs and Systems that are already year 2000 compliant. The
majority of the Company internal systems have been replaced with
fully compliant new systems. The remaining are expected to be
completed by February 28, 1999. The total future cost is
estimated at $40,000. However, there can be no assurance that
the required expenditures will not exceed that amount.
Readiness of Third Parties. The Company is also working with
its processing banks and network providers to ensure their
systems are year 2000 compliant. All these costs will be borne
by the processors, network and software companies. In the event
some of the processors are unable to convert their systems
appropriately, the Company will switch merchant accounts to those
that are able to perform the processing.
Risks Associated with the Year 2000. The Company is not
aware, at this time, of any Year 2000 non-compliance that will
not be fixed by the Year 2000 and that will materially affect the
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Company. However, some risks that the Company faces include: the
failure of internal information systems, defects in its work
environment and a slow down in its customers' ability to make
payments.
Contingency Plans. The Company is in the process of
developing contingency plans to address a worst case year 2000
scenario. This contingency plan is expected to be completed by
February 28, 1999.
Recently Enacted Accounting Pronouncements
There have been no recently enacted accounting
pronouncements which the Company believes would have an effect on
the Company's financial position or results of operations.
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BUSINESS OF THE COMPANY
Overview
CYTOGEN is a biopharmaceutical company engaged in the
development, commercialization and marketing of products to
improve diagnosis and treatment of cancer and other diseases.
Our Products
We introduced to the market during 1997 our two principal
products, each of which have been approved by the FDA:
ProstaScint (kit for the preparation of Indium In111 Capromab
Pendetide) and Quadramet (Samarium Sm153 Lexidronam Injection).
Our OncoScint CR/OV imaging agent is also approved and marketed as
a diagnostic imaging agent for colorectal and ovarian cancer.
Cancer Diagnostic Imaging Products
Our cancer diagnostic products, ProstaScint and OncoScint,
are monoclonal antibody-based imaging agents for prostate,
colorectal and ovarian cancers. These products utilize our
proprietary targeted delivery system, employing whole monoclonal
antibodies, to deliver the diagnostic radioisotope Indium-111 to
malignant tumor sites. A radioisotope is an element which,
because of nuclear instability, undergoes radioactive decay,
thereby emitting radiation. The imaging products are supplied to
hospitals and central radiopharmacies without the radioisotope.
Prior to patient administration, the radioisotope is added to the
product by the radiopharmacist using a simple liquid transfer
procedure we have developed, thereby creating the radiolabeled
monoclonal antibody product.
During an imaging procedure, the radiolabeled monoclonal
antibody product is administered intravenously into the patient.
The antibody travels through the body seeking out and binding to
tumor sites. The radioactivity from the isotope that has been
attached to the antibody can be detected from outside the body by
a gamma camera. The resultant image identifies the existence,
location and extent of disease in the body. Based on clinical
studies conducted to date by physicians on our behalf, the
imaging agents may provide new and useful information not
available from other diagnostic modalities regarding the
existence, location and extent of the disease throughout the
body. We believe that this information has the potential to
affect the way physicians manage their patients' individual
treatments. We also believe that, because our products use a
very low dose of one milligram or less of antibody conjugate per
administration, the products have the additional advantages of
low manufacturing cost and ease of administration.
ProstaScint
ProstaScint is a diagnostic imaging agent utilizing a
monoclonal antibody which targets prostate specific membrane
antigen ("PSMA"), a protein expressed by prostate cancer cells
and, to a lesser extent, by normal prostate epithelial cells. We
are the exclusive licensee of the antibody utilized in
ProstaScint. ProstaScint is prepared by combining this antibody
with the radioisotope Indium-111 just prior to intravenous
administration. Due to the selective expression of PSMA, the
ProstaScint imaging procedure can detect the spread of prostate
cancer. Since the patterns of spread of prostate cancer can vary
substantially from one patient to another, by identifying the
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unique pattern of metastases in a particular patient, we believe
that ProstaScint aids physicians in the selection of appropriate
treatments to meet the special needs of that patient.
In 1996, we received FDA approval to market ProstaScint in
two clinical settings:
- - As a diagnostic imaging agent in newly-diagnosed
patients with biopsy-proven prostate cancer thought
to be clinically localized after standard diagnostic
evaluation and who are at high risk for spread of
their disease to pelvic lymph nodes; and
- - For use in post-prostatectomy patients in whom there
is a high suspicion that the cancer has recurred.
The risk of spread of prostate cancer in both newly-diagnosed and
recurrent disease patients is determined by several factors,
including the stage of the disease when initially diagnosed,
microscopic evaluation of the primary tumor, and the prostate
specific antigen ("PSA") level. PSA is a widely used blood test
currently used for detecting and monitoring prostate cancer.
We believe that ProstaScint has clinical utility in newly
diagnosed patients with prostate cancer who are thought to be
candidates for therapies such as:
- Radical prostatectomy;
- External beam radiation therapy; and
- Brachytherapy (radioactive seed implants).
Before a physician decides upon a course of therapy, it is
critical to determine whether the prostate cancer has spread to
other parts of the body, thereby dramatically reducing the
likelihood of successful treatment. Studies from The Johns
Hopkins University and Stanford University Medical Center have
shown that almost one-third of the prostate cancer patients
treated at these two institutions who have undergone
prostatectomy or radiation therapy experienced disease recurrence
within five years following treatment, and half of the patients
had recurrence of their disease within ten years. Prior to the
availability of ProstaScint, determining whether newly diagnosed
disease was limited to the prostate or had spread distantly was
based upon statistical inference from the biopsy appearance of
the tumor and the patient's serum level of PSA. Conventional
imaging methods, such as computed tomography, magnetic resonance
imaging and transrectal ultrasound, are all relatively
insensitive since they rely on anatomic structure (form) and
therefore require that the normal structures (i.e. lymph nodes)
become enlarged or altered in shape to indicate suspicion of
malignancy. The ProstaScint scan images disease based upon
function (expression of the PSMA molecule) and, therefore, can
image low volume disease not detectable with conventional
procedures. A clear understanding of the existence and location
of any prostate cancer metastasis is crucial in selecting the
most appropriate form of treatment to be administered. We
believe that ProstaScint enhances tumor detection in patients who
are candidates for its use in comparison with alternative means
of detection.
In the U.S., following prostatectomy, prostate cancer
patients are monitored to ascertain changes in the level of PSA.
In this setting, a rise in PSA is strong and presumptive evidence
of recurrence of the patient's prostate cancer. Knowledge of the
extent and location of disease is a critical consideration in
choosing the most appropriate form of treatment. Patients whose
disease is confined to the prostatic fossa may have the potential
to be cured by receiving "salvage" radiation therapy; patients
with more widespread disease would not benefit from such an
approach and instead should receive systemic treatment such as
hormonal therapy. We believe that the results of a ProstaScint
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scan performed prior to radiation therapy to the pelvis may help
predict which recurrent disease patients are likely to benefit
from salvage radiation therapy. This distinction is currently not
possible using any other technique and approximately 70% of
recurrent disease patients currently treated with salvage
radiation therapy fail to achieve long-term control of their
disease, since the cancer has already metastasized to other
points in the body. A prospective study is planned to evaluate
ProstaScint in this setting.
ProstaScint Marketing, Sales, Manufacturing and Distribution
According to the American Cancer Society, about 185,000
American men will be diagnosed with prostate cancer in 1998, of
whom approximately 20% will be at high risk for metastatic spread
of their disease. In addition, estimates indicate that in 1998,
40,000 to 60,000 patients previously treated for prostate cancer
will develop symptoms of recurrent cancer which has not yet
progressed to the point of skeletal involvement. We believe that
there are approximately 75,000 to 100,000 patients with prostate
cancer in the U.S. that are candidates, based on current
indications, to receive a ProstaScint scan each year.
In February 1997, we announced the commercial launch of
ProstaScint, which is co-marketed with the urological division of
BARD, a marketer of broad range of urology products exclusively
to the urology community. Pursuant to our agreement with BARD:
- - BARD is responsible for the promotion of ProstaScint
to urologists, the group of physicians most likely
to order or generate referrals for ProstaScint
scans;
- - Our marketing activities are focused on the training
of the nuclear medicine imaging community, including
those physicians most likely to perform ProstaScint
scans;
- - We are responsible for the manufacture and
distribution of ProstaScint as well as instructing
physicians in its proper use;
- - BARD will make payments to the Company upon the
occurrence of certain milestones; and
- - BARD will receive performance-based compensation for
its services.
Our agreement with BARD has an initial term of ten years and is
subject to renewal.
In 1997, we entered into a distribution agreement which
granted Faulding (Canada), Inc. ("Faulding") the exclusive right
to distribute and sell ProstaScint in Canada.
ProstaScint is a "technique-dependent" product that requires
a high degree of proficiency in nuclear imaging, as well as a
thorough appreciation of the information the scan can provide.
We believe that this information regarding the existence,
location and extent of disease has the potential to assist a
physician in making appropriate patient management decisions. We
have established a network of accredited nuclear medicine imaging
centers through our PIE Program (each accredited center, a "PIE
Site"). Each PIE Site receives rigorous training, undergoes
proficiency testing, and is subject to ongoing quality assurance
protocols. To qualify as a PIE Site, each center must be
certified as proficient in the interpretation of ProstaScint
scans by the American College of Nuclear Physicians. We
developed this program in preparation for the launch of
ProstaScint in February 1997. As of November 1998, there were
over 220 PIE Sites, including a substantial majority of the
National Cancer Institute designated Comprehensive Cancer
Centers. ProstaScint may only be administered by PIE Sites.
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We plan to add PIE Sites on a selective basis in order to
ensure that new sites are adequately qualified and committed to a
minimum number of scans for training purposes At the present
time, we bear the expense of qualification of each site.
We currently employ 16 field representatives, each of whom
is a certified or registered nuclear medicine technologist with
experience working in a nuclear medicine department. These field
representatives assist in training of physicians and
qualification of nuclear imaging centers as PIE Sites, and
provide BARD marketing representatives with technical information
and support of ProstaScint and its usage.
We believe that approximately 80% of patients with prostate
cancer are managed by urologists, with the remainder being
managed primarily by medical and radiation oncologists. Through
a Joint Marketing Committee, the Company and BARD coordinate our
respective educational and promotional activities to ensure that
PIE Sites receive appropriate patient referrals from urologists
and that future PIE Sites are located in medical facilities
served by urologists who are ordering the ProstaScint test. The
product is not marketed directly to managed care organizations or
other payor groups, however, we maintain points of contact with
reimbursement specialists for physicians, patients, and payors to
assist with and ensure reimbursement and insurance coverage.
Medical and radiation oncologists also order diagnostic
procedures such as ProstaScint for advanced prostate cancer
patients, and our promotional efforts are addressing this segment
of the medical community directly.
OncoScint CR/OV. OncoScint CR/OV was approved by the FDA in
the U.S. in December 1992. OncoScint CR/OV was initially
approved for single use with other appropriate, commercially
available diagnostic tests, to locate malignancies outside the
liver in patients with known colorectal or ovarian cancer. In
November 1995, FDA approved an expanded indication allowing for
repeat administration of OncoScint CR/OV. OncoScint CR/OV is
also approved for sale in eleven European countries and Canada.
To date, OncoScint has not enjoyed substantial sales. We believe
this product is effective in imaging both primary and metastatic
colorectal and ovarian tumors. However, this information has not
yet been widely used by physicians for patients with these
conditions. We are currently funding an investigator-initiated
study designed to demonstrate the benefits of performing an
OncoScint study as soon as an initial diagnosis of ovarian cancer
is made, to determine which patients would benefit by a more
aggressive initial treatment of their disease. We believe a more
aggressive treatment at an earlier date could provide the
potential for improved prognoses for the patients following
diagnosis of their malignancy.
Promotion of OncoScint CR/OV involves several different
physician audiences, including those who prescribe imaging
procedures for their patients as well as those who obtain and
interpret the image. Referring physicians are likely to be
surgeons and oncologists. OncoScint CR/OV, like ProstaScint, is
technique dependent, requiring training and expertise in
reviewing and interpreting images. Acceptance by the medical
community of the benefits of OncoScint CR/OV depends in part on
the degree to which physicians acquire such skills. Since May
1994, we have been the sole marketer of OncoScint CR/OV in the
U.S.
In 1995, we entered into a distribution agreement (the
"Faulding Agreement") with Faulding granting to Faulding the
exclusive right to distribute and sell OncoScint CR/OV in Canada.
Faulding received regulatory approvals to market the product in
Canada in January 1998. The Faulding Agreement provides for
payments for minimum annual purchases of OncoScint CR/OV by
Faulding, and for certain royalties based upon net sales, if any,
of OncoScint CR/OV by Faulding. The initial term of the Faulding
Agreement is seven years.
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In 1996, we entered into a distribution agreement (the
"CISbio Agreement") with CIS biointernational, granting to CISbio
the exclusive right to distribute and sell OncoScint in all the
countries of the world, except for the U.S. and Canada. CISbio
has markets OncoScint CR/OV in various European countries. The
CISbio Agreement provides for minimum annual purchases of the
components of OncoScint CR/OV by CISbio, and for certain
royalties based upon net sales of OncoScint CR/OV by CISbio. The
initial term of the CISbio Agreement is seven years following the
first commercial sale of the product by CISbio.
Cancer Therapeutic Product
Quadramet. Quadramet, a proprietary cancer therapeutic
agent, received marketing approval from the FDA in March 1997 for
the relief of pain in patients with metastatic bone lesions that
image on conventional bone scan, a routinely performed nuclear
medicine procedure. Quadramet consists of a radioactive isotope,
Samarium-153, which delivers cell-killing beta radiation, and a
targeting agent, EDTMP, which guides the drug to sites of new
bone formation.
According to American Cancer Society and National Cancer
Institute statistics, approximately 600,000 new cases of cancer
that typically metastasize to bone occurred in the U.S. in 1997.
We believe that over 200,000 patients each year will suffer from
bone pain that is severe enough to require palliative
intervention.
Once tumors have metastasized to the skeleton, they continue
to grow and cause destruction of the adjacent bone. This erosion
of bone stimulates new bone formation, which results in a rim of
newly formed bone which encircles the metastatic tumor. The
continued growth from the expanding tumor causes pressure which
the patient perceives as pain at the site of such metastasis. By
targeting these areas of bone formation, Quadramet delivers site-
specific radiation, which may result in significant pain
reduction. As such areas of tumor involvement expand, they
weaken the bone and eventually lead to fracture of the affected
bone. The medical complications associated with bone metastases
may also include bone fractures, spinal cord compression and
paralysis.
Current competitive treatments for severe cancer bone pain
include:
- Narcotic analgesics
These drugs work by masking the brain's ability to
perceive the pain induced by the tumors as they
expand and grow within the bone. While narcotic
analgesics can be effective in addressing cancer-
related bone pain, their prolonged and escalating
use can result in undesirable side effects,
including nausea and vomiting, sedation, confusion
and severe constipation.
- External beam radiation therapy
External beam radiation therapy, while usually
effective in relieving pain, is most appropriately
used to treat solitary lesions. In addition,
retreatment of painful areas is often not feasible
due to unacceptable toxicities to neighboring
organs and tissues. Treatments are generally
administered in five to ten or more sessions over
two to three weeks necessitating frequent visits
by the patient and contributing to the high cost
of this procedure.
- Metastron, a radiopharmaceutical product of Nycomed Amersham plc
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Metastron is the only other therapeutic
radiopharmaceutical approved by the FDA for the
treatment of cancer bone pain. It contains a non-
imageable radionuclide, Strontium-89. This
radionuclide decays with a very long radioactive
half-life (approximately 50 days), resulting in a
delayed onset of pain relief, generally several
weeks after administration. Further, the long
half-life causes a prolonged and variable degree
of bone marrow suppression. Prolonged bone marrow
toxicity limits the usage of other potential
therapies such as chemotherapy and radiation
therapy, as well as the ability to administer
additional doses of this drug.
- Novantrone, a chemotherapeutic product of Immunex Corporation
("Immunex")
Novantrone, a chemotherapeutic drug frequently
used in the management of acute non-lymphocytic
leukemia, is also marketed by Immunex for use in
combination with steroids for pain related to
hormone refractory prostate cancer. The Company
believes that Quadramet offers significant
advantages over Novantrone, including lower
toxicity, fewer side effects, and more rapid onset
of pain relief. However, Novantrone is well known
to oncologists because of its other applications
and this may provide some marketing advantages to
Immunex.
Quadramet has numerous characteristics which we believe are
advantageous for the treatment of cancer bone pain, including
early onset of pain relief; predictability of recovery from bone
marrow toxicity; ease of administration; and length of pain
relief. Quadramet is administered as a single intravenous
injection on an outpatient basis and directly targets sites of
new bone formation which include those areas in the skeleton that
have been invaded by metastatic tumors. Quadramet exhibits high
and very selective uptake in bone with little or no detectable
accumulation in soft tissue. The fraction of the injected dose
that is not taken up in the skeleton is excreted in an unmodified
form in the urine over a period of four to six hours. Further
studies are planned to evaluate the safety and efficacy of repeat
dosing.
We intend to expand the use of Quadramet within the
currently approved indication and extend its use to new
indications by performing additional clinical trials and seeking
regulatory approvals, primarily by and through our marketing
partner, Berlex. Clinical trials are either planned or currently
underway to evaluate the use of Quadramet in combination with
other cancer therapies (such as external beam radiation therapy),
as a potential therapeutic agent for treatment of cancer and as a
therapy for children with malignancies which have either arisen
in bone or have spread to bone. Future trials are also planned to
evaluate the extension of the use of Quadramet to patients whose
bone metastases can be visualized on conventional bone scan, but
who are not yet experiencing pain from these metastases. Our
continuation of these trials will depend upon their progress,
success and on the ability to obtain funding from our existing or
potential marketing partners.
The first non-cancer use of Quadramet under investigation is
the treatment of patients with refractory rheumatoid arthritis.
These patients often demonstrate enhanced uptake of radionuclide
in affected joints on diagnostic bone scans. In such cases, we
believe Quadramet can target the diseased joints and provide a
high but localized dose of radiation to the area. Published
studies by foreign investigators have suggested benefits from
Quadramet in the relatively small numbers of rheumatoid arthritis
patients studied. We are currently conducting a Phase I dose
escalation study of Quadramet to evaluate the safety and
preliminary efficacy of Quadramet in refractory rheumatoid
arthritis patients.
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Quadramet Marketing, Sales, Manufacturing and Distribution
We have licensed the rights to Quadramet from Dow.
Quadramet was previously marketed through DuPont, which
arrangement was terminated during June 1998. In October 1998,
we entered into an exclusive agreement with Berlex for the
marketing of Quadramet. We anticipate that Berlex will re-launch
Quadramet during the first quarter of 1999. Berlex maintains a
sales force which calls upon the oncological community. Pursuant
to our agreement with Berlex, we are entitled to royalty payments
based on net sales of the Quadramet product and milestone
payments based upon sales levels achieved.
Quadramet was originally launched in June 1997. During the
first year of launch, Quadramet was marketed principally to the
nuclear medicine community, which administers the treatment to
patients. However, the treatment is more typically prescribed by
caregiving physicians, including oncologists and urologists. We
believe that successful commercialization of Quadramet will
depend upon marketing to these referring physicians.
DuPont, a leading supplier of radiopharmaceutical products
in the U.S., will continue to manufacture and distribute the
product. Berlex has agreed to bear all costs of manufacture of
Quadramet.
Sales, Marketing and Distribution
We have limited sales, marketing and distribution
capabilities. With respect to the sales, marketing and
distribution of Quadramet and the co-promotion of ProstaScint, we
are substantially dependent on the efforts of Berlex and BARD.
See "ProstaScint Marketing, Sales, Manufacturing and
Distribution" and "Quadramet Marketing, Sales, Manufacturing and
Distribution." If we are unable to successfully establish and
maintain significant sales, marketing and distribution efforts,
either internally or through arrangements with third parties,
there would be a material adverse effect on our business,
financial condition and results of operations. We anticipate
that future products would require similar marketing
collaborations upon which we would be dependent for the success
of any such products.
There can be no assurance that we be able to maintain our
existing collaborative arrangements or enter into collaborative
and license arrangements in the future on acceptable terms, if at
all, that such arrangements will be successful, that the parties
with which the Company has or may establish arrangements will
perform their obligations under such arrangements, or that
potential collaborators will not compete with the Company by
seeking alternative means of developing products for the
indications targeted by the Company.
Product Contribution
The Company's currently marketed products and other sources
of income constitute a single business segment. No significant
history of revenues exists with respect to any of the Company's
products. ProstaScint and Quadramet were introduced to the
market during the first half of 1997 and account for a
significant percentage of the Company's product and royalty
revenues and total revenues and are expected to do so for the
foreseeable future. For the year ended December 31, 1997,
revenues related to ProstaScint and Quadramet accounted for
approximately 86% of the Company's product and royalty revenues.
ProstaScint sales have experienced continued growth since product
launch. However, there can be no assurance that such growth will
continue indefinitely. Quadramet sales during the period from
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its launch have not grown significantly. From the period
beginning in the second half of 1997, in which the product was
launched in the commercial marketplace, through June 1998,
reported revenues related to Quadramet sales were based on
minimum royalty payments due from its original commercial
partner, DuPont. Actual sales were substantially less than
minimum royalty payments. Growth of Quadramet sales were
initially slow because of the need for hospitals to obtain
license amendments under federal and state law to receive and
handle this new radioactive product. In addition, marketing
efforts by DuPont were directed primarily to nuclear medicine
physicians who directly administer the product to patients.
While this sales effort was necessary to generate product
understanding, the Company believes that marketing to oncologists
and urologists, the primary care-givers for patients who may
benefit from Quadramet, is necessary for adequate penetration
into the market.
The marketing agreement with DuPont has been terminated and the
Company the Company has since entered into an exclusive license
and marketing agreement for the marketing of Quadramet with
Berlex, which maintains an experienced sales force calling on the
oncology community. The Company and Berlex have entered into an
agreement with DuPont for the manufacture of Quadramet. Pursuant
to this agreement, Berlex bears the manufacturing costs for
Quadramet. Marketing by Berlex will commence during the first
quarter of 1999. There can be no assurance that ProstaScint
and Quadramet will achieve market acceptance on a timely basis,
or at all. The Company's success will be dependent upon the
acceptance of ProstaScint and Quadramet by the medical community,
including health care providers, such as hospitals and
physicians, and third-party payors (such as employers, insurers,
and health maintenance organizations), as safe, effective and
cost efficient alternatives to other available treatment and
diagnostic protocols. The failure of ProstaScint or Quadramet
to achieve market acceptance would have a material adverse effect
on the Company's business, financial condition and results of
operations.
Product Development
AxCell Biosciences. AxCell, a wholly owned subsidiary of
the Company created in August 1996, utilizes GDL technology to
support advances in combinatorial chemistry, genomics and drug
discovery. AxCell has developed an integrated set of tools to
map selective protein-protein interactions and is using these
tools to develop an Inter-Functional Proteomic Database ("IFP-
dBase"). The IFP-dBase includes data relating to protein-protein
interaction linked to a variety of other relevant bioinformatic
data. We believe this informational database has potential value
in the use by scientists in the pharmaceutical industry as a
means to validate pharmaceutical targets. We believe such
information will be of value to pharmaceutical companies in
conducting research on new drugs.
AxCell is pursuing arrangements with software companies
toward development of a prototype bioinformatics interface for
the IFP-dBase. We expect that substantial funding will be
required to refine the prototype and to pursue further research
to identify protein-protein interactions which would be useful in
and necessary to a commercially viable bioinformatics database.
Funding is being sought from collaborators for the AxCell
program, from venture capital funds, or from other sources,
including corporate resources if adequate to provide such
funding. No assurance can be provided that the program will be
developed, will be successful, or that we will retain
substantially all ownership or even a majority interest of
AxCell.
Genetic Diversity Library Technology. Long-term research,
much of which is preliminary, had been conducted over a period of
time by the Company on GDL technology. The GDL program consists
of research on long peptides that fold to form three-dimensional
structures. These peptides, which are biologically produced,
create vast, highly diverse compound libraries. We believe that
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the ability of these compounds to bind to predetermined sites may
mediate certain therapeutic or diagnostic effects more
effectively than other existing products. Unlike conventional
small molecule drugs or short peptides, long peptides can act
more like proteins and can fold to take on very precise
biological functions such as specific recognition units ("RUs").
Depending upon the application, these RUs can act as receptors,
as targeting agents, or ligands for biological receptors. In
certain applications, it may be more advantageous to administer
the synthetic gene which encodes for the RU. This technology has
been utilized in the development of the AxCell program discussed
above. Certain peptides believed to have commercial potential
have been identified from the GDL program and may be subject to
further development efforts, although we would at present pursue
such development only in connection with a commercial partner.
Otherwise, the basic research component of the GDL program has
been cancelled as part of our ongoing review of its long term
research projects and focus on programs with nearer term economic
potential. We are actively pursuing corporate alliances and
basic research and development agreements to support and advance
the GDL technology toward commercialization.
The Company has entered into a license agreement granting
Elan worldwide rights to a group of peptides and associated GDL
technology for orally administered drugs that are transported
across the gastrointestinal epithelium, as well as rights to
other orally delivered drugs derived from the research program.
Elan is responsible for the further development and
commercialization of this technology.
PSMA. In 1993, CYTOGEN and Memorial Sloan-Kettering Cancer
Center ("MSKCC") began a development program involving PSMA and
CYTOGEN's prostate cancer monoclonal antibody, CYT-351. PSMA is
an unique antigen expressed in prostate cancer cells and by the
normal prostate epithelial cells. In July 1996, a patent
entitled "Prostate-Specific Membrane Antigen" was issued to
Sloan-Kettering Institute for Cancer Research, an affiliate of
MSKCC. In November 1996, we exercised our option for the
exclusive license to this technology.
In December 1996, CYTOGEN exclusively licensed the use of
PSMA in prostate cancer vaccines for certain immunotherapeutic
treatments of prostate cancer to Prostagen, Inc. ("Prostagen"), a
privately held company in New York. The agreement with Prostagen
provides for an up-front fee, several milestone payments
throughout the development of any potential products, and
royalties payable if and when products come to market. Products
are currently under development by third parties in collaboration
with and under license from Prostagen. Currently, a dendritic
cell therapy using PSMA for treatment of prostate cancer is in
Phase II clinical studies.
In January 1997, we granted a non-exclusive option for the
PSMA technology to Boehringer Mannheim in the area of in vitro
diagnostics, including reverse transcriptase-polymerase chain
reaction assays, a technique used to detect circulating prostate
cancer cells in the blood of patients. We have issued licenses to
various third parties for different uses of the PSMA technology
in diagnostic and therapeutic applications. These agreements
provide the Company with royalties payable if and when products
come to market.
In 1996, Targon was granted exclusive rights to certain
other fields of use for the PSMA technology, including recent
developments in the area of prodrugs for prostate cancer. These
rights were relinquished to Cytogen in connection with the sale
of our interest in Targon to Elan.
Other Applications. While we have retained all rights for
therapeutic and in vivo diagnostic uses of the antibody utilized
in ProstaScint for the Company and its affiliates, we have
licensed the antibody for in vitro diagnostic use to the Pacific
Northwest Research Foundation, which in turn, has established a
collaboration with Hybritech Incorporated ("Hybritech") to
exploit this antibody in a serum-based in vitro diagnostic test.
We will receive royalties on product sales by Hybritech, if any.
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We believe that certain of our technologies under
development may have medical applications in various other areas,
including autoimmune disorders and infectious diseases. We
intend to expand the research and development of these
technologies primarily through strategic alliances with other
entities. We cannot predict the establishment or the timing of
such alliances. To the extent funding is available, we expect to
devote resources to these other areas. No prediction can be
made, however, as to when or whether the areas of research
described above will yield new scientific discoveries, or whether
such research will lead to new commercial products.
Research and Development
Our research and development expenditures include projects
conducted by the Company and payments made to customer sponsored
research programs. Our expenses for research and development
activities (including customer sponsored programs) were:
- Nine months ended September 30, 1998 - $8.3 million
- 1997 - $17.9 million
- 1996 - $20.5 million
- 1995 - $22.6 million
Research and development expenditures for customer sponsored programs were:
- Nine months ended September 30, 1998 - $1.5 million
- 1997 - $1.5 million
- 1996 - $1.1 million
- 1995 - $200,000
We intend to pursue research and development activities
having commercial potential and to review all of our programs to
determine whether possible market opportunities, near and longer
term, provide an adequate return to justify the commitment of
human and economic resources to their initiation or continuation.
Anticipated research and development spending for 1998 and 1999
has been dramatically curtailed.
Health Care Reimbursement
Our business, financial condition and results of operations
will continue to be affected by the efforts of governments and
third-party payors to contain or reduce the costs of healthcare
through various means. There have been, and we expect that there
will continue to be, federal and state proposals to implement
government control of pricing and profitability of therapeutic
and diagnostic imaging agents. In addition, an increasing
emphasis on managed care has and will continue to increase the
pressure on pricing of these products. While we cannot predict
whether such legislative or regulatory proposals will be adopted
or the effects such proposals or managed care efforts may have on
our business, the announcement of such proposals and the adoption
of such proposals or efforts could have a material adverse effect
on our business, financial condition and results of operations.
Further, to the extent such proposals or efforts have a material
adverse effect on other companies that are prospective corporate
partners of the Company, our ability to establish strategic
alliances may be materially and adversely affected.
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Sales of our products depend in part on the availability of
reimbursement to the consumer from third-party payors, including
Medicare, Medicaid, and private health insurance plans. Third-
party payors are increasingly challenging the prices charged for
medical products and services. To the extent we succeed in
bringing products to market, there can be no assurance that these
products will be considered cost-effective and that reimbursement
to consumers will be available or will be sufficient to allow us
to sell our products on a competitive basis. Reimbursement by a
third-party payor may depend on a number of factors, including
the payor's determination that our products are clinically useful
and cost-effective, medically necessary and not experimental or
investigational. Since reimbursement approval is required from
each payor individually, seeking such approvals can be a time
consuming and costly process which could require us to provide
supporting scientific, clinical and cost-effectiveness data for
the use of our products to each payor separately. If we are
unable to secure adequate third party reimbursement for our
products, there would be material adverse effect on its business,
financial condition and results of operations.
Competition
The biotechnology and pharmaceutical industries are subject
to intense competition, including competition from large
pharmaceutical companies, biotechnology companies and other
companies, universities and research institutions. Competition
with the Company's existing therapeutic products is posed by a
wide variety of other firms, including firms which provide
products used in more traditional treatments or therapies, such
as external beam radiation, chemotherapy agents and narcotic
analgesics. In addition, the Company's existing and potential
competitors may be able to develop technologies that are as
effective as, or more effective than those offered by the
Company, which would render the Company's products noncompetitive
or obsolete. Moreover, many of the Company's existing and
potential competitors have substantially greater financial,
marketing, sales, manufacturing, distribution and technological
resources than the Company. Such existing and potential
competitors may be in the process of seeking FDA or foreign
regulatory approval for their respective products or may also
enjoy substantial advantages over the Company in terms of
research and development expertise, experience in conducting
clinical trials, experience in regulatory matters, manufacturing
efficiency, name recognition, sales and marketing expertise and
distribution channels. In addition, many of these companies may
have more experience in establishing third-party reimbursement
for their products. Accordingly, there can be no assurance that
the Company will be able to compete effectively against such
existing or potential competitors or that competition will not
have a material adverse effect on the Company's business,
financial condition and results of operations. See "Cancer
Diagnostic Imaging Products - ProstaScint" and "Cancer
Therapeutic Products - Quadramet".
Cellcor
In 1995 we acquired Cellcor for the continued development of
ALT. As part of our restructuring activities during 1998, we
determined that Cellcor was no longer in lone with our strategic
and financial objectives. In September 1998, we terminated
our Cellcor program and closed our facility.
Manufacturing
Our ProstaScint and OncoScint products are manufactured at a limited
commercial-scale, cGMP-compliant manufacturing facility in Princeton which is
now held by Purdue BioPharma. We have access to the facility for continued
manufacture of these products under a three year agreement. An Establishment
License Application for the facility for the manufacture of our products was
approved by the FDA for the manufacture of ProstaScint in October 1996 and for
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manufacture of OncoScint in December 1992. It is expected that this facility
will allow us to meet our projected production requirements for ProstaScint and
OncoScint for the foreseeable future, although no assurances can be given to
that effect.
In November 1997, the FD&C Act was amended to make the
approval and review process for biologics more similar to that
for drugs. The new law requires only one license to market a
biological product, a BLA, eliminating the need for separate
license for the facility. Therefore, while we will continue to
maintain compliance with cGMPs, under the new law, we are not
required to obtain separate licenses of its commercial
manufacturing facilities in the future. Moreover, we will retain
the status of having met the FDA's establishment licensing
requirements which we believes is an important competitive
advantage in attracting contract manufacturing business
(discussed below).
Our products must be manufactured in compliance with regulatory requirements
and at commercially acceptable costs. While we believe that our manufacturing
arrangements currently address our needs, there can be no assurance that we will
be able to continue to arrange manufacture of such products on a commercially
reasonable basis, that we will be able to arrange manufacture of additional
products and product candidates or successfully outsource such manufacturing
needs. If we are unable to successfully manufacture or arrange for the
manufacture of our products and product candidates there could be a material
adverse effect on our business, financial condition and results of operations.
The Company and its third party manufacturers are required
to adhere to FDA regulations setting forth requirements for cGMP
and similar regulations in other countries, which include
extensive testing, control and documentation requirements.
Ongoing compliance with cGMP, labeling and other applicable
regulatory requirements is monitored through periodic inspections
and market surveillance by state and federal agencies, including
the FDA, and by comparable agencies in other countries. Failure
of the Company and its third-party manufacturers to comply with
applicable regulations could result in sanctions being imposed on
the Company, including fines, injunctions, civil penalties,
failure of the government to grant premarket clearance or
premarket approval of drugs, delays, suspension or withdrawal of
approvals, seizures or recalls of products, operating
restrictions and criminal prosecutions.
The annual production capacity of the Princeton facility (now
held by Bard BioPharma) is approximately 100,000 OncoScint or
ProstaScint kits. The facility was utilized approximately 15% in
1998, 15% in 1997, and 20% in 1996 for manufacture of our
products.
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Raw Materials and Suppliers
The active raw materials used for the manufacture of our
products include different antibodies. We have both exclusive
and non-exclusive license agreements which permit the use of
specific monoclonal antibodies in our products. Our first
product, OncoScint CR/OV, uses the same monoclonal antibody which
has been supplied in clinical quantities and is being supplied in
commercial quantities by a single contract manufacturer, Lonza
Biologics (which acquired the Company's former supplier,
Celltech, in 1996), through a shared manufacturing agreement. We
anticipate that Lonza Biologics will be able to meet our needs
for commercial quantities of monoclonal antibody.
We currently have arrangements necessary for production of projected
commercial quantities of monoclonal antibody for manufacture of ProstaScint
through an agreement with Bard BioPharma, which acquired the Company's
manufacturing facilities in January, 1999.
Quadramet is manufactured by DuPont pursuant to an agreement
with Berlex and CYTOGEN. Certain components of Quadramet,
particularly Samarium-153 and EDTMP, are provided to DuPont by
sole source suppliers. Due to its radiochemical properties,
Samarium-153 must be produced on a weekly basis by its supplier
in order to meet DuPont's manufacturing requirements. On one
occasion, DuPont was unable to manufacture Quadramet on a timely
basis due to the failure of the sole source supplier to provide
an adequate supply of Samarium-153. In the event that DuPont is
unable to obtain sufficient quantities of such components on
commercially reasonable terms, or in a timely manner, DuPont
would be unable to manufacture Quadramet on a timely and cost-
competitive basis. In addition, sources for certain of these
components may not be readily available. Thus, the loss by
DuPont of its sources for such components could result in an
interruption of supply and could have a material adverse effect
on the Company's business, financial condition and results of
operations.
Patents and Proprietary Rights
Consistent with industry practice, we have a policy of using
patent and trade secret protection to preserve our right to
exploit the results of our research and development activities
and, to the extent it may be necessary or advisable, to exclude
others from appropriating our proprietary technology.
Our policy is to protect aggressively our proprietary
technology by selectively seeking patent protection in a
worldwide program. In addition to the U.S., we file patent
applications in Canada, major European countries, Japan and
additional foreign countries on a selective basis to protect
inventions important to the development of its business. We
believe that the countries in which we have obtained and are
seeking patent coverage for our proprietary technology represent
the major focus of the pharmaceutical industry in which the
Company and certain of our licensees will market our respective
products.
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We hold 31 current U.S. patents and 66 current foreign
patents. We have filed and currently have pending a number of
additional U.S. and foreign patent applications, covering certain
aspects of our technology for diagnostic and therapeutic
products, and the methods for their production and use. We
intends to file patent applications with respect to subsequent
developments and improvements when we believe such protection is
in our the best interest.
We are the exclusive licensee of certain patents and patent
applications held by the University of North Carolina at Chapel
Hill covering GDL technology. We hold an exclusive license under
certain patent and patent applications held by the Memorial Sloan
Kettering Institute covering PSMA. We are the exclusive licensee
of certain U.S. patents and applications held by Dow covering
Quadramet.
We may be entitled under certain circumstances to seek
extension of the terms of our patents. See "Government
Regulation and Product Testing - FDA Approval".
We also rely upon, and intend to continue to rely upon,
trade secrets, unpatented proprietary know-how and continuing
technological innovation to develop and maintain our competitive
position. We typically enter into confidentiality agreements
with our licensees and any scientific consultants, and each of
our employees have entered into agreements requiring that they
forbear from disclosing confidential information, and assign to
us all rights in any inventions made while in our employ. We
believe that our valuable proprietary information is protected to
the fullest extent practicable; however, there can be no
assurance that:
- - Any additional patents will be issued to the Company
in any or all appropriate jurisdictions;
- - Litigation will not be commenced seeking to
challenge the patent protection or such challenges
will not be successful;
- - Our processes or products do not or will not
infringe upon the patents of third parties; or
- - The scope of patents issued will successfully
prevent third parties from developing similar and
competitive products.
It is not possible to predict how any patent litigation will
affect the Company's efforts to develop, manufacture or market
its products.
The technology applicable to our products is developing
rapidly. A substantial number of patents have been issued to
other biotechnology companies. In addition, competitors have
filed applications for, or have been issued, patents and may
obtain additional patents and proprietary rights relating to
products or processes that are competitive with ours. In
addition, others may have filed patent applications and may have
been issued patents to products and to technologies potentially
useful to us or necessary to commercialize our products or
achieve our business goals. There can be no assurance that we
will be able to obtain licenses of such patents on acceptable
terms. See "Competition."
Government Regulation and Product Testing
The development, manufacture and sale of medical products
utilizing our technology are governed by a variety of statutes
and regulations in the U.S. and by comparable laws and agency
regulations in most foreign countries.
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The FD&C Act requires that our products be manufactured in
FDA registered facilities subject to inspection. The
manufacturer must be in compliance with cGMP which imposes
certain procedural and documentation requirements upon us and our
manufacturing partners with respect to manufacturing and quality
control activities. Noncompliance with cGMP can result in, among
other things, fines, injunctions, civil penalties, recalls or
seizures of products, total or partial suspension of production,
failure of the government to grant premarket clearance or
premarket approval for drugs, withdrawal of marketing approvals
and criminal prosecution. Any failure by us or our manufacturing
partners to comply with the requirements of cGMP could have a
material adverse effect on the Company's business, financial
condition and results of operations.
FDA Approval. The major regulatory impact on the diagnostic
and therapeutic products in the U.S. derives from the FD&C Act
and the Public Health Service Act, and from FDA rules and
regulations promulgated thereunder. These laws and regulations
require carefully controlled research and testing of products,
government notification, review and/or approval prior to
marketing the products, inspection and/or licensing of
manufacturing and production facilities, adherence to good
manufacturing practices, compliance with product specifications,
labeling, and other applicable regulations.
The medical products which we apply our technology is
subject to substantial governmental regulation and may be
classified as new drugs or biologics under the FD&C Act. FDA and
similar health authorities in most other countries must approve
or license the diagnostic and therapeutic products before they
can be commercially marketed. In order to obtain FDA approval,
an applicant must submit, as relevant for the particular product,
proof of safety, purity, potency and efficacy. In most cases such
proof entails extensive pre-clinical, clinical and laboratory
studies. The studies and the preparation and prosecution of
those applications by FDA is expensive and time consuming, and
may take several years to complete. Difficulties or
unanticipated costs may be encountered by us or our licensees in
their respective efforts to secure necessary governmental
approval or licenses, which could delay or preclude the Company
or its licensees from marketing their products. Limited
indications for use or other conditions could also be placed on
any such approvals that could restrict the commercial
applications of such products. With respect to patented products
or technologies, delays imposed by the government approval
process may materially reduce the period during which we will
have the exclusive right to exploit them, because patent
protection lasts only for a limited time, beginning on the date
the patent is first granted in the case of U.S. patent
applications filed prior to June 6, 1995, and when the patent
application is first filed in the case of patent applications
filed in the U.S. after June 6, 1995, and applications filed in
the European Economic Community. We intend to seek to maximize
the useful life of our patents under the Patent Term Restoration
Act of 1984 in the U.S. and under similar laws if available in
other countries.
The majority of our diagnostic and therapeutic products will
likely be classified as new drugs or biologics and will be
evaluated in a series of in vitro, non-clinical and human
clinical testing. Typically, clinical testing is performed in
three phases to further evaluate the safety and efficacy of the
drug. In Phase I, a product is tested in a small number of
patients primarily for safety at one or more dosages. In Phase
II, in addition to safety, the efficacy of the product against
particular diseases is evaluated in a patient population
generally somewhat larger than Phase I. Clinical trials of
certain diagnostic and cancer therapeutic agents frequently
combine Phase I and Phase II into a single Phase I/II study. In
Phase III, the product is evaluated in a larger patient
population sufficient to generate data to support a claim of
safety and efficacy within the meaning of the FD&C Act.
Permission by the FDA must be obtained before clinical testing
can be initiated within the U.S. This permission is obtained by
submission of an IND application which typically includes the
53
<PAGE>
results of in vitro and non-clinical testing and any previous
human testing done elsewhere. FDA has 30 days to review the
information submitted and makes a final decision whether to
permit clinical testing with the drug or biologic. A similar
procedure applies to medical device and diagnostic products.
After completion of in vitro, non-clinical and clinical
testing authorization to market a drug or biologic must be
granted by FDA. FDA grants permission to market through the
review and approval of either an NDA (New Drug Application) for
drugs or a BLA (Biologic License Application) for biologics.
These applications provide detailed information on the results of
the safety and efficacy of the drug conducted both in animals and
humans. Additionally, information is submitted describing the
facilities and procedures for manufacturing the drug or biologic.
The Prescription Drug User Fee Act and subsequently, the
Food and Drug Administration Modernization Act of 1997 have
established application review times for both NDAs and BLAs. For
new drugs and biologics, FDA is to review and make a
recommendation for approval within 12 months. For drugs and
biologics designated as "priority," the review time is six
months.
Once a drug or biologic is approved, we are required to
maintain approval status of the products by providing certain
safety and efficacy information at specified intervals.
Additionally, the Company is required to meet other requirements
specified by the FD&C Act including but not limited to the
manufacture of products, labeling and promotional materials and
the maintenance of other records and reports. Failure to comply
with these requirements or the occurrence of unanticipated safety
effects from the products during commercial marketing, could lead
to the need for product recall, or FDA initiated action, which
could delay further marketing until the products are brought into
compliance. Similar laws and regulations apply in most foreign
countries where these products are likely to be marketed.
Orphan Drug Act. The Orphan Drug Act is intended to provide
incentives to manufacturers to develop and market drugs for rare
diseases or conditions affecting fewer than 200,000 persons in
the U.S. at the time of application for orphan drug designation.
A drug that receives orphan drug designation and is the first
product to receive FDA marketing approval for a particular
indication is entitled to orphan drug status, a seven-year
exclusive marketing period in the U.S. for that indication.
Clinical testing requirements for orphan drugs are the same as
those for products that have not received orphan drug
designation. OncoScint CR/OV has received an orphan drug
designation for the detection of ovarian carcinoma. Under the
Orphan Drug Act, the FDA cannot approve any application by
another party to market an identical product for treatment of an
identical indication unless (i) such party has a license from the
holder of orphan drug status, or (ii) the holder of orphan drug
status is unable to assure an adequate supply of the drug.
However, a drug that is considered by FDA to be different from a
particular orphan drug is not barred from sale in the U.S. during
such seven-year exclusive marketing period even if it receives
marketing approval for the same product claim.
Other Regulations. In addition to regulations enforced by
FDA, the Company is also subject to regulation under the state
and local authorities and other federal agencies including
Occupational Safety and Health Act, the Environmental Protection
Act, the Toxic Substances Control Act, the Resource Conservation
and Recovery Act and Nuclear Regulatory Commission.
Foreign Regulatory Approval. Prior to marketing its
products in Western Europe and certain other countries, the
Company will be required to receive the favorable recommendation
of the Committee for Proprietary Medicinal Products, or CPMP,
followed by the appropriate government agencies of the respective
countries. Substantial requirements, comparable in many respects
to those imposed under the FD&C Act, will have to be met before
54
<PAGE>
commercial sale is permissible in most countries. There can be
no assurance, however, as to whether or when governmental
approvals (other than those already obtained) will be obtained or
as to the terms or scope of those approvals.
Customers
For the nine months ended September 30, 1998, we received
33% of its total product related, license and contract revenues
from two customers: DuPont and Medi-Physics, Inc., a chain of
radiopharmacies.
Employees
As of January 22, 1999, we employed 95 persons full-time,
of whom 7 were engaged in research and development activities,
32 in operations and manufacturing, 21 in clinical and regulatory
activities, 17 in administration and management, and 18 in
marketing. We believe that we have been successful in attracting
skilled and experienced employees; however, competition for such
personnel is intense.
None of the Company's employees is covered by a collective
bargaining agreement. All of the Company's employees have
executed confidentiality agreements. We considers relation with
our employees to be excellent.
Facilities
We currently lease approximately 30,000 square feet of
administrative and manufacturing related space in two
locations in Princeton, New Jersey, including:
- - 20,000 square feet of office space. The lease on this
facility expires in 2002; and
- - 8,000 square feet of warehousing and additional
manufacturing space. The lease on this space expires in
1999.
In addition, we have the right to access space located in a facility in
Princeton (previosuly held by the Company) for manufacture of Company products
and for laboratory functions. We intend to remain in Princeton, New Jersey for
the foreseeable future. We own substantially all of the equipment used in the
laboratories and offices.
Important Factors Regarding Forward Looking Statements
=====================
Cautionary Statement
Certain discussions set forth above regarding the
development and commercialization of our products and
technologies are forward looking statements that are subject to
risks and uncertainties. The statements under this caption are
intended to serve as cautionary statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Certain
statements in this prospectus are forward-looking statements
within the meaning of Section 27A of the Securities Act and
Section 21E of the Securities Exchange Act of 1934, as amended.
55
<PAGE>
The Company's actual results could differ materially from those
anticipated in such forward-looking statements as a result of
certain factors, including those discussed in Risk Factors,
listed below or discussed elsewhere in this prospectus, and in
the Company's filings with the Securities and Exchange
Commission:
(i) the Company's ability to continue as a going concern if the
Company is unable to raise sufficient funds or generate
sufficient cash flows from operations to cover the cost of its
operations; (ii) the Company's ability to access the capital
markets in the near term and in the future for continued funding
of existing projects and for the pursuit of new projects; (iii)
the Company's ability to complete its restructuring plans timely
and in a way that permits the Company to operate effectively;
(iv) the ability to attract and retain personnel needed for
business operations and strategic plans; (v) the timing and
results of clinical studies, and regulatory approvals; (vi)
market acceptance of the Company's products, including programs
designed to facilitate use of the products, such as the PIE
Program; (vii) demonstration over time of the efficacy and safety
of the Company's products; (vii) the degree of competition from
existing or new products; (ix) the decision by the majority of
public and private insurance carriers on whether to reimburse
patients for the Company's products; (x) the profitability of
its products; (xi) the ability to attract, and the ultimate
success of, strategic partnering arrangements, collaborations,
and acquisition candidates; (xii) the ability of the Company and
its partners to identify new products as a result of those
collaborations that are capable of achieving FDA approval, that
are cost-effective alternatives to existing products and that are
ultimately accepted by the key users of the product; and (xiii)
the success of the Company's marketing partners in obtaining
marketing approvals in Canada and in European countries, in
achieving milestones and achieving sales of products resulting in
royalties; and (xiv) the ability to protect and practice the
Company's intellectual property, including patents and know-how.
Any forward-looking statements are made as of the date of
this prospectus and the Company assumes no obligation to update
any such forward-looking statements or to update the factors
which could cause actual results to differ materially from those
anticipated in such forward-looking statements.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange
Commission, Washington, D.C. 20549, a Registration Statement on
Form S-1 under the Securities Act with respect to the shares of
common stock offered hereby. This Prospectus does not contain
all of the information set forth in the Registration Statement
and the exhibits and schedules thereto. For further information
with respect to the Company and the common stock offered hereby,
reference is made to the Registration Statement and the exhibits
and schedules filed therewith. Statements contained in this
Prospectus as to the contents of any contract or any other
document referred to are not necessarily complete, and in each
instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each
such statement being qualified in all respects by such reference.
A copy of the Registration Statement may be inspected without
charge at the offices of the Commission in Washington, D.C.
20549, and copies of all or any part of the Registration
Statement may be obtained from the Public Reference Section of
the Commission, Washington, D.C. 20549 upon the payment of the
fees prescribed by the Commission. The Commission maintains a
Web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding
registrants, such as the Company, that file electronically with
the Commission. The Company also maintains a Web site
(http://www.cytogen.com).
56
<PAGE>
MANAGEMENT
Directors and Executive Officers
The directors and executive officers of the Company are as follows:
Name Age Title
- ---- --- -----
James A. Grigsby 55 Director; Chairman of the Board
H. Joseph Reiser, Ph.D. 52 Director; President and Chief
Executive Officer
John E. Bagalay, Jr., Ph.D. J.D. 64 Director
Ronald J. Brenner, Ph.D. 64 Director
Stephen K. Carter, M.D. 61 Director
Robert F. Hendrickson 65 Director
Donald F. Crane 48 Vice President, General Counsel
and Corporate Secretary
Jane M. Maida 43 Chief Accounting Officer, and
Principal Financial Officer
Graham S. May, M.D. 50 Vice President, Medical Affairs
and Commercial Development
John D. Rodwell, Ph.D. 52 Senior Vice President, Chief
Scientific Officer and
President, AxCell Biosciences
Michael A. Trapani 44 Vice President, Regulatory Affairs
and Quality Assurance
James A. Grigsby has been a director of the Company since May
1996 and Chairman of the Board since June 1998. Since 1994, Mr.
Grigsby has been president of Cancer Care Management LLC, a
consulting firm providing consulting services to managed care
companies regarding cancer disease management issues. From 1989
to 1994, Mr. Grigsby was President of CIGNA Corporation's
International Life and Employee Benefits Division, which operated
in over 20 countries worldwide, and prior to that period also
served as the head of CIGNA's national health care sales force.
Prior to that time, since 1978, he held a number of executive
positions with CIGNA Corporation. Mr. Grigsby received a B.A.
degree in Mathematics from Baylor University and is a Fellow of
the Society of Actuaries.
H. Joseph Reiser, Ph.D. joined CYTOGEN in August 1998 as
President and Chief Executive Officer and as a member of the
Board of Directors. Most recently, Dr. Reiser was Corporate Vice
President and General Manager, Pharmaceuticals, for Berlex
Laboratories Inc., the U.S. subsidiary of Schering AG. During
his 17 year tenure at Berlex, Dr. Reiser held positions of
increasing responsibility, serving as the first President of
Schering Berlin's Venture Corporation, Vice President, Technology
and Industry Relations, and Vice President, Drug Development and
Technology. Dr. Reiser received his Ph.D. in Physiology from
Indiana University School of Medicine, where he also earned his
Master and Bachelor of Science degrees.
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<PAGE>
John E. Bagalay, Jr., Ph.D., J.D. became a director in 1995
and served as interim President and Chief Executive Officer from
January 1998 until August 1998. Dr. Bagalay was a director of
Cellcor prior to the Company's acquisition of Cellcor in October
1995. He has served as the Managing Director of Community
Technology Fund, the venture capital affiliate of Boston
University, since September 1989 and as Senior Advisor to the
Chancellor since January 1, 1998. Dr. Bagalay has also served as
General Counsel for Texas Commerce Bancshares, for Houston First
Financial Group, and for Lower Colorado River Authority, a
regulated electric utility. Dr. Bagalay currently also serves on
the boards of directors of Wave Systems Corporation and several
privately-held companies in the biotechnology industry. Dr.
Bagalay holds a B.A. in Politics, Philosophy and Economics and a
Ph.D. in Political Philosophy from Yale University, and a J.D.
from the University of Texas.
Ronald J. Brenner, Ph.D. has been a director of the Company
since October 1995. Dr. Brenner was President and Chief
Executive Officer of Cellcor from July 1995 until the Company's
acquisition of Cellcor in October 1995. Dr. Brenner has been a
general partner of the managing general partner of the Hillman
Medical Ventures partnerships since 1989. From 1984 to 1988, Dr.
Brenner was President and Chief Executive Officer of Cytogen.
Prior to 1984, he was Vice President, Corporate External
Research, at Johnson & Johnson, a major pharmaceutical company,
and also served as Chairman of McNeil Pharmaceutical, Ortho
Pharmaceutical Corp. and the Cilag Companies, all subsidiaries of
Johnson & Johnson. Dr. Brenner is a director of Aronex
Pharmaceuticals, Inc. He received a B.S. in Pharmacy from the
University of Cincinnati, and an M.S. and Ph.D., both in
Pharmaceutical Chemistry, from the University of Florida.
Stephen K. Carter, M.D. has been a director of the Company
since September, 1998. Dr. Carter was Senior Vice President of
Research and Development at Boehringer Ingelheim Pharmaceuticals,
Inc. from 1995 to 1997. Prior to joining Boehringer, Dr. Carter
was Senior Vice President of Worldwide Clinical Research and
Development at Bristol-Myers Squibb Company. From 1976 to 1982,
Dr. Carter served as Director of the Northern California Cancer
Institute. Dr. Carter was also appointed to President Clinton's
panel for AIDS drug development. Dr. Carter received an AB in
History from Columbia College and an MD from New York Medical
College. He completed a medical internship and residency at
Lenox Hill Hospital.
Robert F. Hendrickson became a director of the Company in
March 1995. Since 1990, Mr. Hendrickson has been a consultant to
the pharmaceutical and biotechnology industries on strategic
management and manufacturing issues with a number of leading
biotechnology companies among his clients. Prior to his
retirement in 1990, Mr. Hendrickson was Senior Vice President,
Manufacturing and Technology for Merck & Co., Inc. He is a
director of Envirogen, Inc., Unigene, Inc., The Liposome Company,
Inc., and a trustee of the Carrier Foundation, Inc. Mr.
Hendrickson received an A.B. degree from Harvard College and an
M.B.A. from the Harvard Graduate School of Business
Administration.
58
<PAGE>
Donald F. Crane joined CYTOGEN in June 1997 as Vice
President, General Counsel and Corporate Secretary. Most
recently, Mr. Crane was Senior SEC Counsel for U.S. Surgical
Corporation since 1993. Previously, Mr. Crane was Assistant
Secretary and Corporate Counsel at BellSouth Corporation in
Atlanta, Georgia. Mr. Crane holds a Bachelor's degree in
Communications from the University of Georgia and a J.D. degree
from the University of Georgia School of Law.
Jane M. Maida joined CYTOGEN in March 1997 as Chief Accounting
Officer, Corporate Controller and Assistant Secretary. Before
joining CYTOGEN, Ms. Maida served as Chief Financial and
Information Officer for Mustard Seed, Inc., a behavioral health
care company, from 1995. Prior to that position, she was Chief
Financial Officer of Morphogenesis, Inc., a biotechnology company
focused on cellular immunology. From 1986 to 1994, Ms. Maida was
Corporate Controller and Assistant Secretary for The Liposome
Company, Inc., a biotechnology company. Ms. Maida holds a B.S.
in Education from the University of Pennsylvania and a M.S. in
Accounting from the State University of New York at Albany. She
is also a Certified Public Accountant.
Graham S. May, M.D. joined CYTOGEN in January 1997 as Vice
President, Medical Affairs. In February 1998, he assumed
additional responsibilities for corporate business development.
Most recently, he was a Principal in the Global Health Care
Practice of Gemini Consulting Inc., an international management
consultant company, from 1995 to 1996. Prior to that, Dr. May
was with Pharmacia, U.S., for almost 10 years, first as Medical
Director of the Hospital Products division, and finally as
Executive Medical Director of Kabi Pharmacia, Inc. Dr. May has
been a visiting scientist at the Clinical Trials Branch, National
Heart, Lung, and Blood Institute at the National Institutes of
Health. He has also worked with AKZO and Ciba-Geigy in Europe,
as well as Hoechst-Roussel Pharmaceuticals in the U.S. Dr. May
holds undergraduate and medical degrees from Cambridge
University, England, and is a member of the Faculty of
Pharmaceutical Medicine.
John D. Rodwell, Ph.D. joined CYTOGEN in September 1981. He
served as Director, Chemical Research, then as Vice President,
Discovery Research from 1984 to 1989, and as Vice President,
Research and Development from 1989 to July 1996, at which time he
assumed his present responsibilities as Sr. Vice President and
Chief Scientific Officer. Dr. Rodwell has also served as
President and a director of AxCell since 1996. From 1980 to
1981, Dr. Rodwell was a Research Assistant Professor and, from
1976 to 1980, he was a postdoctoral fellow, both in the
Department of Microbiology at the University of Pennsylvania
School of Medicine, where he currently is an Adjunct Associate
Professor in the Department of Microbiology. He holds a B.A.
degree from the University of Massachusetts, an M.S. degree in
Organic Chemistry from Lowell Technological Institute and a Ph.D.
degree in Biochemistry from the University of California at Los
Angeles.
Michael A. Trapani joined CYTOGEN in January 1996 as Director,
Regulatory Affairs & Quality Assurance and held that position
until his promotion in March 1998 to Vice President, Regulatory
Affairs and Quality Assurance. In his current position, he is
responsible for regulatory and quality activities world-wide.
Mr. Trapani has approximately 20 years experience in the
pharmaceutical industry with the majority of his experience in
the drug approval area. Most recently, he was Senior Director,
Regulatory Affairs for Pharmacia Adria in Columbus, OH. Prior to
that position, he held the position of Executive Director,
Regulatory Affairs at Kabi Pharmacia in Piscataway, N.J. Mr.
Trapani started his career with the FDA. Mr. Trapani holds a
B.S. degree in Biology from Brooklyn College and an MBA degree
from Seton Hall Graduate School of Business.
59
<PAGE>
Director Compensation
In 1997, each director who is not also an officer of the
Company was paid an annual retainer of $7,500, plus $800 for each
Board meeting attended ($400 if participation was by telephone).
Any director who also served on a Board committee received an
additional annual fee of $500 for serving on the committee, and
$1,000 for serving as chairman of any Board committee, plus $250
for each committee meeting attended, except that the members of
the Nominating Committee did not receive any compensation for
serving on that committee. The Chairman of the Board, if not an
employee of the Company, receives an additional annual retainer
of $35,000.
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term
compensation awarded to, earned by or paid to (i) the Company's
Chief Executive Officer, and (ii) the other four most highly
compensated executive officers of the Company, for services
rendered to the Company during the Company's fiscal years ended
December 31, 1997, 1996 and 1995.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation (1) Long-Term Compensation
----------------------- ----------------------
Awards
----------------------
Other Securities
Annual Restricted Underlying All Other
Salary Bonus Compen- Stock Options/ Compen-
Name and Principal Position Year ($) ($) sation ($) Awards ($) SARs (#) sation ($) (2)
- --------------------------- ---- ------ ----- ---------- ----------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas J. McKearn (5) 1997 298,012 0 0 0 0 10,613 (6)
Chairman, President and Chief 1996 284,181 49,150 0 0 (3) 155,000 (4) 10,650
Executive Officer 1995 250,000 38,500 0 0 (3) 135,000 (4) 10,876
John D. Rodwell 1997 202,999 22,800 0 0 0 8,631
Senior Vice President and 1996 187,198 35,150 0 0 82,000 8,499
Chief Scientific Officer 1995 170,000 29,000 0 0 90,000 8,038
Graham May (7) 1997 206,446 31,100 0 0 45,000 6,515
Vice President, Medical Affairs
Frederick M. Miesowicz (8) 1997 201,554 20,400 0 0 0 6,178
Vice President 1996 207,985 26,950 0 0 40,000 4,191
1995 189,496 29,000 0 0 98,000 480
Richard J. Walsh (9) 1997 186,000 27,200 0 0 0 8,533
Vice President, Marketing and 1996 176,443 43,375 0 0 70,000 8,470
Commercial Development 1995 170,735 22,000 20,263 (10) 0 55,000 8,137
</TABLE>
_____________________
(1) Perquisites or personal benefits did not exceed the lesser of
either $50,000 or 10% of total annual salary and bonus reported
for the named executive officers.
(2) The amounts disclosed in this column include amounts
contributed or accrued by the Company in the respective fiscal
years under the Company's Savings Plan, a defined contribution
plan which consists of a 401(k) portion and a discretionary
contribution portion. In fiscal year 1997, these amounts were
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<PAGE>
as follows: on behalf of Dr. McKearn, $7,750; Dr. Rodwell,
$7,750; Dr. May, $5,948, Dr. Miesowicz, $5,640; and Mr. Walsh,
$7,750. The amounts disclosed also include insurance premiums
paid by the Company with respect to group term life insurance
and with respect to fiscal year 1997, these amounts were as
follows: on behalf of Dr. McKearn, $863; Dr. Rodwell, $881;
Dr. May, $567, Dr. Miesowicz, $538; and Mr. Walsh, $783.
(3) On December 8, 1994, Dr. McKearn and the Company entered into
a Stock Compensation and Performance Option Agreement (the
"Compensation Agreement"), which provided for the issuance to
Dr. McKearn of 30,000 shares of Common Stock in three
installments of 10,000 shares in each of 1994, 1995 and 1996.
On December 8, 1994, Dr. McKearn received the first installment
of 10,000 shares upon payment made equal to the aggregate par
value of the shares. On January 3, 1995, Dr. McKearn received
the second installment of 10,000 shares upon payment made equal
to the aggregate par value of the shares. On January 3, 1996,
Dr. McKearn received the third installment of 10,000 shares
upon payment made equal to the aggregate par value of the
shares.
(4) Pursuant to the Compensation Agreement, the Company granted to
Dr. McKearn, effective as of January 3, 1994, an option to
purchase up to 100,000 shares of Common Stock at an exercise
price of approximately $6.188 per share (subject to adjustment
under certain circumstances). Vesting of this option was at
the discretion of the Compensation Committee of the Board of
Directors. Any shares not vested were irrevocably canceled and
ineligible for future vesting under the grant. In December
1995, the Compensation Committee considered the vesting of the
second installment of 20,000 shares and determined that 15,000
shares should vest. In March 1997, the Compensation Committee
considered the vesting of the third installment of 20,000
shares and determined that 17,000 shares should vest. See
"Employment and Severance Arrangements".
(5) Dr. McKearn resigned as Chairman, President and Chief
Executive Officer and returned to a scientific role in the
Company, effective January 1998, and left the employment of the
Company in September, 1998.
(6) In March 1995, the Company and Dr. McKearn entered into a
Split Dollar Collateral Assignment Agreement. Under this
agreement, the Company was responsible for the payment of all
premiums due for two life insurance policies on the life of Dr.
McKearn, having a total face value of $2.3 million. The amount
disclosed in the Summary Compensation Table reflects the
portion of the total premiums ($43,710) paid by the Company
under these insurance policies in fiscal year 1997 that is
attributable to term life insurance coverage (a total of
$2,000). The current dollar value of the benefit to Dr.
McKearn of the remainder of the premiums paid by the Company
during fiscal year 1997 is $0. The benefit was calculated
based upon the difference between the payment of the premium
and its refund at the earliest possible time to the Company.
For a description of the Split Dollar Collateral Assignment
Agreement, see "Employment and Severance Arrangements".
(7) Dr. May joined the Company as Vice President, Medical Affairs,
effective January 2, 1997.
(8) Dr. Miesowicz was elected as a Vice President of the Company,
effective October 20, 1995. Dr. Miesowicz also serves as Vice
President and General Manager of Cellcor. A portion of the
amount included in the Summary Compensation Table for 1995
reflects salary paid to Dr. Miesowicz by Cellcor in fiscal
year 1995, prior to the merger, for services rendered in his
capacity as Cellcor's Senior Vice President of Scientific
Affairs. Dr. Miesowicz left the employment of the Company in
September 1998.
61
<PAGE>
(9) Mr. Walsh resigned from the Company during February 1998.
(10)Under the terms of his offer of employment, Mr. Walsh was
awarded 5,000 shares of Common Stock. The amount included in
the Summary Compensation Table for 1995 reflects the aggregate
value of those shares on the date they were purchased by Mr.
Walsh, which value is based upon the closing market price of
the Company's unrestricted stock on that date ($20,313), less
the price paid for the shares by Mr. Walsh ($50).
The following table sets forth information regarding individual
grants of stock options to the named executive officers during
fiscal year 1997:
OPTION GRANTS IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual
Rates of Stock Price
Appreciation for Option
Individual Grants Term (3)
-------------------------------------------------------- ------------------------
Percent of
Number of Total
Securities Options Exercise or
Underlying Granted to Base Price
Options Employees in (per share) Expiration
Name Granted (1) Fiscal Year (1) (2) Date 5% ($) 10% ($)
---- ----------- --------------- ---------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Thomas J. McKearn 0 0 0 0 0
Frederick M. Miesowicz 0 0 0 0 0
Graham S. May 45,000 5.43 5.4063 01/02/07 153,000 387,731
John D. Rodwell 0 0 0 0 0
Richard J. Walsh 0 0 0 0 0
</TABLE>
_______________________
(1) All of the options granted to the named executive officers
vest over five years at the rate of 20% per year beginning on
the first anniversary of the date of grant, subject to
acceleration under certain conditions. The maximum term of
each option granted is ten years from the date of grant.
Annual option grants for the named and other executive officers
were deferred until January 1998.
(2) The exercise price of all stock options granted during the
last fiscal year is equal to the average of the high and low
sale prices of the common stock as reported on the NSM on the
respective dates the options were granted.
(3) These amounts represent certain assumed rates of appreciation
only. Actual gains, if any, on stock option exercises and
common stock holdings are dependent on the future performance
of the common stock and overall stock market conditions. There
is no assurance that the amounts reflected will be realized.
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The following table sets forth information regarding aggregated
exercises of stock options by the named executive officers during
fiscal year 1997 and fiscal year-end values of unexercised
options:
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at FY-End at FY-End (1) (2)
----------------- --------------------
(#) ($)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (#) ($) (1) Unexercisable Unexercisable
---- ---------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Thomas J. McKearn 0 0 353,000/285,000 0/0
Frederick M. Miesowicz 0 0 181,000/90,800 0/0
Graham S. May 0 0 0/45,000 0/0
John D. Rodwell 19,100 43,894 150,400/151,000 0/0
Richard J. Walsh 0 0 87,000/123,000 0/0
</TABLE>
________________________
(1) The dollar values in this column were calculated by
determining the difference between the fair market value of the
common stock underlying the options at fiscal year-end or the
date of exercise, as the case may be, and the exercise price of
the options.
(2) The fair market value of a share of common stock
(calculated as the average of the high and low sale prices as
reported on the NSM) on December 31, 1997 was $1.6094.
Stock Option Plan
The Company's 1995 Employee Stock Option Plan (the "Option
Plan") provides for grants of "incentive stock Options" within
the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code") and nonqualified stock options. The
Option Plan provides for issuance of up to 4,502,635 shares of
the Company's Common Stock, subject to adjustment in the event of
stock splits, stock dividend, combinations or other similar
changes in the capital structure of the Company. Under the
Option Plan, incentive stock options and nonqualified stock
options may be granted to officers and employees of the Company
and its subsidiaries and affiliate, or in certain instances to
consultants. As of September 30, 1998, there were options to
purchase 2,634,741 shares of Common Stock outstanding under the
Option Plan.
The Option Plan is administered by a committee of the Board
of Directors, which has sole discretion and authority, consistent
with the provisions of the Option Plan, to determine which
eligible participants will receive options, the time at which
options will be granted and the character of the options, the
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<PAGE>
terms of the options granted, including vesting, and the number
of shares which will be subject to options granted under the
Option Plan.
In the event of a change in control of the Company, as
defined in the Option Plan, all outstanding options granted under
the Option Plan vest, and may at the discretion of the Board of
Directors or a committee of the Board of Directors be assumed by
or converted into options or securities of a successor
corporation.
The exercise price of options may not be less than the fair
market value of the Common Stock on the date of grant of the
option. Options are nontransferable, other than pursuant to the
laws of descent and distribution.
Employee Stock Purchase Plan
The Company also maintains a Stock Purchase Plan for its
eligible employees, intended to qualify as an "employee stock
purchase plan" under section 423 of the Code. Under this plan,
employees with a minimum amount of service are eligible to
purchase common stock of the Company, by regular payroll
deduction, at a 15% discount to the market. Employees can invest
1-10% of base compensation under this plan.
Section 401(k) Plan
The Company also maintains a retirement program under a plan
intended to qualify under Section 401(k) of the Code. Under the
plan, employees with a minimum amount of service can defer
income on a pretax basis. The Company matches contributions at a
level of $.50 for each $1.00 the employee contributes, to a
maximum of 6% of base salary. Employees may, subject to limits
established by the Internal Revenue Service, defer up to 10% of
base salary under the plan. In addition, the Company may provide
on a discretionary basis additional matching contributions.
Employment Agreements
Dr. Thomas J. McKearn served as the President of Cellcor on a
full-time basis since January 1998 through its closure in
September 1998. Prior to this assignment he served as the
Company's Chairman, Chief Executive Officer and President. Dr.
McKearn had entered into agreements with the Company pursuant to
which he earned or received (i) base salary of $298,012 in fiscal
year 1997, (ii) a restricted stock grant of 10,000 shares in each
of 1994, 1995, and 1996, and certain (iii) a stock option granted
effective January 3, 1994 to purchase up to an aggregate of
100,000 shares of Common Stock at an exercise price of
approximately $6.188 per share, with vesting determined by the
Compensation Committee based upon the meeting of certain
performance criteria, and (iv) a $2.3 million split-dollar life
insurance policy (described above) effective in 1995 through his
last employment date. The agreement provided Dr. McKearn was
entitled to one year's severance pay upon dismissal. Dr. McKearn
left the employment of the Company in September 1998.
Under the terms of severance agreements, Drs. Rodwell and May
will also be entitled to receive twelve months of salary if their
employment with the Company is terminated without cause. Dr.
Miesowicz left the employment of the Company in September 1998
and he will receive twelve months of salary under the terms of
his severance agreement.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information as of
January 7, 1999, with respect to the beneficial ownership of
the Company's Common Stock by each person known by the Company to
be the beneficial owner of more than 5% of its outstanding Common
Stock, by each director, by each of the Company's five most
highly compensated executive officers for 1997, and by all
executive officers and directors as a group. Except as indicated
in the footnotes to the table, the persons named in the table
have sole voting and investment power with respect to all shares
of Common Stock beneficially owned by them. The number of shares
set forth below includes those shares of Common Stock issuable
pursuant to options which are exercisable or shares which are
convertible within 60 days of January 7, 1999.
Number of Shares
of Common Stock Percent
Name and Address of Beneficial Owner (1) Beneficially Owned of Class
- ---------------------------------------- ------------------ --------
Henry L. Hillman,
Elsie Hilliard Hillman and
C.G. Grefenstette, Trustees
2000 Grant Building
Pittsburgh, PA 15219 (2)........................ 8,218,191 12.45%
State of Wisconsin Investment Board
121 E. Wilson Street
2nd Floor
Madison, WI 53702................................ 5,462,834 8.28%
Ronald J. Brenner, Ph.D.
One Tower Bridge
Suite 1350
100 Front Street
West Conshohocken, PA 19428 (4)(5).............. 3,810,509 5.77%
Hillman Medical Ventures Partnerships
824 Market Street, Suite 900
Wilmington, DE 19801 (3)....................... 3,713,909 5.63%
Hal S. Broderson
One Tower Bridge
Suite 1350
100 Front Street
West Conshohocken, PA 19428 (4)................ 3,715,009 5.63%
Charles G. Hadley
One Tower Bridge
Suite 1350
100 Front Street
West Conshohocken, PA 19428 (4)................ 3,714,159 5.63%
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<PAGE>
Directors and Executive Officers
- --------------------------------
Thomas J. McKearn (5)....................... 710,463 1.08%
Frederick M. Miesowicz (5).................. 0 *
John D. Rodwell (5)(6)...................... 325,300 *
Richard J. Walsh (5)........................ 5,000 *
John E. Bagalay, Jr. (5).................... 41,734 *
Stephen K. Carter (7)....................... 0 *
James A. Grigsby............................ 8,400 *
Robert F. Hendrickson (5)................... 14,200 *
Graham S. May (5)........................... 109,666 *
H. Joseph Reiser (7)........................ 300,000 *
All executive officers
and directors as a group (14 persons) (5).. 5,550,197 8.42%
_________________
*Indicates amount is less than 1%.
(1) All information with respect to beneficial ownership of
shares is based upon filings made by the respective beneficial
owners with the Securities and Exchange Commission or information
provided by such beneficial owners to the Company. Percent of
class for each person and all executive officers and directors as
a group is based on shares of Common Stock outstanding on
January 7, 1999 and includes shares subject to options held by
the individual or the group, as applicable which are exercisable
or as become exercisable within 60 days following such date.
(2) Includes 116,325 shares of Common Stock held by the
Henry L. Hillman Trust U/A dated November 18, 1985 (the "HLH
Trust"), 20,625 shares of Common Stock held by Hillman 1984
Limited Partnership ("Hillman 1984"), 4,125 shares of Common Stock
held by HCC Investments, Inc. ("HCC"), 4,363,207 shares of Common
Stock held by Juliet Challenger, Inc. ("JCI"), 367,445 shares of
Common Stock held by Hillman Medical Ventures 1989 L.P. ("HMV
1989"), 176,470 shares of Common Stock held by Hillman Medical
Ventures 1990 L.P. ("HMV 1990"), 486,622 shares of Common Stock
held by Hillman Medical Ventures 1991 L.P. ("HMV 1991"), 110,522
shares of Common Stock held by Hillman Medical Ventures 1992 L.P.
("HMV 1992"), 1,094,700 shares of Common Stock held by Hillman
Medical Ventures 1994 L.P. ("HMV 1994"), and 1,478,150 shares of
Common Stock held by Hillman Medical Ventures 1995 L.P. ("HMV
1995"). JCI, HCC, and Wilmington Securities, Inc. (which (i) owns
Hillman Properties West, Inc., the sole general partner of Hillman
1984, and (ii) is the sole general partner of Hillman/Dover L.P.,
one of the general partners of HMV 1989, HMV 1990, HMV 1991, HMV
1992, HMV 1994 and HMV 1995 (collectively, "Hillman Medical
Ventures")) are private investment companies owned by Wilmington
Investments, Inc., which, in turn, is owned by The Hillman
Company. The Hillman Company is a private firm engaged in
diversified investments and operations, which is controlled by the
HLH Trust. The trustees of the HLH Trust are Henry L. Hillman,
Elsie Hilliard Hillman and C.G. Grefenstette (the "HLH Trustees").
Consequently, the HLH Trustees share voting and investment power
with respect to the shares held of record by the HLH Trust, JCI,
HCC, Hillman 1984, and Hillman Medical Ventures and may be deemed
to be the beneficial owners of such shares. Does not include an
aggregate of 155,100 shares of Common Stock held by four
irrevocable trusts for the benefit of members of the Hillman
family (collectively, the "Family Trusts"), as to which shares the
HLH Trustees (other than Mr. Grefenstette) disclaim beneficial
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<PAGE>
interest. C.G. Grefenstette and Thomas G. Bigley are trustees of
the Family Trusts and, as such, share voting and investment power
over the shares held by the Family Trusts.
(3) Includes 367,445 shares of Common Stock held by HMV
1989, 176,470 shares of Common Stock held by HMV 1990, 486,622
shares of Common Stock held by HMV 1991, 110,522 shares of Common
Stock held by HMV 1992, 1,094,700 shares of Common Stock held by
HMV 1994 and 1,478,150 shares of Common Stock held by HMV 1995.
(4) Includes 3,713,909 shares held by Hillman Medical
Ventures. Each of Drs. Broderson and Brenner and Mr. Hadley is a
general partner of Cashon Biomedical Associates, L.P., which is a
general partner of the Hillman Medical Ventures Partnerships and,
therefore, may be deemed to be the beneficial owner of such
shares. Drs. Broderson and Brenner and Mr. Hadley share voting and
investment power with respect to the shares held by Hillman
Medical Ventures and disclaim beneficial ownership of the
1,992,715 shares beneficially owned by the HLH Trustees, Hillman
1984, HCC, JCI and the Family Trusts referred to in note 2 above.
(5) Includes shares of Common Stock which the named persons
have the right to acquire upon the exercise of stock options,
within sixty days of January 7, 1999, as follows: Dr. Reiser: 300,000
Dr. McKearn: 363,000; Dr. Rodwell: 260,300; Dr. May: 109,666;
Dr. Brenner: 8,400; Dr. Bagalay: 41,734; Mr. Grigsby: 4,400;
and Mr. Hendrickson: 10,200. The group number includes the shares
of Common Stock which the named persons and other executive
officer have the right to acquire upon the exercise of stock
options, within sixty days of January 7, 1999. Dr. McKearn,
Dr. Miesowicz and Mr. Walsh are no longer employed by the Company.
(6) Includes 5,000 shares held by Dr. Rodwell's wife as
custodian for two children under the Pennsylvania Uniform Gift to
Minors Act. Dr. Rodwell disclaims beneficial ownership of the
5,000 shares held by his wife.
(7) Dr. Reiser was elected President and Chief Executive
Officer and as a director on August 24, 1998; Dr. Carter was
elected as a director on September 14, 1998.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Authorized Stock; Issued and Outstanding Shares
As of the date of this Prospectus, the Company's authorized
capital stock consists of 89,600,000 shares of Common Stock, par
value $0.01 per share, and 5,400,000 shares of preferred stock,
$0.01 per share. 200,000 shares of Series C Junior participating
Preferred Stock have been authorized for issuance pursuant to the
Company's Shareholder Rights Agreement. The description below is
a summary of all material provisions of the Company's common
stock and preferred stock.
Common Stock
The holders of Common Stock are entitled to one vote per
share on all matters voted on by the stockholders, including
elections of directors. Except as otherwise required by law or
as provided in any resolutions adopted by the Board with respect
to the preferred stock of the Company, the holders of shares of
Common Stock will exclusively possess all voting power. Subject
to the preferential rights, if any, of holders of any then
outstanding preferred stock, the holders of Common Stock are
entitled to receive dividends when, as and if declared by the
Board of Directors of the Company out of funds legally available
therefor. The terms of the Common Stock do not grant to the
holders thereof any preemptive, subscription, redemption,
conversion or sinking fund rights. Subject to the preferential
rights of holders of any then outstanding preferred stock, the
holders of Common Stock are entitled to share ratably in the
assets of the Company legally available for distribution to
stockholders in the event of the liquidation, dissolution or
winding up of the Company.
As of September 30, 1998, 58,602,852 shares of Common Stock
were issued and outstanding, and 1,260,000 shares of Common Stock
were reserved for issuance upon the exercise of certain
outstanding warrants and approximately 6,694,623 shares were
reserved for issuance pursuant to stock option plans and Employee
Stock Purchase Plans. The Company has issued to Dow, two
warrants to purchase an aggregate of 260,000 shares of Common
Stock at $3.00 per share in connection with the Company's
acquisition of and amendments to an exclusive license from Dow.
Subsequent to September 30, 1998, the Company has issued to
Berlex warrants for the purchase of one million shares of Common
Stock at an exercise price of $1.0016 per share; to Kingsbridge,
200,000 warrants at $1.016 per share; and to the May Davis Group,
a placement agent for the Equity Line Agreement, 100,000 warrants at
$2.00 per share.
The Certificate of Incorporation and Bylaws of the Company
contain certain provisions which may have the effect of delaying,
deferring, or preventing a change of control of the Company. See
"Risk Factors - Anti-takeover Considerations". In addition, the
Board generally has the authority, without further action by
stockholders, to fix the relative powers, preferences, and rights
of the unissued shares of preferred stock of the Company.
Provisions which could discourage an unsolicited tender offer or
takeover proposal, such as extraordinary voting, dividend,
redemption, or conversion rights, could be included in such
preferred stock. For a description of certain rights which may
also affect a change-in-control transaction, see "Description of
Capital Stock - Preferred Stock."
Preferred Stock
Pursuant to the Certificate of Incorporation, the Company
has the authority to issue up to 5,400,000 shares of preferred
stock, $0.01 par value per share, in one or more series as
determined by the Board of Directors of the Company. The Board
of Directors of the Company may, without further action by the
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<PAGE>
stockholders of the Company, issue one or more series of
preferred stock and fix the rights and preferences of such
shares, including the dividend rights, dividend rates, conversion
rights, exchange rights, voting rights, terms of redemption,
redemption price or prices, liquidation preferences and the
number of shares constituting any series or the designation of
such series. Shares of any series of preferred stock of the
Company may be represented by depositary shares evidenced by
depositary receipts, each representing a fractional interest in a
share of preferred stock of such series and deposited with a
depository. The use of this mechanism could increase the number
of interests in preferred stock issued by the Company. The
rights of the holders of Common Stock will be subject to, and may
be adversely affected by, the rights of holders of preferred
stock issued by the Company in the future. In addition, the
issuance of preferred stock could have the effect of making it
more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, control of the Company.
One Series C Junior Participating preferred Stock purchase
right which has a redemption value of $.01 was distributed as a
dividend for each of the Company's common shares held of record
as of the close of business on June 30, 1998, or issued
thereafter (with certain exceptions). The rights will be
exercisable if a person or a group acquires beneficial ownership
of 20% or more of the Company's Common Stock and can be made
exercisable by action of the Company's Board of Directors if a
person or a group commences a tender offer which would result in
such person or group beneficially owning 20% or more of the
Company's Common Stock. Each right will entitle the holder to
buy one one-thousandth of a share of Series C Junior
Participation Preferred Stock for $20. The rights expire on June
19, 2008.
Transfer Agent and Registrar
Chase Mellon Shareholder Services, L.L.C. is the transfer
agent and registrar for the Common Stock.
Section 203 of the Delaware General Corporation Law
The Company is subject to the provisions of Section 203 of
the Delaware General Corporation Law ("Section 203"). Under
Section 203, certain "business combinations" between a Delaware
corporation whose stock generally is publicly traded or held of
record by more than 2,000 stockholders and an "interested
stockholder" are prohibited for a three-year period following the
date that such a stockholder became an interested stockholder,
unless (i) the corporation has elected in its original
certificate of incorporation not to be governed by Section 203 ;
(ii) the business combination was approved by the Board of
Directors of the corporation before the other party to the
business combination became an interested stockholder, (iii) upon
consummation of the transaction that made it an interested
stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the commencement
of the transaction (excluding voting stock owned by directors who
are also officers or held in employee benefit plans in which the
employees do not have a confidential right to tender or vote
stock held by the plan); or (iv) the business combination was
approved by the Board of Directors of the corporation and
ratified by two-thirds of the voting stock which the interested
stockholder did not own. The three-year prohibition also does
not apply to certain business combinations proposed by an
interested stockholder following the announcement or notification
of certain extraordinary transactions involving the corporation
and a person who had not been an interested stockholder during
the previous three years or who became an interested stockholder
with the approval of the majority of the corporation's directors.
The term "business combination" is defined generally to include
mergers or consolidations between a Delaware corporation and an
interested stockholder, transactions with an interested
stockholder involving the assets or stock of the corporation or
69
<PAGE>
its majority-owned subsidiaries and transactions which increase
an interested stockholder's percentage ownership of stock. The
term "interested stockholder" is defined generally as a
stockholder who, together with affiliates and associates, owns
(or, within three years prior, did own) 15% or more of a Delaware
corporation's voting stock. Section 203 could prohibit or delay
a merger, takeover or other change in control of the Company and
therefore could discourage attempts to acquire the Company.
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<PAGE>
Selling Stockholder
The following table sets forth certain information regarding
beneficial ownership of our common stock by the Selling
Stockholder as of November 1, 1998.
<TABLE>
<CAPTION>
Number of Shares of Common Number of Shares of Common
Name and Address of Stock Beneficially Owned Number of Shares of Common Stock Beneficially Owned
Stockholder Prior to the Offering Stock Offered Hereby Following the Offering (4)
----------- --------------------- -------------------- --------------------------
Number Per Cent Number Per Cent
------ -------- ------ --------
<S> <C> <C> <C> <C> <C>
Kingsbridge
Capital Limited
Dawson Building
Main Street
Road Town
Tortola,
British Virgin Islands(1).. 235,000 (3) (2) 6,200,000 (3) 35,000 (2)
</TABLE>
(1) The natural person controlling Kingsbridge Capital Limited is
Valentine O'Donoghue.
(2) Less than 1%.
(3) Includes 200,000 shares of common stock issuable pursuant to
the Kingsbridge Warrant. If all of the shares offered hereby
were purchased and held by Kingsbridge, it would hold 9.62%
of our outstanding common stock.
(4) Assumes that all shares acquired pursuant to the Equity Line
Agreement and the Warrant are sold pursuant to this
prospectus. Kingsbridge has not had any material relationship
with the Company or any of its affiliates other than as a result
of the ownership of common stock or as a result of the negotiation
and the execution of the Equity Line Agreement. The shares offered
hereby are to be acquired by Kingsbridge pursuant to the Equity Line
Agreement or upon exercise of the Warrant.
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<PAGE>
PLAN OF DISTRIBUTION
We have been advised by the Selling Stockholder that they
may sell the common stock from time to time in transactions on
the Nasdaq Stock Market, in negotiated transactions, or
otherwise, or by a combination of these methods, at fixed prices
which may be changed, at market prices at the time of sale, at
prices related to market prices or at negotiated prices. The
Selling Stockholder may effect these transactions by selling the
common stock to or through broker-dealers, who may receive
compensation in the form of discounts, concessions or commissions
from the Selling Stockholder or the purchasers of the common
stock for whom the broker-dealer may act as an agent or to whom
they may sell the common stock as a principal, or both. The
compensation to a particular broker-dealer may be in excess of
customary commissions. The Selling Stockholder is an
"underwriter" within the meaning of the Securities Act in
connection with the sale of the common stock offered hereby.
Broker-dealers who act in connection with the sale of the common
stock may also be deemed to be underwriters. Profits on any
resale of the common stock as a principal by such broker-dealers
and any commissions received by such broker-dealers may be deemed
to be underwriting discounts and commissions under the Securities
Act. Any broker-dealer participating in such transactions as
agent may receive commissions from the Selling Stockholder (and,
if they act as agent for the purchaser of such common stock, from
such purchaser). Broker-dealers may agree with the Selling
Stockholder to sell a specified number of common stock at a
stipulated price per share, and, to the extent such a broker-
dealer is unable to do so acting as agent for the Selling
Stockholder, to purchase as principal any unsold common stock at
the price required to fulfill the broker-dealer commitment to the
Selling Stockholder. Broker-dealers who acquire common stock as
principal may thereafter resell such common stock from time to
time in transactions (which may involve crosses and block
transactions and which may involve sales to and through other
broker-dealers, including transactions of the nature described
above) in the over-the-counter market, in negotiated transactions
or otherwise at market prices prevailing at the time of sale or
at negotiated prices, and in connection with such resales may pay
to or receive from the purchasers of such common stock
commissions computed as described above.
To the extent required under the Securities Act, a
supplemental prospectus will be filed, disclosing (a) the name of
any such broker-dealers; (b) the number of shares of common stock
involved; (c) the price at which such common stock is to be sold;
(d) the commissions paid or discounts or concessions allowed to
such broker-dealers, where applicable; (e) that such broker-
dealers did not conduct any investigation to verify the
information set out or incorporated by reference in this
prospectus, as supplemented; and (f) other facts material to the
transaction.
Under applicable rules and regulations under the Exchange
Act, any person engaged in a distribution of the common stock may
not simultaneously engage in market making activities with
respect to such securities for a period beginning when such
person becomes a distribution participant and ending upon such
person's completion of participation in a distribution, including
stabilization activities in the common stock to effect covering
transactions, to impose penalty bids or to effect passive market
making bids. In addition and without limiting the foregoing, in
connection with transactions in the common stock, the Company and
the Selling Stockholder will be subject to applicable provisions
of the Exchange Act and the rules and regulations thereunder,
including, without limitation, Rule 10b-5 and, insofar as the
Company and the Selling Stockholder are distribution
participants, Regulation M and Rules 100, 101, 102, 103, 104 and
105 thereof. All of the foregoing may affect the marketability of
the common stock.
Kingsbridge has agreed that it will not engage in short
sales of the Company's common stock except for three days after
it receives notice of the company's intent to put common stock.
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<PAGE>
Any short sales by Kingsbridge may be covered only with shares of
common stock issued to Kingsbridge pursuant to the Equity Line
Agreement.
Kingsbridge will pay all commissions and certain other
expenses associated with the sale of the common stock. The common
stock offered hereby is being registered pursuant to contractual
obligations of the Company, and the Company has agreed to pay the
costs of registering the shares hereunder, including legal fees
up to a maximum of $5,000, commissions, transfer taxes and
certain other expenses for resale of the common stock. The
Company has also agreed to indemnify the Selling Stockholder
with respect to the common stock offered hereby against certain
liabilities, including, without limitation, certain liabilities
under the Securities Act, or, if such indemnity is unavailable,
to contribute toward amounts required to be paid in respect of
such liabilities.
The May Davis Group, Inc., acted as placement agent in
connection with the Equity Line Agreement and this offering. In
exchange for such services, the May Davis Group will receive from
the Company a cash fee of 6% of each put amount, before deducting
discounts and commissions, and a warrant to purchase 100,000 shares
of common stock of the Company.
We have also agreed to reimburse Kingsbridge for certain
costs and expenses incurred in connection with this offering.
These may include the fees, expenses and disbursements of counsel
for Kingsbridge incurred in the preparation of the Equity Line
Agreement and associated documentation and the registration
statement of which this prospectus forms a part, up to a maximum
of $30,000. In addition, we have agreed to reimburse
Kingsbridge for expenses incurred in obtaining insurance against
liability under the Securities Act of 1933 and Securities
Exchange Act of 1934, as amended, in an amount initially equal to
3% of each put amount.
The price at which the common stock will be issued by
the Company to Kingsbridge shall be 85% of the market price on
the date the Company issues shares, as defined in the Equity Line
Agreement. Assuming an offering price of $1.172 per share (based
on the average of the high and low bid prices of the common stock
as reported by the NSM on November 17, 1998), underwriting
compensation is as follows:
- - Discount to Kingsbridge, $1,054,800;
- - Kingsbridge warrant to purchase 200,000 shares of common
stock at $1.016 per share; and
- - Reimbursement for securities liability insurance equal to
3% of each put amount.
Pursuant to the private equity line agreement, CYTOGEN offered 475,330 shares
of its common stock to Kingsbridge on February 5, 1999 at a price of $1.0519 per
share. The offering price of $1.0519 represents 85% of the average of the
closing prices of the common stock over a five-day period in accordance with the
equity line agreement, or discount of $75,000. Kingsbridge also received
reimbursement for securities liability insurance in the amount of $15,000. Also
in connection with this offering, the Placement Agent received a fee of $30,000.
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<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby
will be passed upon for the Company by Donald F. Crane, Jr. Esq.,
Vice President and General Counsel to Cytogen Corporation.
EXPERTS
The audited consolidated financial statements of the Company
as of December 31, 1997 and 1996, and for each of the three
years in the period ended December 31, 1997 included in this
Prospectus and registration statement have been audited by Arthur
Andersen LLP, independent public accounts, as indicated in their
report with respect thereto, and are included herein in reliance
upon the authority of said firm as experts in giving said
reports. Reference is made in their report which is qualified as
to the ability of the Company to continue as a going concern.
