<PAGE>
As filed with the Securities and Exchange Commission on August 25, 1999
Registration No. 333-67947
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
POST EFFECTIVE AMENDMENT NO. 2
TO
AMENDMENT NO. 2 TO FORM S-1 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
CYTOGEN CORPORATION
(Exact name of registrant as specified in its charter)
------------------------------------------------------
Delaware 2835 22-2322400
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or organization) Industrial Classification Identification No.)
Code Number)
-------------------------------------
600 College Road East CN 5308
Princeton, New Jersey 08540-5308
(609) 750-8200
(Address, including zip code and telephone
number, including area code, of registrant's
principal executive offices)
--------------------------------------
Donald F. Crane, Jr., Esq.
Vice President and General Counsel
CYTOGEN Corporation
600 College Road East CN 5308
Princeton, New Jersey 08540-5308
(609) 750-8200
(Name, address, including zip code, and telephone
number,including area code, of agent for service)
-----------------------------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ____________
If this Form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] ____________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.[ ]
----------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================
Proposed Maximum Proposed Maximum
Title of Each Class of Amount To Be Offering Price Aggregate Offering Amount of
Securities To Be Registered Registered (1) Per Share Price Registration Fee
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock ($.01 par value
per share), issuable upon
exercise of a warrant 200,000 Shares $1.172 (2) $234,400 $65
- -------------------------------------------------------------------------------------------------------------------
Totals: 200,000 Shares $234,400 $65
===================================================================================================================
</TABLE>
(1) In the event of a stock split, stock dividend, or other transaction
involving the Company's Common Stock, in order to prevent dilution, the
number of shares registered shall automatically be increased to cover the
additional shares in accordance with Rule 416(a) under the Securities Act,
which applies to stock splits, stock dividends, or similar transactions.
(2) Estimated solely for the purpose of calculating the registration fee,
includes preferred stock purchase rights pursuant to Cytogen
Corporation's Shareholder Rights Agreement.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
PROSPECTUS Dated August ___, 1999
200,000 Shares
CYTOGEN CORPORATION
Common Stock
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 200,000 shares of the common stock of CYTOGEN
Corporation, 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, except that the
Company would receive the exercise price of the warrants. 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 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 August 18, 1999 was $1.7970 per
share.
Investing in the common stock involves certain risks which are described in
the "Risk Factors" section beginning on page 10. The Selling Stockholder
may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities and it is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
CYTOGEN's principal executive offices are located at 600
College Road East, CN 5308, Princeton, New Jersey 08540-5308,
(609)750-8200.
<PAGE>
TABLE OF CONTENTS
Page
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . 10
The Equity Line Agreement. . . . . . . . . . . . . . . . . . . . 26
Determination of the Offering Price. . . . . . . . . . . . . . . 27
Price Range of our Common Stock. . . . . . . . . . . . . . . . . 27
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . . 27
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . 27
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . 28
Selected Consolidated Annual Financial Data. . . . . . . . . . . 29
Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . 31
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Available Information. . . . . . . . . . . . . . . . . . . . . . 58
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Executive Compensation . . . . . . . . . . . . . . . . . . . . . 62
Description of Capital Stock . . . . . . . . . . . . . . . . . . 69
Selling Stockholder. . . . . . . . . . . . . . . . . . . . . . . 72
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . 73
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . 74
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Index to Consolidated Annual Financial Statements. . . . . . . . F-1
__________________________
ProstaScint and OncoScint are registered trademarks of CYTOGEN.
PIE is a trademark of CYTOGEN, pending registration.
Quadramet is a trademark of Dow, licensed to CYTOGEN
2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in
this prospectus. It is not complete and may not contain all the
information that you should consider before investing in the
common stock. You should read the entire prospectus carefully,
including the "Risk Factors" section, the financial statements
and the notes to the financial statements.
The Company
CYTOGEN Corporation ("CYTOGEN" or the "Company") is a biopharmaceutical
company engaged in the development, commercialization and marketing of products
to improve diagnosis and treatment of prostate disease, and of products for
unmet needs in the broader urological and oncology markets. 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.
Our primary products in development are:
- Vaccines for prostate and other cancers utilizing the Company's
proprietary prostate specific membrane technology, or PSMA, in a
collaboration with Progenics Pharmaceuticals, Inc.;
- Other potential diagnostic and therapeutic applications of PSMA; and
- A bioinformatics platform designed to offer a database mapping
interaction between proteins to be accessed by a computer program for
use in drug discovery and research.
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
3
<PAGE>
- Recently curtailed basic research expenditures in
order to allocate resources toward implementing our
business strategy.
Business Strategy
Our business strategy is directed primarily toward prostate and urological
diseases and, when opportunities arise, in the broader field of oncology and in
diagnostics. We plan to focus our efforts in areas in which we have experience.
Our approach 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 and early 1999, 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.
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
4
<PAGE>
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
manufacturing currently remain CYTOGEN employees, but Purdue will pay
for their labor costs except while they are working on our products.
- 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
On June 15, 1999, we reacquired the rights for immunotherapy to our
prostate specific membrane antigen ("PSMA") technology by acquiring 100% of the
outstanding capital stock of Prostagen, Inc., which had sublicensed PSMA from us
for prostate cancer immunotherapy in 1996. In connection with the acquisition,
we acquired other assets held by Prostagen, including approximately $550,000 in
cash, a minority ownership in Northwest Biotherapeutics, Inc., which is
developing PSMA for cell therapy, and a contract with Velos, Inc. for marketing
a cancer patient software management program for hospitals and health care
payors. In exchange, we issued 2,050,000 shares of our stock, and may issue up
to an additional 450,000 shares of our stock upon the satisfactory termination
of lease obligations assumed in the Prostagen acquisition, up to $4.0 million
worth of our shares (based on the value at the time of issuance) if milestones
are achieved in the PSMA development program and up to 500,000 shares of our
stock upon beneficial resolution of other contractual arrangements entered by
Prostagen.
On June 15, 1999, we also entered a joint venture with Progenics
Pharmaceuticals, Inc. to develop vaccine and antibody-based immunotherapeutic
products utilizing CYTOGEN's proprietary PSMA technology. The joint venture will
be owned equally by us and Progenics. Progenics will fund up to $3 million of
development costs of the program. After that point, we and Progenics will share
the future costs of the program. We have the exclusive North American marketing
rights on products developed by the venture. In connection with the licensing of
the PSMA technology to the joint venture, we will receive $2 million in payments
of which $500,000 was received. We can not give any assurance that this program
will result in products reaching the market or being successful.
In June of 1999, we reacquired rights to our ProstaScint and OncoScint
products in Canada, which had been licensed to Faulding (Canada), Inc. We also
agreed with Berlex Laboratories, Inc., the North American marketing partner for
our Quadramet product, that we would market Quadramet in Canada. We did not pay
for either of these agreements. OncoScint and Quadramet are approved by the
Canadian Health Care Branch; ProstaScint is under expedited review. We believe
these products may be marketed to major cancer centers in Canada and will not
require the level of resources for U. S. marketing. However, we can not be
certain that ProstaScint will be approved in Canada, that these products will be
reimbursable under the Canadian health care system, or that they will be
accepted by physicians.
On August 4, 1999, we sold $5 million in our common stock to the State of
Wisconsin Investment Board, at $1.61 per share. This price was a 7.25% discount
to the average closing price of our stock over a five day period, and they
received a total of 3,105,590 shares of our stock.
We will no longer be drawing under an agreement entered in October, 1999,
with Kingsbridge Capital Ltd. We have registered in this registration statement
shares which we could have issued to Kingsbridge, but because we will not be
issuing shares under that agreement we have removed those shares from this
registration statement. The only shares which Kingsbridge may sell under this
agreement will be if they exercise warrants to buy our stock which they obtained
under the agreement.
5
<PAGE>
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 had entitled us to sell up to $12,000,000 (after deducting
Kingsbridge's discount) of our common stock to Kingsbridge. We terminated this
agreement on August 16, 1999. However, under that Agreement, we have 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 Warrants may be offered to the public through this
prospectus.
Pursuant to this prospectus, the Selling Stockholder may
offer to the public the Warrants.
Offered by the Selling Stockholder . . . . . . . . 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
August 18, 1999 . . . . . . . . . . . . . . . . . 70,291,678 shares*
Use of Proceeds . . . . . . . . . . . . . . . . . We will not receive any of
the proceeds of the offering
of the shares hereby by the
Selling Stockholder. We will
receive the exercise price of
the warrants, if exercised,
which will be used for
general corporate purposes.
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
<PAGE>
Nasdaq Stock Market Symbol . . . . . . . . . . . . CYTO
*Does not include:
- 1,705,630 shares of common stock issuable upon exercise
of warrants outstanding as of August 18, 1999
(including 200,000 shares issuable upon exercise of the
Warrants); and
- 5,484,811 shares of common stock issuable upon exercise
of stock options outstanding as of August 18, 1999.
7
<PAGE>
Summary Consolidated Annual 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 Audited and Unaudited Financial Statements, and the
Notes thereto, which are included in this prospectus. Results of operations for
the six months ended June 30, 1999 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>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- ---------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------------------- ---------------------------------------------------------
STATEMENTS OF OPERATIONS DATA: (ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Product sales .............................. $ 3,574 $ 3,684 $ 8,976 $ 5,252 $ 1,507 $ 1,377 $ 1,411
Royalties .................................. 461 1,664 1,664 3,282 -- -- --
License and contract ....................... 2,739 1,246 9,239 5,886 4,223 3,608 1,047
--------- --------- --------- --------- --------- --------- ---------
Total revenues ........................... 6,774 6,594 19,879 14,420 5,730 4,985 2,458
--------- --------- --------- --------- --------- --------- ---------
Operating Expenses:
Cost of product and contract
manufacturing revenues (1) ............... 2,274 3,835 12,284 5,939 -- -- --
Research and development .................... 2,038 5,763 9,967 17,913 20,539 22,594 20,321
Acquisition of technology rights ............ 1,214 -- -- -- -- 45,878 4,647
Equity loss in Targon subsidiary ............ -- 1,020 1,020 9,232 288 -- --
Selling and marketing ....................... 2,028 2,334 5,103 5,492 4,143 4,493 5,536
General and administrative .................. 1,892 2,621 7,420 6,871 5,494 4,804 3,962
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses ................. 9,446 15,573 35,794 45,447 30,464 77,769 34,466
--------- --------- --------- --------- --------- --------- ---------
Operating loss ........................... (2,672) (8,979) (15,915) (31,027) (24,734) (72,784) (32,008)
Gain on sale of laboratory and
manufacturing facilities..................... 3,298 -- -- -- -- -- --
Gain on sale of Targon subsidiary ............. -- -- 2,833 -- -- -- --
Other income (expense) ........................ 67 (9) (70) 315 968 264 (798)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) ............................. 693 (8,988) (13,152) (30,712) (23,766) (72,520) (32,806)
Dividends, including deemed
dividends on preferred stock ............... -- (119) (119) (1,352) (4,571) -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) to common stockholders ...... $ 693 $ (9,107) $(13,271) $(32,064) $(28,337) $(72,520) $(32,806)
========= ========= ========= ========= ========= ========= =========
Basic and diluted net income (loss)
per common share ............................ $ 0.01 $ (0.17) $ (0.24) $ (0.63) $ (0.59) $ (2.11) $ (1.38)
========= ========= ========= ========= ========= ========= =========
Weighted average common share outstanding
Basic ...................................... 64,884 54,065 56,419 51,134 48,401 34,333 23,822
========= ========= ========= ========= ========= ========= =========
Diluted .................................... 65,042 54,065 56,419 51,134 48,401 34,333 23,822
========= ========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
--------- ---------------------------------------------------------
CONSOLIDATED BALANCE SHEET DATA: 1999 1998 1997 1996 1995 1994
- -------------------------------- --------- --------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash, short term investments and
restricted cash ...................... $ 5,332 $ 3,015 $ 7,401 $ 24,765 $ 29,135 $ 7,700
Total assets .............................. 12,356 10,900 27,555 41,543 37,149 19,690
Long-term liabilities ..................... 2,264 2,223 10,171 1,855 3,275 4,310
Redeemable common stock ................... -- -- -- -- -- 2,000
Stockholders' equity ...................... 5,463 443 9,983 32,927 25,276 4,368
</TABLE>
8
<PAGE>
(1) Prior to 1997, product sales were minimal and no revenues were derived from
contract manufacturing, therefore, cost of product sales was immaterial and
was included in research and development expenses. In 1999, cost of
products has decreased as a result of the new arrangement with Bard
BioPharma L.P., a subsidiary of Purdue Pharma L.P.(see Note 4 to the Notes
to the Consolidated Interim Financial Statements).
9
<PAGE>
RISK FACTORS
Prospective investors in the common stock offered hereby
should carefully consider the following risk factors, in addition
to the other information contained in this prospectus. This
prospectus contains forward-looking statements which involve
risks and uncertainties. Our actual results could differ
materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set
forth in the following risk factors and elsewhere in this
prospectus.
History of Operating Losses and Accumulated Deficit
We have a history of losses as follows:
Operating Net Income (Loss) to
Losses Common Stockholders
-------- --------------------
Six Months Ended June 30, 1999 ($ 2,672,000) $ 693,000
Year Ended December 31, 1998 ($ 15,915,000) ($ 13,271,000)
Year Ended December 31, 1997 ($ 31,027,000) ($ 32,064,000)
For the six months ended June 30, 1999, net income to common stockholders
resulted from a combination of a $3.3 million gain from the sale of its
laboratory and manufacturing facilities, licensing fee revenue of $1.8 million,
a reduction in operating expenses and continuing revenues from product sales
offset by acquisition cost of $1.2 million on the acquisition of certain
technology.
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 of June 30, 1999, we had an accumulated deficit of
approximately $301 million.
10
<PAGE>
Uncertainty of Profitability
Our ability to achieve and maintain profitability is highly dependent upon
the successful commercialization of our products, including Quadramet and
ProstaScint. Our profitability may also depend on success with PSMA and with
AxCell Biosciences. 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.
11
<PAGE>
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
12
<PAGE>
- - Expansion of strategic alliances for the sale, marketing and distribution
of our products.
We currently expect that our existing cash, together with decreased
operating costs, and revenues generated by product sales and royalties will be
adequate to fund our operations through the year 2000. 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
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,
further scale back or eliminate one or more of our development programs
or certain aspects of our operations, or attempt 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.
Possible Dilution or Requirement to Comply with Covenants
Additional equity financing may result in substantial
dilution to shareholders, and 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.
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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 six months ended June 30, 1999,
revenues from ProstaScint and Quadramet accounted for over 92% 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 in the United States 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 in the United States, including marketing to MCOs, by an agreement
entered in October 1998, their marketing efforts began in the first quarter of
1999. We can not give any assurance that Berlex will be able to successfully
market Quadramet, or that this agreement will be profitable for the Company.
CYTOGEN recently obtained marketing rights to Quadramet in Canada, but has not
yet implemented a selling program. We can not give any assurance that the
product can be marketed effectively in Canada, or that it will contribute
significantly to the Company's revenues.
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;
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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.
- - A joint venture with Progenics Pharmaceuticals, Inc. for
the development of PSMA for immunotherapy for prostate and
other cancers.
Because our collaborative partners are responsible for certain of
our sales, marketing, manufacturing and distribution activities,
these activities are outside our direct control. We can't give
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
depend on Berlex for the sales, marketing and distribution of Quadramet in the
United States, and on BARD for the sale and marketing of ProstaScint. In
locations outside the United States, we have not established a selling presence.
If we are unable to establish and maintain significant sales, marketing and
distribution efforts, either internally or through arrangements with third
parties, our business, financial condition and results of operations could be
materially adversely effected.
We have limited marketing history for our products.
- - ProstaScint was approved for marketing by the FDA in October 1996,
and commercially launched in February 1997. ProstaScint sales have
experienced growth since product launch. However, there can be no
assurance that such growth will continue; and
- - Quadramet was approved for marketing by the FDA in March 1997 and
launched by DuPont in June 1997. Quadramet sales during the period from
initial launch were below the levels of minimum royalty payments we
recorded under our agreement with DuPont. Growth during early months was
limited by the need for hospitals to obtain license amendments
under federal and state law to receive and handle this new radioactive
product. In addition, initial marketing efforts by DuPont were directed
primarily to nuclear medicine physicians who directly administer the product
to patients. While we believe this approach was necessary to generate
product understanding, marketing to primary caregivers for likely candidates
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for treatment with Quadramet is necessary for extensive penetration
into the market. Berlex maintains a sales force which calls on the physician
oncological community; however, there is no significant experience with
sales efforts for Quadramet and there can be no assurance that sales efforts
will be successful.
The failure of our marketing efforts to achieve commercial
success would have a material adverse effect on our business and
results of operations.
Risks Associated with Manufacturing; Third-Party Manufacturers'
Dependence on Single Source Suppliers; Need to Comply with
Manufacturing Regulations
Our products must be manufactured either internally or through third-party
manufacturers in compliance with regulatory requirements and at acceptable
costs.
While we believe that our manufacturing operations currently address our
needs for the production of our products, there can be no assurance that we will
be able to continue to manufacture, 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 currently 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 agreeement 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
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healthcare through various means. There have been, and we expect
that there will continue to be, a number of federal and state
proposals to implement government control of pricing and
profitability of therapeutic and diagnostic imaging agents such
as our products. In addition, an emphasis on managed increases
possible pressure on pricing of these products. While we cannot
predict whether such legislative or regulatory proposals will be
adopted or the effects such proposals or managed care efforts may
have on our business, the announcement of such proposals and the
adoption of such proposals or efforts could have a material
adverse effect on our business, financial condition and results
of operations. Further, to the extent such proposals or efforts
have a material adverse effect on other companies that are
prospective corporate partners for the Company, our ability to
establish strategic alliances may be materially and adversely
affected.
Sales of our products depend in part on the availability of
reimbursement to the consumer from third-party payors, including
Medicare, Medicaid, and private health insurance plans. Third-
party payors are increasingly challenging the prices charged for
medical products and services. There can be no assurance that
our products will be considered cost-effective and that
reimbursement to consumers will continue to be available, or will
be sufficient to allow us to sell our products on a competitive
basis. Approval of our products for reimbursement by a third
party payor may depend on a number of factors, including the
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 August 18, 1999, the Company
had 70,291,678 shares of common stock outstanding. An additional
7,190,441 shares of common stock are issuable upon the exercise
of outstanding options and warrants (including 200,000 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.
The shares of stock which may be acquired by the Selling Stockholder under
the 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.
24
<PAGE>
THE WARRANTS
On October 23, 1998, we entered into an Equity Line Agreement with
Kingsbridge, which had permitted us to issue and sell, from time to time, up to
an aggregate of $12,000,000, after deducting discounts, of our common stock. On
August 16, 1999, we terminated that Agreement .
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. Kingsbridge may be entitled to indemnification by us
for any lawsuits based on language in this prospectus with which they do not
agree.
25
<PAGE>
Under 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
Warrant is exercisable through April 2002.
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 on exercise of the Warrants.
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 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.
Under the Equity Line Agreement, we agreed to register the common stock
issuable upon the exercise of the warrants 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 these 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."
26
<PAGE>
PRICE RANGE OF OUR COMMON STOCK
Our common stock is currently listed on the Nasdaq Stock Market under the
symbol "CYTO." The table below sets forth the high and low sale prices for our
common stock for each of the calendar quarters indicated, as reported by
Nasdaq.
1996 High Low
- ---- ---- ---
Second Quarter.................... 9 1/2 5 13/16
Third Quarter..................... 9 5 3/16
Fourth Quarter.................... 7 1/8 4 7/16
1997
- ----
First Quarter..................... 6 1/2 4 3/4
Second Quarter.................... 6 5/16 4 11/16
Third Quarter..................... 5 1/16 3 5/8
Fourth Quarter.................... 4 3/4 1 7/16
1998
- ----
First Quarter..................... 2 7/16 1 1/4
Second Quarter.................... 2 5/8
Third Quarter..................... 2 9/16 3/4
Fourth Quarter.................... 1 7/8 11/16
1999
- ----
First Quarter..................... 1 1/2 27/32
Second Quarter.................... 2 7/8
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. The Company will receive the proceeds,
if any, relating to the exercise of the Warrants. All proceeds from the sale of
common stock from the exercise of the Warrants will be used for general
corporate purposes.
27
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
June 30, 1999. 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>
June 30, 1999
-------------------------
(All amounts in thousands
except share data)
Actual
-----------
<S> <C>
Long-term Liabilities (1) $ 2,264
-----------
Stockholders' Equity
Preferred stock, $.01 par value, 5,400,000 shares authorized--
Series C Junior Participating Preferred Stock, $.01 par value
200,000 shares authorized, none issued and outstanding -
Common Stock, $.01 par value, 89,600,000 shares authorized,
67,175,000 shares issued and outstanding 672
Additional paid-in capital 306,110
Accumulated deficit (301,319)
-----------
Total Stockholders' Equity 5,463
-----------
Total Capitalization $ 7,727
============
</TABLE>
(1) For information concerning the Company's long-term debt, see
"Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources"
and Notes to Consolidated Financial Statements.
28
<PAGE>
SELECTED CONSOLIDATED ANNUAL FINANCIAL DATA
The selected financial data as of and for each of the five years in the
period ended December 31, 1998 has been derived from the consolidated financial
statements of the Company, which have been audited by Arthur Andersen LLP, the
Company's independent public accountants, included elsewhere in this Prospectus.
The selected financial data as of June 30, 1999 and for the six months ended
June 30, 1999 and 1998 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, included 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, including the notes thereto,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other information provided elsewhere in this report. Results of
operations for the six months ended June 30, 1999 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>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- --------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------------------- --------------------------------------------------------
STATEMENTS OF OPERATIONS DATA: (ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Product sales .............................. $ 3,574 $ 3,684 $ 8,976 $ 5,252 $ 1,507 $ 1,377 $ 1,411
Royalties .................................. 461 1,664 1,664 3,282 -- -- --
License and contract ....................... 2,739 1,246 9,239 5,886 4,223 3,608 1,047
--------- --------- --------- --------- --------- --------- ---------
Total revenues ........................... 6,774 6,594 19,879 14,420 5,730 4,985 2,458
--------- --------- --------- --------- --------- --------- ---------
Operating Expenses:
Cost of product and contract
manufacturing revenues (1) ............... 2,274 3,835 12,284 5,939 -- -- --
Research and development .................... 2,038 5,763 9,967 17,913 20,539 22,594 20,321
Acquisition of technology rights ............ 1,214 -- -- -- -- 45,878 4,647
Equity loss in Targon subsidiary ............ -- 1,020 1,020 9,232 288 -- --
Selling and marketing ....................... 2,028 2,334 5,103 5,492 4,143 4,493 5,536
General and administrative .................. 1,892 2,621 7,420 6,871 5,494 4,804 3,962
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses ................. 9,446 15,573 35,794 45,447 30,464 77,769 34,466
--------- --------- --------- --------- --------- --------- ---------
Operating loss ........................... (2,672) (8,979) (15,915) (31,027) (24,734) (72,784) (32,008)
Gain on sale of laboratory and
manufacturing facilities..................... 3,298 -- -- -- -- -- --
Gain on sale of Targon subsidiary ............. -- -- 2,833 -- -- -- --
Other income (expense) ........................ 67 (9) (70) 315 968 264 (798)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) ............................. 693 (8,988) (13,152) (30,712) (23,766) (72,520) (32,806)
Dividends, including deemed
dividends on preferred stock ............... -- (119) (119) (1,352) (4,571) -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) to common stockholders ...... $ 693 $ (9,107) $(13,271) $(32,064) $(28,337) $(72,520) $(32,806)
========= ========= ========= ========= ========= ========= =========
Basic and diluted net income (loss)
per common share ........................... $ 0.01 $ (0.17) $ (0.24) $ (0.63) $ (0.59) $ (2.11) $ (1.38)
========= ========= ========= ========= ========= ========= =========
Weighted average common share outstanding
Basic ...................................... 64,884 54,065 56,419 51,134 48,401 34,333 23,822
========= ========= ========= ========= ========= ========= =========
Diluted .................................... 65,042 54,065 56,419 51,134 48,401 34,333 23,822
========= ========= ========= ========= ========= ========= =========
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
--------- ---------------------------------------------------------
CONSOLIDATED BALANCE SHEET DATA: 1999 1998 1997 1996 1995 1994
- -------------------------------- --------- --------- ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash, short term investments and
restricted cash ...................... $ 5,332 $ 3,015 $ 7,401 $ 24,765 $ 29,135 $ 7,700
Total assets .............................. 12,356 10,900 27,555 41,543 37,149 19,690
Long-term liabilities ..................... 2,264 2,223 10,171 1,855 3,275 4,310
Redeemable common stock ................... -- -- -- -- -- 2,000
Stockholders' equity ...................... 5,463 443 9,983 32,927 25,276 4,368
</TABLE>
(1) Prior to 1997, product sales were minimal and no revenues were derived from
contract manufacturing, therefore, cost of product sales was immaterial and
was included in research and development expenses. In 1999, cost of
products has decreased as a result of the new arrangement with Bard
BioPharma L.P., a subsidiary of Purdue Pharma L.P.(see Note 4 to the Notes
to the Consolidated Interim Financial Statements).
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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)
payments received from contract manufacturing and research services pursuant to
agreements, (iii) fees generated from the licensing of its technology and
marketing rights to its products, (iv) milestone payments received when events
stipulated in the collaborative agreements with third parties have been achieved
and (v) through September 1998, the cost recovery related to the treatment of
patients receiving autolymphocyte therapy ("ALT") for metastatic renal cell
carcinoma ("mRCC") under a Treatment Investigational New Drug program and
compassionate protocol which permits patients who do not qualify for or have
completed treatment under an ongoing study approved by the FDA to receive
treatment.
31
<PAGE>
In January 1999, CYTOGEN sold certain of its laboratory and
manufacturing facilities to Bard BioPharma L.P., a subsidiary of Purdue Pharma
L.P. ("Bard BioPharma") for $3.9 million. CYTOGEN also signed a three-year
agreement under which two of CYTOGEN's products, ProstaScint and OncoScint CR/OV
would continue to be manufactured at its former research and development
facility. Employees involved in manufacturing will remain CYTOGEN employees, but
Bard BioPharma will absorb their labor costs except for time spent on
manufacturing CYTOGEN products. Cost of products has decreased under this new
arrangement. As a result of the sale of facilities, the Company will record a
gain of approximately $3.3 million in the first quarter of 1999.
Also in January 1999, the Company sold an aggregate of $2.0 million of
common stock to a subsidiary of The Hillman Company and $0.5 million of common
stock to an institutional investor upon an exercise of a put right granted to
the Company under a 1998 equity line agreement. See Note 5 of Notes to the
Consolidated Interim Financial Statements.
In June 1999, CYTOGEN reacquired the rights for immunotherapy to its PSMA
technology by acquiring 100% of the outstanding capital stock of Prostagen. The
Company had sublicensed PSMA to Prostagen for prostate cancer immunotherapy in
1996. In connection with the acquisition, CYTOGEN acquired approximately
$550,000 in cash, a minority ownership in Northwest Biotherapeutics, Inc. which
is developing PSMA for cell therapy, and a contract with Velos, Inc. for
marketing a cancer patient software management program for hospitals and health
care payors (see Note 2 to the Consolidated Interim Financial Statements).
Also in June 1999, CYTOGEN entered into a joint venture with Progenics to
develop vaccine and antibody-based immunotherapeutic products utilizing
CYTOGEN's proprietary PSMA technology. The joint venture will be owned equally
by CYTOGEN and Progenics. Progenics will fund up to $3 million of development
costs of the program. After that point, the Company and Progenics will equally
share the future costs of the program. CYTOGEN has exclusive North American
marketing rights on products developed by the joint venture (see Note 3 to the
Consolidated Interim Financial Statements).
In August 1999, the Company sold to the State of Wisconsin Investment
Board 3,105,590 shares of CYTOGEN common stock at an aggregate price of $5.0
million or $1.61 per share.
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
REVENUES. Total revenues were $19.9 million in 1998, $14.4 million in 1997
and $5.7 million in 1996. Product related revenues, including product sales and
royalty revenues, accounted for 54%, 59% and 26% of revenues in 1998, 1997 and
1996, respectively. The growth in 1998 and 1997 was due to the launch and
revenues generated from ProstaScint and Quadramet. License and contract revenues
accounted for the remainder of revenues.
32
<PAGE>
Product related revenues were $10.6 million, $8.5 million and $1.5 million
in 1998, 1997 and 1996, respectively. ProstaScint accounted for 60%, 48% and 4%
of the revenues in 1998, 1997 and 1996, respectively, while Quadramet royalties
and sales accounted for 31% and 38% of revenues in 1998 and 1997, respectively.
Sales from ProstaScint were $6.4 million, $4.1 million and $55,000 in 1998, 1997
and 1996, respectively while royalties and sales from Quadramet were $3.3
million for each year, 1998 and 1997. From the time of product launch in the
second quarter of 1997 through June 3, 1998, CYTOGEN recorded royalty revenues
for Quadramet 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 recorded product revenues from Quadramet based on
actual sales. Beginning in 1999, the Quadramet royalties are based on net sales
of Quadramet by Berlex, CYTOGEN's new marketing partner for Quadramet. The
product was re-launched in March 1999. Although CYTOGEN believes that
Berlex is an advantageous marketing partner, there can be no assurance that
Quadramet will, following the re-launch of the product, achieve market
acceptance on a timely basis or sufficiently to result in significant revenues
for CYTOGEN. With respect to ProstaScint, no significant history of revenues
exists, therefore the Company's future product revenues will be also dependent
upon the market place acceptance of that product.
Other revenues, including sales from OncoScint CR/OV and ALT treatments,
were $923,000, $1.2 million and $1.5 million in 1998, 1997 and 1996,
respectively. Sales from OncoScint CR/OV were $872,000, $950,000 and $1.3
million in 1998, 1997 and 1996, respectively. Revenues from ALT treatments for
mRCC were $52,000 in 1998, $245,000 in 1997 and $178,000 in 1996. Due to the
discontinuance of the program in September 1998, the Company will receive no
additional revenues from ALT treatments.
License and contract revenues for 1998, 1997 and 1996 were $9.2 million,
$5.9 million and $4.2 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 $7.2 million, $2.1 million and
$845,000 in 1998, 1997 and 1996, respectively. In 1998, the payments consisted
primarily of $7.1 million up-front payment from Berlex for the marketing and
manufacturing rights of Quadramet. In 1997, CYTOGEN received a $2.0 million
milestone payment from DuPont upon FDA approval of Quadramet. In 1996, the
payments were derived primarily from C.R. Bard ("BARD") and CIS biointernational
("CISbio"), the Company's marketing partners.
Revenues from contract manufacturing and research revenues were $2.0
million, $3.8 million and $3.4 million in 1998, 1997 and 1996, respectively. The
1998 revenues included $1.7 million in contract manufacturing from eleven
customers. The Company is phasing out contract manufacturing services, due to
the sale of the manufacturing facility, and expects to receive no further
revenues from this service after 1999. The 1997 revenues included $1.5 million
from DuPont for the continued clinical development of Quadramet (see Note 5 of
Notes to the Consolidated Annual Financial Statements), $924,000 from Elan for a
combined research program between CYTOGEN and Elan to collaboratively develop
orally administered products (see Note 7 of Notes to the Consolidated Annual
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.
OPERATING EXPENSES. Total operating expenses were $35.8 million in 1998,
$45.4 million in 1997 and $30.5 million in 1996. The 1998 decrease from 1997 was
due to the Company's continued efforts to control spending including the closure
of Cellcor subsidiary, corporate downsizing, and the termination of product
development efforts through Targon. The 1998 operating expenses included $1.4
million of restructuring costs associated with the closure of Cellcor subsidiary
and corporate downsizing, $539,000 in costs related to the implementation of the
Company's turnaround plan, $4.0 million for a Quadramet manufacturing commitment
and $995,000 for manufacturing and distribution of Quadramet. The 1997 operating
expenses included a one-time license fee of $7.5 million for the acquisition of
Morphelan and a milestone payment of $4.0 million to Dow upon FDA clearance of
Quadramet. The operating expenses in 1998 and 1997 were higher than 1996 due to
the one-time charges, 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.
33
<PAGE>
Costs of product and contract manufacturing revenues were $12.3 million and
$5.9 million in 1998 and 1997, respectively. The 1998 increase over the prior
year was due to a one-time charge of $4.0 million for a Quadramet manufacturing
commitment (see Note 5 of Notes to the Consolidated Annual Financial
Statements), $995,000 for the manufacturing and distribution of Quadramet and
increased manufacturing costs associated with increased revenues. Prior to 1997,
product sales were minimal and no revenues were derived from contract
manufacturing; therefore, costs of products were immaterial and have been
included in research and development expenses.
Research and development expenses were $10.0 million in 1998, $17.9
million in 1997 and $20.5 million in 1996. These expenses principally reflect
product development efforts and support for various ongoing clinical trials. The
1998 decrease from 1997 was due to a $4.0 million milestone payment to Dow in
1997 for FDA clearance of Quadramet. The 1998 expenses were further reduced,
compared to 1997 and 1996, due to reductions in the Company's product
development efforts including the closure of Cellcor and termination of the
Genetic Diversified Library program. Pursuant to the Company's restructuring,
research and development expenses have been curtailed significantly.
Equity loss in Targon subsidiary were $1.0 million, $9.2 million and
$288,000 in 1998, 1997 and 1996, respectively. The Company did not recognize
Targon's losses after March 1998 based on the completion of the sale of Targon.
The 1997 expenses included a $7.5 million one-time product acquisition fee and
various product development and clinical support programs.
Selling and marketing expenses were $5.1 million in 1998, $5.5 million in
1997 and $4.1 million in 1996. The 1998 expenses reflected the marketing efforts
to increase ProstaScint sales and expenses to establish and maintain PIE Sites.
The 1997 increase over 1998 and 1996 is primarily attributable to expenses
associated with the launch of ProstaScint, including expenses to establish the
PIE Program.
General and administrative expenses were $7.4 million in 1998, $6.9
million in 1997 and $5.5 million in 1996. The increase over prior years is
attributable to $1.4 million of restructuring costs associated with the closure
of Cellcor and work force reduction, $539,000 of expenses related to the
implementation of a corporate turnaround plan and $408,000 of financing related
expenses.
GAIN ON SALE OF TARGON SUBSIDIARY was $2.8 million in 1998 as a result of
the sale of CYTOGEN's ownership interest in Targon to Elan (see Note 3 of Notes
to the Consolidated Annual Financial Statements).
INTEREST INCOME/EXPENSE. Interest income for 1998, 1997 and 1996 was
$582,000, $606,000 and $1.4 million, respectively. The decrease from the prior
years is due to lower cash and short term investment balances during the year.
The decrease is partially offset by interest income realized beginning July 1997
from the $10.0 million note due to CYTOGEN from Targon, which was canceled as a
result of the sale of Targon to Elan (see Note 3 of Notes to the Consolidated
Annual Financial Statements).
34
<PAGE>
Interest expense was $652,000 in 1998, $291,000 in 1997 and $451,000 in
1996. In addition to the imputed interest on liabilities associated with
CYTOGEN's termination agreements with Knoll Pharmaceuticals Company ("Knoll")
and Chiron B.V. ("Chiron"), beginning in July 1997, the Company recorded
interest expense in connection to the $10.0 million note due to Elan which was
canceled as a result of the sale of Targon to Elan in August 1998.
NET LOSS. Net loss to common stockholders was $13.3 million, $32.1 million
and $28.3 million in 1998, 1997 and 1996, respectively. Net loss per common
share was $0.24, $0.63 and $0.59 in 1998, 1997 and 1996, respectively, based on
56.4 million, 51.1 million and 48.4 million average common shares outstanding in
each year, respectively. The 1997 net loss was increased by $1.4 million of
deemed and accrued dividends on the Series B Preferred Stock. The 1996 net loss
was increased by $4.6 million of deemed dividend on the Series A Preferred Stock
(see Note 11 of Notes to the Consolidated Annual Financial Statements).
SIX MONTHS ENDED JUNE 30, 1999 and 1998
REVENUES. Total revenues for the first half of 1999 and 1998 were $6.8
million and $6.6 million, respectively. Product related revenues, which included
product sales and royalties, accounted for 60% of total revenues in 1999 versus
81% in the comparable period of 1998. License and contract revenues accounted
for the remainder of revenues.
Product related revenues for the first half of 1999 and 1998 were $4.0
million and $5.3 million, respectively. ProstaScint accounted for 81% and 56% of
product related revenues in the first half of 1999 and 1998, respectively, while
revenues from Quadramet accounted for 11% and 35% of product related revenues
for the first half of 1999 and 1998, respectively. Sales of ProstaScint were
$3.3 million in 1999 compared to $3.0 million in 1998. Revenues from Quadramet
decreased to $461,000 in the first half of 1999 from $1.9 million in the same
period of 1998. From the time of product launch in 1997 through June 1998,
CYTOGEN recorded royalty revenues for Quadramet based on minimum contractual
payments, which were in excess of actual sales. Subsequent to June 1998, the
minimum royalty arrangement was discontinued and CYTOGEN recorded product
revenues from Quadramet based on actual sales. Beginning in 1999, the Quadramet
royalties are based on net sales of Quadramet by Berlex.
Other product sales, including revenues from OncoScint CR/OV, were
$321,000 in 1999 compared to $468,000 in the comparable period of 1998. The
decrease from the prior year is due, in part, to the discontinuation of the
autolymphocyte therapy treatment program resulted from the closure of Cellcor
subsidiary. Revenues from OncoScint CR/OV were $321,000 in 1999 versus $431,000
in the same period of 1998. The decrease in OncoScint sales was a result of
customers delaying orders pending a new production run with an extended shelf
life. The Company is also experiencing increasing competition in the colorectal
market.
License and contract revenues for the first half of 1999 and 1998 were $2.7
million and $1.2 million, respectively, and included $501,000 and $912,000 of
contract manufacturing revenues in 1999 and 1998, respectively. The Company is
phasing out contract manufacturing services and expects to receive no further
revenues from this service after 1999. The 1999 license fee included $1.8
million of revenue from the licensing of PSMA to a joint venture formed by
CYTOGEN and Progenics (see Note 3 to the Consolidated Interim Financial
Statements).
OPERATING EXPENSES. Total operating expenses for the first half of 1999
were $9.4 million and included a non-cash charge of $1.2 million related to the
acquisition of technology rights from Prostagen. Total operating expenses for
the comparable period in 1998 were $15.6 million. The decrease from the prior
year period was a result of savings realized from various actions taken in 1999
and 1998, including the sale of the manufacturing facility which reduced the
cost of manufacturing the Company's products, closure of the Cellcor subsidiary,
corporate downsizing, the termination of product development efforts through
Targon, and the termination and curtailing of certain basic research and
clinical programs. The savings over the prior year period included $1.6 million
from cost of product and contract manufacturing revenues, $2.3 million from the
Cellcor closure, $1.0 million due to the sale of Targon, $1.6 million from the
termination and curtailment of certain basic research and clinical programs, and
$632,000 from cost containment efforts in general and administrative services.
35
<PAGE>
Cost of product and contract manufacturing revenues for the first half of
1999 were $2.3 million compared to $3.8 million recorded in the same period of
the prior year. The decrease from the prior year period is due to decreased
contract manufacturing costs associated with decreased contract manufacturing
activities in 1999 and lower manufacturing costs for CYTOGEN products.
Research and development expenses for the first half of 1999 were $2.0
million compared to $5.8 million recorded in the same period of 1998. The
decrease from the prior year period is due to the curtailing of certain of the
Company's product development efforts including the closure of Cellcor, the
termination of basic research programs and the scale back of various clinical
programs.
Acquisition of technology rights of $1.2 million represents a non-cash
charge related to the acquisition of Prostagen (see Note 2 to the Consolidated
Interim Financial Statements).
Equity loss in Targon subsidiary was $1.0 million during 1998. The Company
sold its interest in Targon in 1998.
Selling and marketing expenses were $2.0 million for the first half of
1999 compared to $2.3 million in the same period of 1998. These expenses reflect
the marketing efforts for ProstaScint product and expenses to establish and
maintain PIE program. The decrease in expenditures over the prior year period is
due to the timing of certain marketing programs.
General and administrative expenses for the first half of 1999 were $1.9
million compared to $2.6 million for the comparable period in 1998. The decrease
from the prior year is due to various cost containment efforts implemented in
1999 and 1998, including the closure of Cellcor and corporate downsizing.
GAIN ON SALE OF LABORATORY AND MANUFACTURING FACILITIES. The Company
recorded a gain of $3.3 million during 1999 resulting from a sale of certain of
the Company's laboratory and manufacturing facilities to Purdue for $3.9 million
in January 1999.
INTEREST INCOME/EXPENSE. Interest income for the first half of 1999 was
$151,000 compared to $428,000 in the same period of 1998. Interest income during
1998 included interest realized from a $10.0 million note due from Targon, which
was canceled as a result of the sale of the Company's interest in Targon.
Interest expense for the first half of 1999 was $84,000 compared to
$437,000 recorded in the same period of 1998. Interest expense during 1998
included interest associated with a $10.0 million note due to Elan, which was
canceled as a result of the sale of the Company's interest in Targon.
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NET INCOME (LOSS). Net income to common stockholders for the first half of
1999 was $693,000 compared to a net loss of $9.1 million incurred in the same
period of 1998. The basic earnings per common share were $0.01 on 64.9 million
average common shares outstanding compared to a loss of $0.17 on 54.1 million
average common shares outstanding for the same period in 1998. The 1999 diluted
earnings per common share were $0.01 on 65.0 million average common shares
outstanding compared to a diluted loss per share of $0.17 on 54.1 million
average common shares outstanding in the same period of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $5.3 million as of June 30,
1999, compared to $3.0 million as of December 31, 1998. The cash used for
operating activities for the six months ended June 30, 1999 was $5.8 million
versus $4.3 million in the same period of 1998. Cash used for operating
activities during 1999 included a final payment of $1.0 million to The Dupont
Pharmaceuticals Company ("Dupont") for Quadramet manufacturing commitment and
payments of various 1998 restructuring costs including severances. During 1998
the Company received $3.8 million of guaranteed minimum royalty payments from
DuPont pursuant to a previous marketing arrangement which ended in June 1998.
Historically, the Company's primary sources of cash have been proceeds
from the issuance and sale of its stock through public offerings and private
placements, product related revenues, revenues from contract manufacturing and
research services, fees paid under its license agreements and interest earned on
its cash and short term investments.
In August 1999, the Company sold to the State of Wisconsin Investment
Board 3,105,590 shares of CYTOGEN common stock at an aggregate price of $5.0
million or $1.61 per share.
In connection with the acquisition of Prostagen in June 1999, the Company
received $550,000 in cash along with other assets held by Prostagen (see Note 2
to the Consolidated Interim Financial Statements). Also in June, CYTOGEN
received its first payment of $500,000 related to the licensing of PSMA
technology to a joint venture between CYTOGEN and Progenics. The remaining
balance of $1.5 million will be paid in installments through December 31, 2001
(see Note 3 to the Consolidated Interim Financial Statements).
In January 1999, the Company sold its manufacturing and laboratory
facilities for $3.9 million, of which $744,000 of the proceeds was used to repay
the outstanding balance of a term loan entered in 1998.
In January 1999, CYTOGEN sold 2,666,667 shares to a subsidiary of The
Hillman Company at $0.75 per share for a total of $2.0 million. The shares were
sold under a registration statement.
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In October 1998, the Company entered into an agreement with Kingsbridge
Capital Ltd. ("Kingsbridge") for a $12 million common stock equity line.
Pursuant to the Equity Line Agreement, the Company, subject to the satisfaction
of certain conditions was granted the right to issue and sell to Kingsbridge,
and Kingsbridge would be obligated to purchase up to $12 million of CYTOGEN
common stock from time to time (collectively, the "Put Rights") over a two year
period. In January 1999, the Company exercised a Put Right for the sale of
475,342 shares of common stock at an aggregate price of $500,000 or $1.0519 per
share. The Company will not draw on the remaining $11.5 million of the equity
line agreement and plans to take steps to deregister shares which were
previously registered with the SEC to be issued under the facility.
Quadramet. Under an exclusive license agreement in October 1998 with
Berlex for the manufacture and sale of Quadramet, Berlex will pay CYTOGEN
royalties on net sales of Quadramet, as well as milestone payments based on
achievement of certain sales levels. In connection with the Berlex agreement,
CYTOGEN granted Berlex a warrant to purchase 1,000,000 shares of CYTOGEN common
stock at an exercise price of $1.002 per share through October 2003, which is
exercisable after the earlier of one year or the achievement of defined sales
levels.
CYTOGEN paid DuPont $1 million in the first quarter of 1999 as final
payment for the securing of the long-term manufacturing commitment for
Quadramet.
ProstaScint. ProstaScint was launched in February 1997. Significant cash
will be required to support the Company's marketing program and expansion and
maintenance of the PIE program.
In 1996, CYTOGEN entered into an agreement with C.R Bard Inc. ("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. In the six months ended June
30, 1999 and 1998, the Company recorded $325,000 and $300,000, respectively, for
Bard commissions.
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 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, 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
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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.
New Jersey has enacted legislation permitting certain New Jersey
Corporations to sell net operating tax losses and research and development
credits. The state developed procedures to implement the program through changes
to the legislation. The Company has submitted an application to sell $9.2
million of tax benefits. However, no assurance can be given as to timing of the
approval of the Company to sell the benefits, the amount the approval may be
for, or the period over which the benefit may be realized.
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 its
marketing and sales. The Company expects that its existing capital resources as
of June 30, 1999, together with the $5.0 million receipt from the sale of
CYTOGEN common stock to the State of Wisconsin Investment Board in August 1999
and decreased operating costs will be adequate to fund the Company's operations
through the year 2000. No assurance can be given that the Company will not
consume a significant amount of its available resources before that time. In
addition, the Company expects that it will have additional requirements for debt
or equity capital, irrespective of whether and when it reaches profitability,
for further development of products, product and technology acquisition costs,
and working capital.
The Company's future capital requirements and the adequacy of available
funds will depend on numerous factors, including the successful
commercialization of its products, the costs associated with the acquisition of
complementary products and technologies, progress in its product development
efforts, the magnitude and scope of such efforts, progress with 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 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 or that the Company would have adequate
authorized unissued shares available for issuance without stockholder approval.
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.
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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. As a result, the Company's Programs and Systems were
modified and replaced with fully compliant systems. The Company believes that it
has achieved year 2000 compliance on internal systems.
Readiness of Third Parties. The Company is also working with its
processing banks, network providers and manufacturing partners to ensure their
systems are year 2000 compliant. All these costs will be borne by the
processors, network and software companies and manufacturing partners. In July a
letter was sent to all vendors requesting a written statement indicating status
of their compliance be received on or before August 23, 1999. Most responses
have been received. Currently, the Company's processing banks and manufacturing
partners are in the process of completing their year 2000 compliance programs.
If the manufacturing partners systems fail on January 1, 2000 the Company's
revenues may be adversely impacted. In the event that some or all of the
processing banks are unable to be compliant, the Company will switch merchant
year 2000 accounts to those that are compliant.
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.
However, some risks that the Company faces include: the failure of internal
information systems, defects in its work environment, a slow down in its
customers' ability to make payments, and the availability of products for sale.
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 August 31, 1999.
=============================
Cautionary Statement
The foregoing discussion contains historical information as well as
forward looking statements that involve a number of risks and uncertainties. In
addition to the risks discussed above, among other factors that could cause
actual results to differ materially from expected results are the following: (i)
the Company's ability to 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; (ii) the ability to attract and retain personnel needed for business
operations and strategic plans; (iii) the timing and results of clinical
studies, and regulatory approvals; (iv) market acceptance of the Company's
products, including programs designed to facilitate use of the products, such as
the PIE Program; (v) demonstration over time of the efficacy and safety of the
Company's products; (vi) the degree of competition from existing or new
products; (vii) the decision by the majority of public and private insurance
carriers on whether to reimburse patients for the Company's products; (viii) the
profitability of its products; (ix) the ability to attract, and the ultimate
success of, strategic partnering arrangements, collaborations, and acquisition
candidates; (x) 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; (xi) 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 (xii) the ability to protect and practice the
Company's intellectual property, including patents and know-how.
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BUSINESS OF THE COMPANY
GENERAL
CYTOGEN is a biopharmaceutical company engaged in the development,
commercialization and marketing of products to improve diagnosis and treatment
of prostate disease, of products for unmet needs in the broader
urological/oncological market, and certain areas within the field of oncology
and other areas related to its areas of expertise.
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 current research and development programs to assess
their commercial potential; and
- Recently curtailed basic research expenditures in order to allocate
resources toward implementing our business strategy.
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 ("BLA") 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 BLA and closed our Cellcor facility in September
1998.
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- Sold our interest in Targon Corporation.
Our review determined that the projects under development by
Targon Corporation ("Targon") were not consistent with our
corporate strategies. During August 1998, we sold our interest in
Targon to our partner in the venture, Elan Corporation plc
("Elan") for $2 million in cash. In addition, we received $2
million from Elan in exchange for a convertible promissory note.
- Offered for sale and sold our manufacturing and laboratory
facilities.
We determined that outsourcing manufacturing of the
Company's products is more economical and consistent with our
strategies. As a result, we offered the facility for sale and
completed the sale in early January, 1999. We also concurrently
entered into an agreement for the continued manufacturing of
ProstaScint and OncoScint at the facility.
Our Products
We introduced to the market during 1997 our two principal products, each of
which have been approved by the FDA: ProstaScint(R) (kit for the preparation of
Indium In111 Capromab Pendetide) and Quadramet(R) (Samarium Sm153 Lexidronam
Injection). Our OncoScint(R) 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.
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 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 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.
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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 and has spread.
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; and
- External beam radiation therapy.
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 readily 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.
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 recurrence 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 are
unlikely to benefit from such an approach and instead systemic treatment such as
hormonal therapy should be considered. We believe that the results of a
ProstaScint scan performed prior to radiation therapy to the pelvis may help
predict which recurrent disease patients are likely to benefit from salvage
radiation therapy. 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.
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PROSTASCINT MARKETING, SALES AND DISTRIBUTION
According to the American Cancer Society, about 185,000 American men were
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 a 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 with Faulding (Canada),
Inc. ("Faulding") related to distribution and sale of ProstaScint in Canada.
In June, 1999, we reacquired these rights from Faulding at no cost to the
Company. The Company is evaluating whether to market ProstaScint in Canada
directly or through a marketing partner.
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(TM) ("Partners in Excellence") 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 April 1999,
there were over 261 PIE Sites, including a majority of the National Cancer
Institute designated Comprehensive Cancer Centers. ProstaScint is available only
at PIE Sites.
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 partial expense of qualification
of each site.
We currently employ 14 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 sales assistance and technical
support of ProstaScint and its usage.
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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 realized
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 acquire and interpret the images. Referring physicians are
most 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.
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 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.
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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 omits beta radiation, and chelating agent, EDTMP,
which targets 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 encircles the metastatic tumor. The continued growth from the
expanding tumor causes pressure which the patient perceives as pain at the site
of the 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(R), a radiopharmaceutical product of Nycomed Amersham plc
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(R), 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.
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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 number 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.
QUADRAMET MARKETING, SALES, MANUFACTURING AND DISTRIBUTION
We have licensed the rights to Quadramet from Dow. Quadramet was previously
marketed by DuPont, which arrangement was terminated during June 1998. In
October 1998, we entered into an exclusive agreement with Berlex for the
marketing of Quadramet. Berlex has re-launched Quadramet in March 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.
By agreement with Berlex, the Company will market Quadramet in Canada. The
Company paid no costs to obtain these marketing rights. The Company is
evaluating whether to market Quadramet directly in Canada or through a marketing
partner. 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 medical oncologists and
urologists. We believe that successful commercialization of Quadramet will
depend upon marketing to these referring physicians.
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DuPont, a leading supplier of radiopharmaceutical products in the U.S.,
will continue to manufacture the product for an initial term of five years.
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.
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 FOREIGN REVENUES/RISKS
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 six
months ended June 30, 1999, revenues related to ProstaScint and Quadramet
accounted for approximately 92% of the Company's product related 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 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
the minimum royalty payments received. 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 has commenced during the first quarter of 1999. There can be no
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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.
PRODUCT DEVELOPMENT
AXCELL BIOSCIENCES. AxCell, a wholly owned subsidiary of the Company
created in August 1996, utilizes an application of Genetic Diversity Library
("GDL") (described below) and other 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 help identify and validate important new
biological targets. Without the ability to sort and understand the interactions
between proteins, it will be difficult to identify the relatively few important
new targets among the more than 100,000 expected to be identified through
genomic analysis in the next few years. We believe such information will be of
value to pharmaceutical companies in conducting research on new drugs.
Discussions are currently underway with potential pharmaceutical customers who
might take immediate advantage of AxCell's ability to identify protein
interactions for targets which they are currently studying.
AxCell has developed a prototype bioinformatics interface for the
IFP-dBase. We expect that additional effort will be required to refine the
prototype. We will also 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 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. 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 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. CYTOGEN is entitled to royalties from sales of any product
developed and commercialized based on this technology.
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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.
On June 15, 1999, we reacquired the rights for immunotherapy to our
prostate specific membrane antigen ("PSMA") technology by acquiring 100% of the
outstanding capital stock of Prostagen, Inc., which had sublicensed PSMA from us
for prostate cancer immunotherapy in 1996. In connection with the acquisition,
we acquired other assets held by Prostagen, including approximately $550,000 in
cash, a minority ownership in Northwest Biotherapeutics, Inc., which is
developing PSMA for cell therapy, and a contract with Velos, Inc. for marketing
a cancer patient software management program for hospitals and health care
payors. In exchange, we issued 2,050,000 shares of our stock, and may issue up
to an additional 450,000 shares of our stock upon the satisfactory termination
of lease obligations assumed in the Prostagen acquisition, up to $4.0 million
worth of our shares (based on the value at the time of issuance) if milestones
are achieved in the PSMA development program and up to 500,000 shares of our
stock upon beneficial resolution of other contractual arrangements entered by
Prostagen.
On June 15, 1999, we also entered a joint venture with Progenics
Pharmaceuticals, Inc. to develop vaccine and antibody-based immunotherapeutic
products utilizing CYTOGEN's proprietary PSMA technology. The joint venture will
be owned equally by us and Progenics. Progenics will fund up to $3 million of
development costs of the program. After that point, we and Progenics will share
the future costs of the program. We have the exclusive North American marketing
rights on products developed by the venture. In connection with the licensing of
the PSMA technology to the joint venture, we will receive $2 million in payments
of which $500,000 was received. We can not give any assurance that this program
will result in products reaching the market or being successful.
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.
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.
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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:
- Six months ended June 30, 1999 - $2.0 million
- 1998 -- $10.0 million
- 1997 -- $17.9 million
- 1996 -- $20.5 million
Research and development expenditures for customer sponsored programs were:
- Six months ended June 30, 1999 - $30,000
- 1998 -- $2.0 million
- 1997 -- $1.5 million
- 1996 -- $1.1 million
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 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.
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.
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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 autologous
lymphocyte therapy in the treatment of metastatic renal cell cancer. As part of
our restructuring activities during 1998, we determined that Cellcor was no
longer in line 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 cGMP-compliant
manufacturing facility in Princeton which is now held by Bard BioPharma L.P., a
subsidiary of Purdue BioPharma ("Bard 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 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).
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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, was 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.
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. CYTOGEN is responsible for the
production of both OncoScint and ProstaScint at the facility.
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.
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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.
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
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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.
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
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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 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.
56
<PAGE>
FOREIGN REGULATORY APPROVAL. The regulatory approval process in Europe has
changed over the past few years. There are two regulatory approval processes in
Europe for products developed by the Company. Beginning in 1995, the centralized
procedure became mandatory for all biotechnology products. Under this regulatory
scheme, the application is reviewed by two scientific project leaders referred
to as the rapporteur and co-rapporteur respectively. Their roles are to prepare
assessment reports of safety/efficacy and for recommending the approval for full
European Union marketing.
The second regulatory scheme, referred to as the Mutual Recognition
Procedure is a process whereby a product's national registration in one member
state within the European Union may be "mutually recognized" by other member
states within the European Union.
Substantial requirements, comparable in many respects to those imposed
under the FD&C Act, will have to be met before commercial sale is permissible in
most countries. There can be no assurance, however, as to whether or when
governmental approvals (other than those already obtained) will be obtained or
as to the terms or scope of those approvals.
CUSTOMERS
During the three months ended March 31, 1999, the Company received 59% of
its total product related, license and contract revenues from four customers:
Berlex, and chains of radiopharmacies: Medi-Physics, Syncor and Mallinckrodt.
EMPLOYEES
As of May 27, 1999, we employed 77 persons full-time, of whom 6 were
engaged in research and development activities, 19 in operations and
manufacturing, 17 in clinical and regulatory activities, 16 in administration
and management, and 19 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.
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.
57
<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 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; (ii)
the Company's ability to complete its restructuring plans timely
and in a way that permits the Company to operate effectively;
(iii) the ability to attract and retain personnel needed for
business operations and strategic plans; (iv) the timing and
results of clinical studies, and regulatory approvals; (v)
market acceptance of the Company's products, including programs
designed to facilitate use of the products, such as the PIE
Program; (vi) demonstration over time of the efficacy and safety
of the Company's products; (vii) the degree of competition from
existing or new products; (viii) the decision by the majority of
public and private insurance carriers on whether to reimburse
patients for the Company's products; (ix) the profitability of
its products; (x) the ability to attract, and the ultimate
success of, strategic partnering arrangements, collaborations,
and acquisition candidates; (xi) 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 (xii)
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 (xiii) 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).
58
<PAGE>
MANAGEMENT
Directors and Executive Officers
The directors and executive officers of the Company are as follows:
Name Age Title
- ---- --- -----
James A. Grigsby 56 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. 65 Director
Ronald J. Brenner, Ph.D. 65 Director
Stephen K. Carter, M.D. 61 Director
Robert F. Hendrickson 66 Director
S. Leslie Misrock 71 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
James A. Grigsby, Chairman of the Board of Directors, has been a
director of the Company since May 1996 and Chairman since June 1998. Since
April, 1999, Mr. Grigsby has been affiliated with the consulting firm of
Nachman, Hays & Associates. Previously, since 1994, Mr. Grigsby was president of
Cancer Care Management LLC, a consulting firm providing consulting services
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 during 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, 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.
59
<PAGE>
John E. Bagalay, Jr., has been a director of the Company since October
1995. Dr. Bagalay was a director of Cellcor, Inc. ("Cellcor") prior to the
Company's acquisition of Cellcor in October 1995. He was interim President, CEO
and Chief Financial Officer of the Company from January - August, 1998. He has
been Senior Advisor to the Chancellor, Boston University since January, 1998. He
has been a director, Chief Operating Officer and Chief Financial Officer of
Eurus Technologies, Inc. since January, 1999. He served as the Managing Director
of Community Technology Fund, the venture capital affiliate of Boston
University, from September 1989 until January 1998. Dr. Bagalay has also served
as General Counsel for Texas Commerce Bancshares 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 AES, Inc. 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, 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 Vice President of Hillman Medical Ventures, Inc., a venture capital firm,
and 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 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, 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 also is a director of Allos Therapeutics and Alfacell Corporation. 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 the Chairman of the Board of Envirogen,
Inc., a director of The Liposome Company, Inc. and Unigene, 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.
S. Leslie Misrock became a director of the Company in August 1999. Mr.
Misrock has been a Partner of the Law Firm of Pennie & Edmonds, a New York based
intellectual property firm since 1964 and six years later became a Senior
Partner in 1971. Mr. Misrock holds an SB degree in Chemistry, from the
Massachusetts Institute of Technology, an AM degree in Chemistry from Columbia
University and an LLB degree from Fordham University. Mr. Misrock is a member of
the Visiting Committees of the Departments of Biology and Chemistry at MIT, The
Association for the Cure of Prostate Cancer (CaP CURE), the Board of Visitors at
Fordham Law School and the Health Sciences Board of Columbia University's
College of Physicians and Surgeons and the National Prostate Cancer Coalition.
60
<PAGE>
Donald F. Crane joined CYTOGEN in June 1997 as Vice President, General
Counsel and Corporate Secretary. Most recently, Mr. Crane was Senior SEC Counsel
for U.S. Surgical Corporation since 1993. Previously, Mr. Crane was Assistant
Secretary and Corporate Counsel at BellSouth Corporation in Atlanta, Georgia.
Mr. Crane holds a Bachelor's degree in Communications from the University of
Georgia and a J.D. degree from the University of Georgia School of Law.
Jane M. Maida joined CYTOGEN in March 1997 as Chief Accounting Officer,
Corporate Controller and Assistant Secretary and currently serves as Principal
Financial Officer. Before joining CYTOGEN, Ms. Maida served as Chief Financial
and Information Officer for Mustard Seed, Inc., a behavioral health care
company, from 1995. Prior to that position, she was Chief Financial Officer of
Morphogenesis, Inc., a biotechnology company focused on cellular immunology.
From 1986 to 1994, Ms. Maida was Corporate Controller and Assistant Secretary
for The Liposome Company, Inc., a biotechnology company. Ms. Maida holds a B.S.
in Education from the University of Pennsylvania and a M.S. in Accounting from
the State University of New York at Albany. She is also a Certified Public
Accountant.
Graham S. May, M.D. joined CYTOGEN in January 1997 as Vice
President, Medical Affairs. In February 1998, he assumed
additional responsibilities for corporate business development.
Most recently, he was a Principal in the Global Health Care
Practice of Gemini Consulting Inc., an international management
consultant company, from 1995 to 1996. Prior to that, Dr. May
was with Pharmacia, U.S., for almost 10 years, first as Medical
Director of the Hospital Products division, and finally as
Executive Medical Director of Kabi Pharmacia, Inc. Dr. May has
been a visiting scientist at the Clinical Trials Branch, National
Heart, Lung, and Blood Institute at the National Institutes of
Health. He has also worked with AKZO and Ciba-Geigy in Europe,
as well as Hoechst-Roussel Pharmaceuticals in the U.S. Dr. May
holds undergraduate and medical degrees from Cambridge
University, England, and is a member of the Faculty of
Pharmaceutical Medicine.
John D. Rodwell, Ph.D. joined CYTOGEN in September 1981. He
served as Director, Chemical Research, then as Vice President,
Discovery Research from 1984 to 1989, and as Vice President,
Research and Development from 1989 to July 1996, at which time he
assumed his present responsibilities as Sr. Vice President and
Chief Scientific Officer. Dr. Rodwell has also served as
President and a director of AxCell since 1996. From 1980 to
1981, Dr. Rodwell was a Research Assistant Professor and, from
1976 to 1980, he was a postdoctoral fellow, both in the
Department of Microbiology at the University of Pennsylvania
School of Medicine, where he currently is an Adjunct Associate
Professor in the Department of Microbiology. He holds a B.A.
degree from the University of Massachusetts, an M.S. degree in
Organic Chemistry from Lowell Technological Institute and a Ph.D.
degree in Biochemistry from the University of California at Los
Angeles.
61
<PAGE>
Director Compensation
In 1999 each director who is not also an officer of the Company is paid an
annual retainer of $8,000, plus $1,000 for each Board meeting attended ($500 if
participation was by telephone). Any non-employee director who also chaired a
Board committee received an additional annual fee of $1,000. Non-employee
directors receive $250 for each committee meeting attended, but receive no
additional retainer for committee membership. Members of the Nominating
Committee do not receive any compensation for serving on that committee. The
Chairman of the Board (who is not an employee of the Company) currently
receives, based upon significant time spent on Company business, an additional
annual retainer of $50,000 and an annual option grant for the purchase of 15,000
shares of the Company's common stock.. The additional retainer contemplates four
days per month substantially given to Company business by the Chairman; an
amount of $1,500 per day is paid to the Chairman for additional days in which
the significant part of the day is devoted to Company matters. During 1998, when
the Chairman devoted considerable time and efforts to the Company's
restructuring, he was paid an aggregate of $172,000 for such services.
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation awarded
to, earned by or paid to (i) the Company's Chief Executive Officer(s), and (ii)
the other four most highly compensated executive officers of the Company, for
services rendered to the Company during the Company's fiscal years ended
December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL LONG-TERM
COMPENSATION (1) COMPENSATION
---------------- ------------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING ALL OTHER
FISCAL SALARY BONUS COMPEN- AWARD OPTIONS COMPENSATION(2)
NAME AND PRINCIPAL POSITION YEAR ($) ($) SATION ($) ($) (#) ($)
- --------------------------- ------- -------- --------- ----------- ---------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
H. Joseph Reiser (3) 1998 89,903 150,000 0 0 2,250,000 399
President and Chief
Executive Officer
John E. Bagalay, Jr. (5) 1998 183,321 0 0 0 110,000 838
President and Chief
Executive Officer
Thomas J. McKearn (6) 1998 298,012 0 0 0 200,000 5,016 (9)
Chairman, President and Chief 1997 298,012 0 0 0 0(8) 10,613 (9)
Executive Officer 1996 284,181 49,150 0 0(7) 155,000(8) 10,650
Graham May (10) 1998 226,270 10,000 0 0 203,743 7,674
Vice President, Medical 1997 206,446 31,100 0 0 45,000 6,515
Affairs and Corporate
Development
Robert J. Broeze (11) 1998 169,384 50,000 0 0 150,000 6,387
Vice President, 1997 159,794 27,300 0 0 15,000 6,241
Operations
John D. Rodwell 1998 203,000 0 0 0 150,000 8,881
Senior Vice President 1997 202,999 22,800 0 0 0 8,631
and Chief Scientific 1996 187,198 35,150 0 0 82,000 8,499
Officer
Donald F. Crane, Jr. (12) 1998 188,308 12,500 0 0 181,763 3,484
Vice President, 1997 93,462 30,375 0 0 55,000 374
General Counsel
and Corporate Secretary
</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.
62
<PAGE>
(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 1998, these amounts were
as follows: on behalf of Dr. Reiser, $0; Dr. Bagalay, $0; Dr. McKearn,
$3,977; Dr. May, $6,706; Dr. Broeze, $5,969; Dr. Rodwell, $8,000; and Mr.
Crane, $3,000. The amounts disclosed also include insurance premiums paid
by the Company with respect to group term life insurance and with respect
to fiscal year 1998, these amounts were as follows: on behalf of; Dr.
Reiser $399; Dr. Bagalay, $838; Dr. McKearn, $1,039; Dr. May, $968; Dr.
Broeze, $418; Dr. Rodwell, $881; and Mr. Crane, $484.
(3) Dr. Reiser joined the Company as President and Chief Executive Officer
effective August 24, 1998.
(4) Pursuant to Dr. Reiser's Employment Agreement, the Company granted to Dr.
Reiser an option to purchase up to 2,250,000 shares of Common Stock at an
exercise price of $1.0937, vesting 33.3% annually. The vesting schedule
begins as follows: (a) 900,000 shares begin vesting upon commencing
employment; (b) 450,000 shares begin vesting upon completion of certain
performance objectives, to the satisfaction of the Board of Directors; (c)
450,000 shares begin vesting upon the completion of additional performance
objectives to the satisfaction of the Board of Directors; (d) 450,000
shares begin vesting upon the achievement of the Company's profitability.
(5) Dr. Bagalay served as interim President and Chief Executive Officer from
January 1998, following Dr. McKearn's resignation, until August 1998 when
Dr. Reiser assumed these positions.
(6) Dr. McKearn resigned from the Company during September, 1998.
(7) 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.
(8) 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
is 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". Pursuant to Dr. McKearn's
resignation, there will be no further vesting of shares under this
Agreement.
(9) In 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 $2,000 in value of
the premiums paid by the Company under these insurance policies in fiscal
year 1998, prior to Dr. McKearn's resignation, that was attributable to
term life insurance coverage. However, pursuant to Dr. McKearn's
resignation, both policies were surrendered by the Company in exchange for
the amount of premiums paid by the Company over the lives of each policy.
(10) Dr. May joined the Company as Vice President, Medical Affairs, effective
January 2, 1997. He assumed additional responsibilities for Corporate
Development in January 1998.
(11) Dr. Broeze was elected Vice President of Operations in February, 1997. He
resigned from the Company in January, 1999, to accept a position with the
purchaser of the Company's manufacturing facilities.
(12) Mr. Crane joined the Company as Vice President, General Counsel and
Corporate Secretary effective June 16, 1997.
63
<PAGE>
The following table sets forth information regarding individual grants of
stock options to the named executive officers during fiscal year 1998:
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL YEAR 1998
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE APPRECIATION FOR OPTION
INDIVIDUAL GRANTS TERM (3)
--------------------------------------------------------- -------------------------------------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED FISCAL YEAR (PER SHARE)(2) DATE 5%($) 10%($)
---- ---------- ------------ -------------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
H. Joseph Reiser 2,250,000 (1) 50.03 1.097 8/18/08 1,552,269 3,933,755
John E. Bagalay, Jr. 100,000 (1) 2.22 1.953 1/20/08 122,823 311,258
10,000 (4) .22 .812 10/15/08 5,110 12,949
Thomas J. McKearn 200,000 (5) 4.45 1.953 9/18/01 245,646 622,516
Graham S. May 150,000 (5) 3.34 1.953 1/20/08 184,235 466,887
41,666 (4) .93 1.050 8/26/08 27,514 69,725
12,077 (4) .27 .828 12/28/08 6,289 15,937
Robert J. Broeze 150,000 (5) 3.34 1.953 1/20/08 184,235 466,887
John D. Rodwell 150,000 (5) 3.34 1.953 1/20/08 184,235 466,887
Donald F. Crane, Jr. 125,000 (5) 2.78 1.953 1/20/08 153,529 389,072
41,666 (4) .93 1.050 8/26/08 27,514 69,725
15,097 (4) .34 .828 12/28/08 7,861 19,222
</TABLE>
- -----------------------
(1) Pursuant to Dr. Reiser's Employment Agreement, the Company granted to Dr.
Reiser an option to purchase up to 2,250,000 shares of Common Stock at an
exercise price of $1.0937, vesting 33.3% annually. The vesting schedule begins
as follows: (a) 900,000 shares begin vesting upon commencing employment; (b)
450,000 shares begin vesting upon completion of certain performance objectives,
to the satisfaction of the Board of Directors; (c) 450,000 shares begin vesting
upon the completion of additional performance objectives to the satisfaction of
the Board of Directors; (d) 450,000 shares begin vesting upon the achievement of
the Company's profitability.
(2) The exercise price of all stock options granted during the last fiscal year
is equal to the average of the high and low sale prices of the Common Stock as
reported on the Nasdaq National Market on the respective dates the options were
granted.
(3) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises and Common Stock holdings are dependent
on the future performance of the Common Stock and overall stock market
conditions. There is no assurance that the amounts reflected will be realized.
(4) These options were fully vested at the date of grant.
(5) Options vest over three years at the rate of 33.3% per year beginning on the
first anniversary of the date of grant, subject to acceleration under certain
conditions. The maximum term of each option granted is 10 years from the date of
grant.
64
<PAGE>
The following table sets forth information regarding aggregated exercises
of stock options by the named executive officers during fiscal year 1998 and
fiscal year-end values of unexercised options:
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FY-END FY-END(1)(2)
---------------------- -----------------------
(#) ($)
NAME SHARES ACQUIRED VALUE REALIZED EXERCISABLE/ EXERCISABLE/
---- ON EXERCISE(#) ($)(1) UNEXERCISABLE UNEXERCISABLE
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
H. Joseph Reiser 0 0 350,000/1,900,000 0/0
John E. Bagalay, Jr. 0 0 18,400/111,600 0/0
Thomas J. McKearn 0 0 363,000/0 0/0
Graham S. May 0 0 62,743/186,000 0/0
Robert J. Broeze 0 0 46,000/175,200 0/0
John D. Rodwell 0 0 204,300/247,200 0/0
Donald F. Crane, Jr. 0 0 67,763/169,000 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 Nasdaq National
Market) on December 31, 1998 was $.828.
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 May 10, 1999, there were options to
purchase 2,582,803 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
65
<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 and Severance Agreements
The Company entered into an employment agreement with the 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. Dr. Reiser is also entitled to one year's severance pay, along
with medical and insurance benefits for the same period, if he is dismissed for
reasons other than cause.
Under the terms of an employment agreement, Dr. Thomas J. McKearn was
entitled to one year's severance pay if he was dismissed for reasons other than
for cause. Pursuant to that agreement, Dr. McKearn's base salary is being
continued for a period of one year from the date of his termination of
employment in September, 1998.
Under the terms of severance agreements, Drs. Rodwell, May and. Mr. Crane
will also be entitled to receive twelve months of salary if their employment
with the Company is terminated without cause.
Certain Relationships and Related Transactions
S. Leslie Misrock, a director, is a member of Pennie & Edmonds LLP, a law
firm which provides legal services to the Company in the patent area.
66
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 31, 1999
(unless noted), 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 and nominee for
election as a director, by each executive officer named in the Summary
Compensation Table, 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.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED OF CLASS
- --------------------------------------- ------------------ --------
<S> <C> <C>
State of Wisconsin Investment Board
121 E. Wilson Street
Madison, WI 53702........................................... 8,568,424 12.19%
Henry L. Hillman,
Elsie Hilliard Hillman and
C.G. Grefenstette, Trustees
2000 Grant Building
Pittsburgh, PA 15219 (2).................................... 8,218,191 11.69%
Ronald J. Brenner
One Tower Bridge
Suite 1350
100 Front Street
West Conshohocken, PA 19428 (4)(5).......................... 3,814,109 5.43%
Hillman Medical Ventures Partnerships
824 Market Street, Suite 900
Wilmington, DE 19801 (3).................................... 3,713,909 5.28%
Hal S. Broderson
One Tower Bridge
Suite 1350
100 Front Street
West Conshohocken, PA 19428 (4)............................. 3,715,009 5.28%
Charles G. Hadley
One Tower Bridge
Suite 1350
100 Front Street
West Conshohocken, PA 19428 (4)............................. 3,714,159 5.28%
Directors and Executive Officers
Thomas J. McKearn (5)........................................ 710,463 1.01%
John D. Rodwell (5)(6)....................................... 325,300 *
H. Joseph Reiser (7)......................................... 352,000 *
Graham S. May (5)............................................ 121,743 *
Donald F. Crane, Jr. (5) .................................... 132,980 *
Robert J. Broeze (5)......................................... 104,309 *
James A. Grigsby............................................. 79,067 *
John E. Bagalay, Jr. (5)..................................... 60,134 *
Robert F. Hendrickson (5) ................................... 30,000 *
Stephen K. Carter (7)........................................ 4,600 *
S. Leslie Misrock (8)........................................
All executive officers
and directors as a group (14 persons) (5).................. 5,833,471 8.30%
- -----------------
*Indicates amount is less than 1%.
</TABLE>
67
<PAGE>
(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 March 31,
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
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 March 31, 1999,
as follows: Dr. Reiser: 350,000; Dr. McKearn: 363,000; Dr. Rodwell: 260,300; Dr.
May 121,743; Dr. Brenner: 10,800; Dr. Bagalay: 49,134; Mr. Grigsby: 7,200; Mr.
Hendrickson: 14,800; Mr. Crane: 109,429; and Dr. Broeze: 99,000. 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 March 31, 1999. Dr. McKearn and Dr. Broeze 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. Dr. Carter purchased shares in May, 1999.
(8) A number of shares to be determined based on allocation to Mr. Misrock
of an interest in up to 2,500,000 shares issued by the Company in connection
with an acquisition. In addition, Mr. Misrock may receive additional shares
based upon achievement of milestones in application of technology obtained in
the acquisition, to be valued at the time of achievement of the milestones. Mr.
Misrock was elected to the Board of Directors August 11, 1999.
68
<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 August 18, 1999, 70,291,678 shares of Common Stock
were issued and outstanding, and 1,705,630 shares of Common Stock
were reserved for issuance upon the exercise of certain
outstanding warrants and approximately 8,146,445 shares were
reserved for issuance pursuant to stock option plans and Employee
Stock Purchase Plans.
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
69
<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
70
<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.
71
<PAGE>
Selling Stockholder
The following table sets forth certain information regarding
beneficial ownership of our common stock by the Selling
Stockholder as of June 14, 1999.
<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).. 200,000 (3) (2) 200,000 (3) 0 (2)
</TABLE>
(1) The natural person controlling Kingsbridge Capital Limited is
Valentine O'Donoghue.
(2) Less than 1%.
(3) 200,000 shares of common stock issuable pursuant to
the Warrant. If all of the shares offered hereby
were purchased and held by Kingsbridge, it would hold
less than one percent of our outstanding common stock.
(4) Assumes that all shares acquired pursuant to the exercise of
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 upon exercise of
the Warrant.
72
<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.
73
<PAGE>
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.
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.
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, 1998 and 1997, and for each of the three
years in the period ended December 31, 1998 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.
74
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ANNUAL FINANCIAL STATEMENTS
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997 . . . . . . . . F-3
Consolidated Statements of Operations--Years Ended December 31, 1998, 1997
and 1996. . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Stockholders' Equity--Years Ended
December 31, 1998, 1997 and 1996. . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows--Years Ended December 31, 1998, 1997
and 1996. . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Annual Financial Statements. . . . . . . . . . . . . . F-7
INTERIM FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998 . . . F-19
Consolidated Statements of Operations--For the Six Months Ended
June 30, 1999 and 1998 . . . . . . . . . . . . . . . . . . . . . F-20
Consolidated Statements of Stockholders' Equity--For the Six
Months Ended June 30, 1999 . . . . . . . . . . . . . . . . . . . F-21
Consolidated Statements of Cash Flows--For the Six Months Ended
June 30, 1999 and 1998 . . . . . . . . . . . . . . . . . . . . . F-22
Notes to Consolidated Interim Financial Statements . . . . . . . . . . . . . F-23
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CYTOGEN CORPORATION:
We have audited the accompanying consolidated balance sheets of CYTOGEN
Corporation (a Delaware Corporation) and Subsidiaries as of December 31, 1998
and 1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CYTOGEN Corporation and
Subsidiaries as of December 31, 1998 and 1997 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, PA
January 29, 1999
F-2
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------
PRO FORMA DECEMBER 31,
ACTUAL (NOTE 2) 1997
---------- ----------- -------------
ASSETS: (Unaudited)
Current Assets:
<S> <C> <C> <C>
Cash and cash equivalents .............................................. $ 3,015 $ 10,522 $ 7,401
Receivable on common stock sold ........................................ 2,500 -- --
Accounts receivable, net ............................................... 1,362 1,362 4,064
Inventories ............................................................ 250 250 443
Other current assets ................................................... 330 330 258
---------- ---------- ----------
Total current assets ............................................... 7,457 12,464 12,166
Property and Equipment, net ................................................. 2,625 2,338 3,912
Investment in Targon Subsidiary ............................................. -- -- 10,343
Other Assets ................................................................ 818 818 1,134
---------- ---------- ----------
$ 10,900 $ 15,620 $ 27,555
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Current portion of long-term liabilities ............................... $ 848 $ 121 $ 1,739
Accounts payable and accrued liabilities ............................... 7,386 7,536 5,662
---------- ---------- ----------
Total current liabilities .......................................... 8,234 7,657 7,401
---------- ---------- ----------
Long-Term Liabilities ....................................................... 2,223 2,223 10,171
---------- ---------- ----------
Commitments and Contingencies (Notes 6 and 16)
Stockholders' Equity:
Preferred stock, $.01 par value, 5,400,000 shares authorized-
Series A Convertible and Exchangeable Preferred Stock, $.01 par
value, 1,000 shares authorized, zero and 1,000 shares issued and
outstanding in 1998 and 1997, respectively ....................... -- -- --
Series B Convertible Preferred Stock, $.01 par value, 750 shares
authorized, zero and 750 shares issued and outstanding in 1998
and 1997, respectively ........................................... -- -- --
Series C Junior Participating Preferred Stock, $.01 par value,
200,000 shares authorized, none issued and outstanding ........... -- -- --
Common stock, $.01 par value, 89,600,000 shares authorized,
61,950,000, 64,616,000 and 51,170,000 shares issued and
outstanding in 1998, 1998 pro forma and 1997, respectively ....... 619 646 512
Additional paid-in capital ............................................. 301,836 303,809 298,212
Accumulated deficit .................................................... (302,012) (298,715) (288,741)
---------- ---------- ----------
Total stockholders' equity ......................................... 443 5,740 9,983
---------- ---------- ----------
$ 10,900 $ 15,620 $ 27,555
========== ========== ==========
The accompanying notes are an integral part of these statements.
</TABLE>
F-3
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(ALL AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
REVENUES:
Product related:
ProstaScint .............................................. $ 6,378 $ 4,057 $ 55
Quadramet ................................................ 1,675 -- --
Others ................................................... 923 1,195 1,452
--------- --------- ---------
Total product sales ............................. 8,976 5,252 1,507
Quadramet royalties ...................................... 1,664 3,282 --
--------- --------- ---------
Total product related ........................... 10,640 8,534 1,507
License and contract ............................................ 9,239 5,886 4,223
--------- --------- ---------
Total revenues ........................................... 19,879 14,420 5,730
--------- --------- ---------
OPERATING EXPENSES:
Cost of product and contract manufacturing revenues .......... 12,284 5,939 --
Research and development ..................................... 9,967 17,913 20,539
Equity loss in Targon subsidiary ............................. 1,020 9,232 288
Selling and marketing ........................................ 5,103 5,492 4,143
General and administrative ................................... 7,420 6,871 5,494
--------- --------- ---------
Total operating expenses ................................. 35,794 45,447 30,464
--------- --------- ---------
Operating loss ........................................... (15,915) (31,027) (24,734)
Gain on sale of Targon subsidiary ................................. 2,833 -- --
Interest income ................................................... 582 606 1,419
Interest expense .................................................. (652) (291) (451)
--------- --------- ---------
Net loss .......................................................... (13,152) (30,712) (23,766)
Dividends, including deemed dividends on preferred stock .......... (119) (1,352) (4,571)
--------- --------- ---------
Net loss to common stockholders ................................... $(13,271) $(32,064) $(28,337)
========= ========= =========
Basic and diluted net loss per common share ....................... $ (0.24) $ (0.63) $ (0.59)
========= ========= =========
Basic and diluted weighted average common shares outstanding ...... 56,419 51,134 48,401
========= ========= =========
The accompanying notes are an integral part of these statements.
</TABLE>
F-4
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
ADDITIONAL ON ACCU- TOTAL
PREFERRED COMMON PAID-IN SHORT-TERM MULATED STOCKHOLDERS'
STOCK STOCK CAPITAL INVESTMENTS DEFICIT EQUITY
--------- -------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 $ -- $460 $253,122 $ 34 $(228,340) $ 25,276
Issued 1,000 shares of Series A
preferred stock ................................... -- -- 4,854 -- -- 4,854
Series A preferred stock conversion
discount deemed dividends ......................... -- -- 4,571 -- (4,571) --
Issued 5,029,402 shares of common
stock ............................................. -- 51 26,525 -- -- 26,576
Granted 10,000 shares of common
stock ............................................. -- -- 26 -- -- 26
Unrealized loss on investments ....................... -- -- -- (39) -- (39)
Net loss ............................................. -- -- -- -- (23,766) (23,766)
------- ---- -------- ------ ---------- ---------
BALANCE, DECEMBER 31, 1996 -- 511 289,098 (5) (256,677) 32,927
Issued 750 shares of Series B
preferred stock ................................... -- -- 7,45 -- -- 7,455
Issued 100,282 shares of common
stock ............................................. -- 1 335 -- -- 336
Series B preferred stock conversion
discount deemed dividends ......................... -- -- 1,324 -- (1,324) --
Accrued dividends on Series B
preferred stock ................................... -- -- -- -- (28) (28)
Unrealized gain on investments ....................... -- -- -- 5 -- 5
Net loss ............................................. -- -- -- -- (30,712) (30,712)
------- ---- -------- ------ ---------- ---------
BALANCE, DECEMBER 31, 1997 -- 512 298,212 -- (288,741) 9,983
Issued 3,403,011 shares of
common stock ...................................... -- 34 2,583 -- -- 2,617
Dividends on Series B preferred stock ................ -- -- -- -- (119) (119)
Issued 7,377,054 shares of common stock
upon conversion of Series B preferred stock
and accumulated dividends ........................ -- 73 55 -- -- 128
Issued warrant to purchase 1,000,000
shares of common stock ............................ -- -- 855 -- -- 855
Modification of existing warrants to purchase
260,000 shares of common stock ................... -- -- 131 -- -- 131
Net loss ............................................. -- -- -- -- (13,152) (13,152)
------- ---- -------- ------ ---------- ---------
BALANCE, DECEMBER 31, 1998 ........................... $ -- $619 $301,836 $ -- $(302,012) $ 443
======= ==== ======== ====== ========== =========
The accompanying notes are an integral part of these statements.
</TABLE>
F-5
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(ALL AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .................................................................... $(13,152) $(30,712) $(23,766)
--------- --------- ---------
Adjustments to reconcile net loss to cash used for operating activities:
Depreciation and amortization ........................................... 1,196 1,513 1,532
Write down of property and equipment .................................... 657 384 --
Imputed interest ........................................................ 81 261 451
Warrant, stock and stock option grants .................................. 163 45 70
Equity loss in Targon subsidiary ........................................ 1,020 9,232 288
Gain on sale of Targon subsidiary ....................................... (2,833) -- --
Changes in assets and liabilities:
Accounts receivable, net ............................................ 2,702 (3,625) (155)
Inventories ......................................................... 193 (185) 98
Other assets ........................................................ 4 (74) 205
Accounts payable and accrued liabilities ............................ 1,944 727 (1,517)
--------- --------- ---------
Total adjustments .......................................... 5,127 8,278 972
--------- --------- ---------
Net cash used for operating activities .............................. (8,025) (22,434) (22,794)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in short-term investments ................................ -- 4,474 (3,307)
Decrease in restricted cash .................................................. -- -- 383
Purchases of property and equipment .......................................... (100) (621) (874)
Investment in Targon subsidiary .............................................. -- (10,000) (9,850)
Proceeds from sale of Targon subsidiary ...................................... 2,000 -- --
--------- --------- ---------
Net cash provided by (used in) investing activities .......................... 1,900 (6,147) (13,648)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable ...................................... 2,750 10,000 --
Payments of long-term debt ................................................... (1,898) (2,030) (2,243)
Proceeds from issuance of common stock ....................................... 51 261 26,576
Proceeds from issuance of series A preferred stock ........................... -- -- 4,854
Proceeds from issuance of series B preferred stock ........................... -- 7,455 --
Dividends on series B preferred stock ........................................ (19) -- --
Proceeds from issuance of warrants ........................................... 855 -- --
--------- --------- ---------
Net cash provided by financing activities ........................... 1,739 15,686 29,187
--------- --------- ---------
Net decrease in cash and cash equivalents .................................... (4,386) (12,895) (7,255)
Cash and cash equivalents, beginning of year ................................. 7,401 20,296 27,551
--------- --------- ---------
Cash and cash equivalents, end of year ....................................... $ 3,015 $ 7,401 $ 20,296
========= ========= =========
The accompanying notes are an integral part of these statements
</TABLE>
F-6
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS
CYTOGEN Corporation ("CYTOGEN" or the "Company") is a biopharmaceutical
company engaged in the development, commercialization and marketing of products
to improve diagnosis and treatment of cancer and other disease. In March 1997,
CYTOGEN received clearance from the U.S. Food and Drug Administration ("FDA") to
market Quadramet(R), CYTOGEN's product for the relief of pain due to cancers
that have spread to the skeleton and that can be visualized on a bone scan. In
October 1996, CYTOGEN received marketing approval from FDA for the
ProstaScint(R) imaging agent, CYTOGEN's prostate cancer diagnostic imaging
product. In December 1992, FDA approved OncoScint CR/OV(R) imaging agent,
CYTOGEN's colorectal and ovarian cancer specific diagnostic imaging product, for
single administration per patient. In November 1995, FDA approved an expanded
indication allowing for repeat administration of OncoScint CR/OV. All three
products are currently available in the marketplace. Operations of the Company
are subject to certain risks and uncertainties including, but not limited to,
access to capital, product market acceptance, product efficacy and clinical
trials, technological uncertainty, uncertainties of future profitability,
dependence on collaborative relationships and key personnel.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of CYTOGEN and
its wholly-owned subsidiaries, AxCell Biosciences Corporation ("AxCell") and
Cellcor Inc. ("Cellcor"). The financial statements also include the investment
results of Targon Corporation ("Targon"), which were accounted for on the equity
method (see Investment in Targon Subsidiary). Intercompany balances and
transactions have been eliminated in consolidation. In the third quarter of
1998, the Company sold Targon and closed Cellcor.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.
Actual results could differ from those estimates.
STATEMENT OF CASH FLOW
Cash and cash equivalents include cash on hand, cash in banks and all
highly-liquid investments with a maturity of three months or less at the time of
purchase. Cash paid for interest expense was $500,000, $524,000 and $307,000 in
1998, 1997 and 1996, respectively.
F-7
<PAGE>
RECEIVABLES
At December 31, 1998, the Company had a $2.5 million receivable due from
The State of Wisconsin Investment Board relating to the sale of 3,333,334 shares
of CYTOGEN common stock at $0.75 per share. The Company received the proceeds
from the stock sale in January 1999 (see Note 2).
At December 31, 1998 and 1997, accounts receivable were net of an allowance
for doubtful accounts of $73,000 and $576,000, respectively. The Company charged
to expense $23,000 and $30,000 as a provision for doubtful accounts in 1998 and
1997, respectively. At December 31, 1998, approximately $91,000 of the Company's
accounts receivable balance was due from The DuPont Pharmaceutical Company
formerly the Radiopharmaceutical Division of The DuPont Merck Pharmaceutical
Company ("DuPont") compared to $3 million at December 31, 1997.
INVENTORY
The Company's inventory is primarily related to ProstaScint and OncoScint
CR/OV. Inventory is stated at the lower of cost or market using the first-in,
first-out method and consisted of the following:
December 31,
------------------------
1998 1997
--------- ---------
Raw materials . . . . . . . . . . . . . $ 57,000 $ 145,000
Work-in-process . . . . . . . . . . . . 143,000 158,000
Finished goods . . . . . . . . . . . . 50,000 140,000
--------- ---------
$ 250,000 $ 443,000
========= =========
PROPERTY AND EQUIPMENT
Equipment and furniture are stated at cost, net of depreciation and a
$102,000 reserve for idle equipment. Leasehold improvements are amortized on a
straight-line basis over the lease period or the estimated useful life,
whichever is shorter. Equipment and furniture are depreciated on a straight-line
basis over five years. Expenditures for repairs and maintenance are charged to
expense as incurred. For 1998, 1997 and 1996, repairs and maintenance expenses
were $242,000, $350,000 and $394,000, respectively. Property and equipment
consisted of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1998 1997
------------- --------------
<S> <C> <C>
Leashold improvements............................... $ 9,438,000 $ 10,126,000
Equipment and furniture............................. 7,350,000 7,696,000
------------- --------------
16,788,000 17,822,000
Less - accumulated depreciation and amortization..... (14,163,000) (13,910,000)
------------- --------------
$ 2,625,000 $ 3,912,000
============= ==============
</TABLE>
F-8
<PAGE>
INVESTMENT IN TARGON SUBSIDIARY AND RECLASSIFICATION
As a result of the 1998 reduction of CYTOGEN's ownership interest in Targon,
the Company began accounting for its investment in Targon using the equity
method. In addition, the Company retroactively adopted Emerging Issues Task
Force ("EITF") 96-16. Under the equity method, the Company recognized 100% of
Targon's losses through March 31, 1998 in its consolidated statement of
operations as "Equity Loss in Targon Subsidiary," with a corresponding reduction
in the carrying amount of its investment. The Company did not recognize Targon's
losses after March 31, 1998 based on the completion of the sale of Targon (see
Note 3).
As a result of the adoption of EITF 96-16 and the equity method,
approximately $1.9 million and $376,000 of research and development expenses
recorded in 1997 and 1996, respectively, and $7.5 million of acquisition of
product rights expense recorded in 1997, were reclassified to "Equity Loss in
Targon Subsidiary". The primary effect on the December 31, 1997 balance sheet
was the reclassification of Restricted Cash to "Investment in Targon
Subsidiary". All other changes were immaterial.
In August 1998 the Company sold its remaining ownership interest in Targon
to Elan Corporation, plc ("Elan") for $2.0 million (see Note 3). As a result,
the Company recorded a gain of approximately $2.8 million in its 1998
consolidated statement of operations.
OTHER ASSETS
Other assets consist primarily of undeveloped land with a net book value of
$660,000, which is valued at the lower of cost or market. During 1998 and 1997,
the Company charged to expense $240,000 and $384,000, respectively to write down
the land to estimated market value.
REVENUE RECOGNITION
Product related revenues include product sales by CYTOGEN to its customers
and Quadramet royalties. Product sales are recognized upon shipment of the
finished goods. From the time of Quadramet's launch in the second quarter of
1997 to June 1998, CYTOGEN recorded Quadramet royalty revenues from DuPont based
on minimum contractual payments, which were in excess of actual Quadramet sales.
Pursuant to an agreement between CYTOGEN and DuPont, the minimum royalty
arrangement was discontinued and CYTOGEN reclaimed the marketing rights to
Quadramet. Subsequent to June 1998, CYTOGEN recorded product revenues from
Quadramet based on actual sales. Starting in 1999, Quadramet royalties will be
based on sales of Quadramet by Berlex Laboratories ("Berlex"), CYTOGEN's new
marketing partner for Quadramet (see Note 4).
License and contract revenues include milestone payments and fees under
collaborative agreements with third parties, revenues from contract
manufacturing and research services, and revenues from other miscellaneous
sources. The Company's contract manufacturing services include filling, testing,
validation, and process development of monoclonal antibodies; process
development and clinical development of biopharmaceutical products; and the
preclinical manufacturing of an antibody product. The Company is phasing out
contract manufacturing services, concurrent with the sale of the manufacturing
and laboratory facilities (see Note 2) and expects to receive no further
revenues from this service after 1999. Revenues from milestone payments are
F-9
<PAGE>
recognized when all parties concur that the events stipulated in the agreement
have been achieved. Revenues from cost-plus contracts are recognized when the
costs are incurred. Revenues from up-front payments are recognized when the
Company has no obligation to return the fee under any circumstances.
COST OF PRODUCT AND CONTRACT MANUFACTURING REVENUES
Beginning in 1997, the Company began providing contract manufacturing
services to third parties, and its second product ProstaScint was approved
resulting in significantly higher product sales. In 1998, the Company paid
DuPont $995,000 for manufacturing and distributing Quadramet as a result of
CYTOGEN's reacquiring the marketing rights of Quadramet in June 1998. In
addition, the Company recorded a $4 million charge for securing a long-term
manufacturing commitment for Quadramet from DuPont (see Note 5). Pursuant to the
marketing agreement with Berlex (see Note 4), beginning in 1999, there will be
no manufacturing and distribution costs related to Quadramet. Prior to 1997,
product sales were minimal and no revenues were derived from contract
manufacturing, therefore, cost of product sales was immaterial and included in
research and development expenses.
RESEARCH AND DEVELOPMENT
Research and development expenditures consist of projects conducted by the
Company and payments made to sponsored research programs and consultants. All
research and development costs are charged to expense as incurred. Research and
development expenditures for customer sponsored programs were $2.0 million, $1.5
million and $1.1 million in 1998, 1997 and 1996, respectively.
PATENT COSTS
Patent costs are charged to expense as incurred.
NET LOSS PER SHARE
Basic net loss per common share is based upon the weighted average common
shares outstanding during each year. Diluted net loss per common share is the
same as basic net loss per common share, as the inclusion of common stock
equivalents would be antidilutive.
2. UNAUDITED PRO FORMA BALANCE SHEET:
In January 1999, the Company sold certain of its laboratory and
manufacturing facilities to Bard BioPharma L.P., a subsidiary of Purdue Pharma
L.P., for $3.9 million. CYTOGEN also signed a three-year agreement under which
two of CYTOGEN's products, ProstaScint and OncoScint CR/OV, would continue to be
manufactured by CYTOGEN at its former facility. The Company will recognize a
gain of approximately $3.3 million in its consolidated statement of operations
in the first quarter of 1999. In connection with the sale, the Company was
required to repay the remaining outstanding balance of the note due to CIT
Group/Credit Finance Inc. (see Note 9).
F-10
<PAGE>
In addition, in January 1999, the Company sold 2,666,667 shares of CYTOGEN
common stock at $0.75 per share to a subsidiary of The Hillman Company for an
aggregate of $2.0 million and received $2.5 million in proceeds from the
December 1998 sale of CYTOGEN common stock to The State of Wisconsin Investment
Board (see Note 1).
The unaudited pro forma balance sheet reflects the above transactions as if
they had occurred on December 31, 1998.
3. SALE OF TARGON CORPORATION:
Targon was established in September 1996 pursuant to agreements between
CYTOGEN and Elan, and was a majority-owned (99.75%) subsidiary of CYTOGEN. In
March 1998, Elan exchanged its shares of the Company's Series A Convertible and
Exchangeable Preferred Stock ("Series A") for 50% of CYTOGEN's interest in
Targon. In August 1998, CYTOGEN sold its remaining 49.875% interest in Targon to
Elan for $2.0 million (see Note 1). As a result of the sale, a warrant to
purchase up to 1,000,000 shares of CYTOGEN common stock previously granted to
Elan and all notes among CYTOGEN, Elan and Targon were canceled. In addition, in
August 1998, CYTOGEN received $2.0 million from Elan in exchange for a
convertible promissory note (see Note 9). The Company recognized a gain of
approximately $2.8 million on the Targon transaction.
4. BERLEX LABORATORIES:
In October 1998, CYTOGEN entered into an exclusive license and marketing
agreement ("Berlex Agreement") with Berlex for the manufacture and sale of
Quadramet. Under the terms of the Berlex Agreement, CYTOGEN received a one-time
license fee of $8 million in 1998 and Berlex will pay CYTOGEN royalties on net
sales of Quadramet, as well as milestone payments based on achievement of
certain sales levels. Quadramet is expected to be re-launched by Berlex in the
first quarter of 1999.
In connection with the Berlex Agreement, CYTOGEN granted Berlex a warrant to
purchase 1,000,000 shares of CYTOGEN common stock at an exercise price of $1.002
per share through October 2003, which is exercisable after the earlier of
October 1999 or the achievement of defined sales levels. Using the Black Scholes
model, the estimated value of the warrant was calculated at $855,000, and was
recorded as a reduction of the one-time license fee revenue, with a
corresponding increase in stockholders' equity.
5. THE DUPONT PHARMACEUTICAL COMPANY:
Pursuant to the terms of an agreement between CYTOGEN and DuPont, CYTOGEN
received from DuPont (i) $1.5 million in each of 1997 and 1996 to fund clinical
programs to expand the use and marketing of Quadramet; (ii) a $2.0 million
milestone payment in 1997 upon the FDA clearance of Quadramet and (iii) royalty
revenues of $1.7 million and $3.3 million in 1998 and 1997, respectively, based
on minimum contractual payments which were in excess of actual sales. In June
1998, the agreement was amended and the minimum royalty arrangement was
discontinued. In 1998, CYTOGEN recorded a charge of $4 million as Cost of
Product and Contract Manufacturing Revenues for securing a long-term
manufacturing commitment for Quadramet from DuPont of which $3 million was paid
in 1998 and $1 million is payable in March 1999.
F-11
<PAGE>
6. THE DOW CHEMICAL COMPANY:
In 1993, CYTOGEN acquired from The Dow Chemical Company ("DOW") an exclusive
license for the treatment of osteoblastic bone metastases in the U.S. for
Quadramet. This license was amended in 1995 and 1998 to expand the territory to
include Canada, Latin America, Europe and Japan, in 1996 to expand the field to
include all osteoblastic diseases and in 1998 to include rheumatoid arthritis.
In 1997, the Company recorded a $4.0 million milestone payment to Dow upon FDA
clearance of Quadramet. The agreement also requires the Company to pay Dow
royalties based on a percentage of net sales of Quadramet, or a guaranteed
contractual minimum payments, whichever is greater, and future payments upon
achievement of certain milestones. During 1998 and 1997, the Company recorded
$500,000 and $375,000, respectively in royalty expense.
Future annual minimum royalties due to Dow are as follows:
1999 500,000
2000 750,000
2001 750,000
2002 through 2012 1,000,000 per year
7. REVENUES FROM MAJOR CUSTOMERS:
Revenues from major customers as a percentage of total were as follows:
Year Ended December 31,
-----------------------------
Customer 1998 1997 1996
-------- ---- ---- ----
Berlex (see Note 4) 36% -% -%
DuPont (see Note 5) 8 47 27
Medi-Physics 10 9 10
Elan - 6 23
Medi-Physics is a chain of radiopharmacies which distributes ProstaScint and
OncoScint CR/OV kits.
Pursuant to an agreement between CYTOGEN and Elan in 1995, CYTOGEN performed
research services which resulted in contract revenues of $62,000, $924,000 and
$1.3 million in 1998, 1997 and 1996, respectively.
F-12
<PAGE>
8. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1997
---------- ----------
<S> <C> <C>
Accounts payable $2,465,000 $1,160,000
Accrued payroll and related expenses 1,222,000 1,689,000
Severances and restructuring accruals 856,000 --
Accrued research contracts and materials 474,000 602,000
Accrued commission and royalties 828,000 647,000
Accrued professional and legal 655,000 835,000
Other accruals 886,000 729,000
---------- ----------
$7,386,000 $5,662,000
========== ==========
</TABLE>
In connection with the closure of the Company's Cellcor subsidiary and
corporate downsizing in 1998, CYTOGEN incurred a restructuring charge of
approximately $1.9 million relating to severances, other closure related
expenses and costs to implement a corporate turnaround plan, of which $856,000
was still accrued at December 31, 1998.
9. LONG TERM LIABILITIES:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1997
----------- ------------
<S> <C> <C>
Due to Knoll Pharmaceuticals $ -- $ 1,619,000
Due to Elan 2,054,000 10,000,000
Due to CIT Group/Credit Finance 744,000 --
Capital lease obligations 273,000 291,000
3,071,000 11,910,000
Less: Current portion (848,000) (1,739,000)
----------- ------------
$2,223,000 $10,171,000
=========== ============
</TABLE>
In July 1997, the Company obtained a $10.0 million loan from Elan. The funds
were used by CYTOGEN to provide funding to Targon, including funding for the
$7.5 million license fee paid by Targon to Elan. As a result of the sale of
Targon to Elan in August 1998 (see Note 3), all notes among CYTOGEN, Elan and
Targon, were canceled.
In August 1998, CYTOGEN received $2.0 million from Elan in exchange for a
convertible promissory note. The note is convertible into shares of CYTOGEN
common stock at $2.80 per share, subject to adjustments, and matures in seven
years. The note bears annual 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 is payable in cash. In 1998, the Company
accrued $54,000 in interest expense on this note.
In October 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 bore interest at prime plus 3% and was payable monthly with
principal payments of $12,500 plus interest. In January 1999, the Company paid
the remaining balance of the loan with the proceeds from the sale of its
laboratory and manufacturing facilities (see Note 2).
F-13
<PAGE>
The Company leases certain equipment under capital lease obligations which
will expire on various dates through 2002. Property and equipment leased under
non-cancelable capital leases have a net book value of $336,000 at December 31,
1998. Payments to be made under capital lease obligations (including interest of
$66,000) are as follows: $138,000 in 1999, $111,000 in 2000, $78,000 in 2001 and
$12,000 in 2002.
10. COMMON STOCK:
In October 1998, the Company entered into an agreement (the "Equity Line
Agreement") with an institutional investor (the "Investor") for a $12 million
common stock equity line. Pursuant to the Equity Line Agreement, the Company,
subject to the satisfaction of certain conditions, was granted the right to
issue and sell to the Investor, and the Investor would be obligated to purchase
up to $12 million of CYTOGEN common stock from time to time (collectively, the
"Put Rights") over a two year period at a purchase price per share equal to 85%
of the average of lowest trade prices of CYTOGEN common stock during five
designated trading days as determined under the Equity Line Agreement. The
Company can exercise the Put Rights every 20 trading days in the amounts ranging
from $150,000 to $1 million, subject to the satisfaction of minimum trading
volume, market price of CYTOGEN common stock and registration of the shares of
common stock under the Securities Act of 1933, as amended. The Company is
required to exercise Put Rights with respect to a minimum of $3 million over the
life of the Equity Line Agreement. In addition, the Company granted to the
Investor a warrant to purchase up to 200,000 shares of CYTOGEN common stock at
an exercise price of $1.016 per share through April 2002. In January 1999, the
Company exercised a Put Right for the sale of 475,342 shares of common stock at
an aggregate price of $500,000 or $1.0519 per share.
In December 1998, the Company sold to The State of Wisconsin Investment
Board 3,333,334 shares of CYTOGEN common stock at an aggregate price of $2.5
million or $0.75 per share.
In January 1999, the Company sold to a subsidiary of The Hillman Company
2,666,667 shares of CYTOGEN common stock at an aggregate price of $2.0 million
or $0.75 per share.
11. CONVERTIBLE PREFERRED STOCK:
In September 1996, CYTOGEN issued 1,000 shares of Series A in connection
with the formation of Targon. Since the Series A was immediately convertible
into common stock, the most beneficial conversion discount was recorded
analogous to a deemed dividend of $4.6 million in 1996. In March 1998, Elan
exchanged all of its shares of the Company's Series A for 50% of CYTOGEN's
interest in Targon (see Note 3).
In December 1997, CYTOGEN obtained a financing commitment from private
investors for the purchase of up to $20.0 million of its Convertible Preferred
Stock subject to satisfaction of certain conditions. CYTOGEN completed the first
tranche of the financing in December 1997 by issuing 750 shares of Series B
Preferred Stock ("Series B") for an aggregate price of $7.5 million. The Series
B carried a dividend rate of 6% which was payable in cash or common stock at the
option of CYTOGEN.
F-14
<PAGE>
In connection with the conversion feature of the Series B, the Company
recorded a deemed dividend of $1.3 million in 1997, which represented the
maximum 15% conversion discount given to the holders of the Series B. In 1998,
all of the outstanding Series B was converted into 7,377,054 shares of CYTOGEN
common stock including $128,000 of accrued dividends.
12. STOCK OPTIONS AND GRANTS:
The Company has various stock option plans that provide for the issuance of
incentive and non-qualified stock options to employees, non-employee directors
and outside consultants, for which an aggregate of 6,233,357 shares of common
stock have been reserved. The persons to whom options may be granted and the
number, type, and terms of the options vary among the plans. Options are granted
with an exercise term of 10 years and generally become exercisable in
installments over periods of up to 5 years at an exercise price determined
either by the plan or equal to the fair market value of the common stock at the
date of grant. Under certain circumstances, vesting may accelerate. In January
1998, the Company cancelled unexercised stock option grants to purchase 671,555
shares ranging in price from $3.687 to $16.50 per share and issued stock option
grants to purchase 537,244 shares at $1.95 per share which equaled fair market
value at the date of grant. This repricing was not available to officers,
directors, executives and consultants of the Company. Activity under these plans
was as follows:
Number of Price Range
Shares Per Share
---------- --------------
Balance at December 31, 1995 2,952,857 $ 2.69 - 17.00
Granted 1,073,770 5.00 - 9.28
Exercised (254,907) 2.69 - 7.50
Cancelled (248,780) 2.69 - 7.50
-----------
Balance at December 31, 1996 3,522,940 $ 2.69 - 17.00
Granted 822,400 2.06 - 6.13
Excersised (60,350) 1.77 - 5.47
Cancelled (459,530) 2.69 - 8.88
-----------
Balance at December 31, 1997 3,825,460 $ 2.06 - 17.00
Granted 2,285,920 0.70 - 2.13
Cancelled (2,319,085) 1.36 - 17.00
-----------
Balance at December 31, 1998 3,792,295 $ 0.70 - 16.63
===========
At December 31, 1998, options to purchase 1,497,586 shares of common stock
were exercisable and 1,242,024 shares of common stock were available for
issuance under approved plans of additional options that may be granted under
the plans. All options under the Cellcor stock option plan, which was reserved
in connection with the Cellcor merger in 1995, were cancelled as a result of the
closure of Cellcor.
F-15
<PAGE>
In August 1998, the Company granted to a key employee an option to purchase
2,250,000 shares of CYTOGEN common stock at an exercise price of $1.0937 per
share, of which the vesting of 1,350,000 shares are subject to the completion of
certain performance based milestones as determined by the Board of Directors.
This option was granted outside of the approved plans. As of December 31, 1998,
300,000 shares under this option was exercisable.
In 1997, the Company adopted an employee stock purchase plan under which
eligible employees may elect to purchase shares of common stock at the lower of
85% of fair market value as of the first trading day of each quarterly
participation period, or as of the last trading day of each quarterly
participation period. In 1998 and 1997, employees purchased 54,023 shares and
16,017 shares, respectively, for aggregate proceeds of $41,000 and $32,000,
respectively. The Company has reserved 429,960 shares for future issuance under
its employee stock purchase plan.
The Company applies Accounting Principle Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and the related interpretations in accounting
for its stock option plans. The disclosure requirement of Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," was adopted by the Company in 1996. Had compensation cost of the
Company's common stock option plan been determined under SFAS No. 123, the
Company's net loss would have been increased to the following pro forma amounts:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Net loss to common stockholders, as reported $(13,271,000) $(32,064,000) $(28,337,000)
Pro forma net loss to common stockholders $(16,566,000) $(34,946,000) $(30,594,000)
Net loss per common share, as reported $(0.24) $(0.63) $(0.59)
Pro forma net loss per common share $(0.29) $(0.68) $(0.63)
</TABLE>
The average fair value per option of the options granted under the stock
option plans during 1998, 1997 and 1996 is estimated as $0.92, $2.10 and $3.35,
respectively, on the date of grant using the Black-Scholes option pricing model
with the following assumptions for 1998, 1997 and 1996: dividend yield of zero,
volatility of 78.42%, 69.87% and 70.72%, respectively, risk-free interest rate
of 5.37%, 6.07% and 5.90%, respectively, and an expected life of 5 years. The
average fair value per option ascribed to the employee stock purchase plan
during 1998 and 1997 is estimated at $0.65 and $2.17, respectively on the date
of grant using the Black-Scholes option pricing model with the following
assumptions for 1998 and 1997: divided yield of zero, volatility of 84.75% and
50.20%, respectively, risk free interest rate of 4.88% and 5.13%, respectively,
and expected life of three months. Because the SFAS No. 123 method of accounting
is not required to be applied to options granted prior to January 1, 1995, the
resulting pro forma compensation charge may not be representative of that to be
expected in future years.
13. RELATED PARTY TRANSACTION:
Consulting services have been provided to the Company under an agreement
with the Chairman of the Board of Directors related to time spent in that
function on Company matters. Fees and expenses under this agreement were
$172,000 in 1998.
F-16
<PAGE>
14. PENSION PLANS:
The Company maintains a defined contribution pension plan. The
contribution is determined by the Board of Directors each year and is based upon
a percentage of gross wages of eligible employees. The plan provides for vesting
over five years, with credit given for prior service. The Company also makes
contributions under a 401(k) plan in amounts which match up to 50% of the salary
deferred by the participants. Matching is capped at 6% of deferred salaries.
Total pension expense was $310,000, $405,000 and $328,000 for 1998, 1997 and
1996, respectively.
15. INCOME TAXES:
As of December 31, 1998, CYTOGEN had federal net operating loss
carryforwards of approximately $177 million. The Company also had federal and
state research and development tax credit carryforwards of approximately $5.4
million. The net operating loss and credit carryforwards began to expire in
1995.
The Tax Reform Act of 1986 contains provisions that limit the utilization
of net operating loss and tax credit carryforwards if there has been an
"ownership change". Such an "ownership change" as described in Section 382 of
the Internal Revenue Code may limit the Company's utilization of its net
operating loss and tax credit carryforwards.
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. Based upon the Company's
loss history, a valuation allowance for deferred tax assets has been provided:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 60,300,000 $ 52,700,000
Capitalized research and development expenses 19,500,000 23,500,000
Research and development credit 5,400,000 5,000,000
Acquisition of in-process technology 1,200,000 3,800,000
Other, net 300,000 140,000
------------- -------------
Total deferred tax assets 86,700,000 85,140,000
Valuation allowance for deferred tax assets (86,700,000) (85,140,000)
------------- -------------
Net deferred tax assets $ -- $ --
============= =============
</TABLE>
In 1995, CYTOGEN acquired CytoRad and Cellcor, both of which had net
operating loss carryforwards. Due to Section 382 limitations, approximately $10
million of CytoRad and $12.0 million of Cellcor carryforwards may be available
to offset future taxable income. A 100% valuation allowance was established on
the acquisition dates as realization of these tax assets is uncertain.
16. COMMITMENTS AND CONTINGENCIES:
The Company leases its facilities and certain equipment under
non-cancelable operating leases that expire at various times through 2002. Rent
expense incurred on these leases was $1.6 million, $1.8 million and $1.8 million
in 1998, 1997 and 1996, respectively. Minimum future obligations under the
operating leases are $3.6 million as of December 31, 1998 and will be paid as
follows: $990,000 in 1999, $1.1 million in 2000, $1.2 million in 2001, and
$288,000 in 2002.
F-17
<PAGE>
The Company is obligated to make minimum future payments under research and
development contracts that expire at various times. As of December 31, 1998, the
minimum future payments under contracts are $120,000 in 1999 and $130,000 in
2000 and thereafter. In addition, the Company is obligated to pay
performance-based compensation to its marketing partner for ProstaScint and
royalties on revenues from commercial product sales including certain guaranteed
minimum payments.
F-18
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents ....................................... $ 5,332 $ 3,015
Receivable on common stock sold ................................. -- 2,500
Accounts receivable, net ........................................ 2,997 1,362
Inventories ..................................................... 176 250
Other current assets ............................................ 551 330
--------- ---------
Total current assets ......................................... 9,056 7,457
--------- ---------
Property and Equipment:
Leasehold improvements .......................................... 9,080 9,438
Equipment and furniture ......................................... 4,958 7,350
--------- ---------
14,038 16,788
Less-Accumulated depreciation and amortization .................. (12,152) (14,163)
--------- ---------
Net property and equipment ................................... 1,886 2,625
--------- ---------
Other Assets ........................................................ 1,414 818
--------- ---------
$ 12,356 $ 10,900
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Current portion of long-term liabilities ........................ $ 104 $ 848
Accounts payable and accrued liabilities ........................ 4,525 7,386
--------- ---------
Total current liabilities .................................. 4,629 8,234
--------- ---------
Long-Term Liabilities ............................................... 2,264 2,223
--------- ---------
Stockholders' Equity:
Preferred stock, $.01 par value, 5,400,000 shares authorized -
Series C Junior Participating Preferred Stock, $.01 par value,
200,000 shares authorized, none issued and outstanding .. -- --
Common stock, $.01 par value, 89,600,000 shares authorized,
67,175,000 and 61,950,000 shares issued and outstanding
in 1999 and 1998, respectively ............................... 672 619
Additional paid-in capital ...................................... 306,110 301,836
Accumulated deficit ............................................. (301,319) (302,012)
--------- ---------
Total stockholders' equity ................................... 5,463 443
--------- ---------
$ 12,356 $ 10,900
========= =========
The accompanying notes are an integral part of these statements.
</TABLE>
F-19
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
--------------------- ---------------------
1999 1998 1999 1998
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Product related:
ProstaScint ................................................ $ 1,661 $ 1,458 $ 3,253 $ 2,996
Quadramet .................................................. -- 220 -- 220
Others ..................................................... 157 172 321 468
--------- --------- --------- ---------
Total product sales .............................. 1,818 1,850 3,574 3,684
Quadramet royalties ........................................ 262 33 461 1,664
--------- --------- --------- ---------
Total product related ............................ 2,080 1,883 4,035 5,348
License and contract .......................................... 2,370 579 2,739 1,246
--------- --------- --------- ---------
Total revenues ................................... 4,450 2,462 6,774 6,594
--------- --------- --------- ---------
Operating Expenses:
Cost of product and contract manufacturing revenues ........... 1,170 1,935 2,274 3,835
Research and development ...................................... 981 2,682 2,038 5,763
Acquisition of technology rights .............................. 1,214 -- 1,214 --
Equity loss in Targon subsidiary .............................. -- -- -- 1,020
Selling and marketing ......................................... 1,082 1,283 2,028 2,334
General and administrative .................................... 981 1,216 1,892 2,621
--------- --------- --------- ---------
Total operating expenses ......................... 5,428 7,116 9,446 15,573
--------- --------- --------- ---------
Operating loss ................................... (978) (4,654) (2,672) (8,979)
Gain on sale of laboratory and
manufacturing facilities ...................................... -- -- 3,298 --
Interest income ................................................ 56 222 151 428
Interest expense .................................................. (42) (220) (84) (437)
--------- --------- --------- ---------
Net income (loss) ................................................. (964) (4,652) 693 (8,988)
Dividends on series B preferred stock ............................. -- (37) -- (119)
--------- --------- --------- ---------
Net income (loss) to common stockholders .......................... $ (964) $ (4,689) 693 $ (9,107)
========= ========= ========= =========
Net income (loss) per common share
Basic and diluted ............................................. $ (0.01) $ (0.08) $ 0.01 $ (0.17)
========= ========= ========= =========
Weighted average common shares outstanding
Basic ......................................................... 65,632 55,334 64,884 54,065
========= ========= ========= =========
Diluted ....................................................... 65,632 55,334 65,042 54,065
========= ========= ========= =========
The accompanying notes are an integral part of these statements.
</TABLE>
F-20
<PAGE>
<TABLE>
<CAPTION>
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(All amounts in thousands, except share data)
(Unaudited)
Additional Accu- Total
Preferred Common Paid-in mulated Stockholders'
Stock Stock Capital Deficit Equity
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 $ - $ 619 $ 301,836 $(302,012) $ 443
Issued 3,174,987 shares of common stock - 32 2,450 - 2,482
Issued 2,050,000 shares of common stock
in connection with the acquisition
of Prostagen Inc. - 21 1,824 - 1,845
Net income - - - 693 693
-------- -------- --------- ---------- ---------
Balance, June 30, 1999 $ - $ 672 $ 306,110 $(301,319) $ 5,463
======== ======== ========= ========== =========
</TABLE>
F-21
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------------
1999 1998
------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................................................... $ 693 $ (8,988)
------------ ------------
Adjustments to reconcile net income (loss) to cash
used for operating activities:
Acquisition of technology rights.................................... 1,214 -
Depreciation and amortization ...................................... 519 677
Imputed interest ................................................... (8) 81
Stock option and warrant grants .................................... 142 11
Write down of assets ............................................... 53 -
Gain on sale of laboratory and manufacturing facilities ............ (3,298) -
Equity loss in Targon subsidiary ................................... - 1,020
Changes in assets and liabilities:
Accounts receivable, net ....................................... (1,627) 2,547
Inventories .................................................... 74 130
Other assets ................................................... (23) 59
Accounts payable and accrued liabilities ....................... (3,600) 124
Other liabilities .............................................. 71 87
------------ ------------
Total adjustments ............................... (6,483) 4,736
------------ ------------
Net cash used for operating activities ........................... (5,790) (4,252)
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash acquired from Prostagen Inc. (see Note 2)......................... 550 -
Net proceeds from sale of laboratory and
manufacturing facilities .............................................. 3,584 -
Purchases of property and equipment........................................ (93) (92)
------------ ------------
Net cash provided by (used for) investing activities.............. 4,041 (92)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock..................................... 4,840 26
Payment of long-term liabilities .......................................... (774) (65)
------------ ------------
Net cash provided by (used for) financing activities.............. 4,066 (39)
------------ ------------
Net increase (decrease) in cash and cash equivalents ...................... 2,317 (4,383)
Cash and cash equivalents, beginning of period............................. 3,015 7,401
------------ ------------
Cash and cash equivalents, end of period .................................. $ 5,332 $ 3,018
============ ============
The accompanying notes are an integral part of these statements.
</TABLE>
F-22
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company
CYTOGEN Corporation ("CYTOGEN" or the "Company") is a biopharmaceutical
company engaged in the development, commercialization and marketing of products
to improve diagnosis and treatment of prostate disease, and of products for
unmet needs in the broader urological and oncology markets. Cytogen has three
products on the market including ProstaScint(R), a prostate cancer diagnostic,
Quadramet(R), a treatment of bone cancer pain and OncoScint(R), an imaging agent
for colorectal and ovarian cancers. Cytogen also holds the intellectual property
rights to prostate specific membrane antigen ("PSMA"), a unique antigen under
development for immunotherapeutic and other approaches, particularly in the area
of prostate cancer.
Basis of Consolidation
The consolidated financial statements include the accounts of CYTOGEN and
its wholly- owned subsidiaries. Intercompany balances and transactions have been
eliminated in consolidation.
Basis of Presentation
The consolidated financial statements of CYTOGEN Corporation are unaudited
and include all adjustments which, in the opinion of management, are necessary
to present fairly the financial condition and results of operations as of and
for the periods set forth in the Consolidated Balance Sheets, Consolidated
Statements of Operations and Consolidated Statements of Cash Flows. All such
accounting adjustments are of a normal, recurring nature. The consolidated
financial statements do not include all of the information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles and should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission, which includes financial statements as of and for the year ended
December 31, 1998. The results of the Company's operations for any interim
period are not necessarily indicative of the results of the Company's operations
for any other interim period or for a full year.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash in banks and all
highly-liquid investments with a maturity of three months or less at the time of
purchase.
F-23
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Cont'd)
Net Income (Loss) Per Share
Basic net income (loss) per common share is based upon the weighted
average common shares outstanding during each period. Diluted net income per
common share is based upon the weighted average common shares outstanding and
common share equivalents which represent the incremental common shares that
would have been outstanding under certain employee stock options and warrants,
upon assumed exercise of dilutive stock options and warrants. The common stock
equivalents were excluded from the diluted net loss per share calculation for
the three months ended June 30, 1999 and 1998 and six months ended June 30,
1998, as their effect would be antidilutive.
2. ACQUISITION OF PROSTAGEN, INC.:
On June 15, 1999, CYTOGEN reacquired the rights for immunotherapy to its
PSMA technology by acquiring 100% of the outstanding capital stock of Prostagen
Inc. ("Prostagen") for 2,050,000 shares of CYTOGEN common stock, plus
transaction costs. The acquisition was accounted for using the purchase method
of accounting, whereby the purchase price was allocated to the assets acquired
and liabilities assumed from Prostagen based on their respective fair values at
the acquisition date. The excess of the purchase price over the fair value of
the net tangible assets of approximately $1.2 million was assigned to acquired
technology rights and has been recorded as a non-cash charge to operations in
the accompanying financial statements. Acquired technology rights reflects the
value of the PSMA technology development projects underway at the time of the
Prostagen acquisition. The Company may issue up to an additional 450,000 shares
of CYTOGEN common stock upon the satisfactory termination of lease obligations
assumed in the Prostagen acquisition.
The Company had sublicensed PSMA to Prostagen for prostate cancer
immunotherapy in 1996. In connection with the acquisition, CYTOGEN acquired
approximately $550,000 in cash, a minority ownership in Northwest
Biotherapeutics, Inc., which is developing PSMA for cell therapy, and a contract
with Velos, Inc. for marketing a cancer patient software management program for
hospitals and health care payors. In addition, the Company may issue up to an
additional $4.0 million worth of CYTOGEN common stock (based on the value at the
time of issuance) if certain milestones are achieved in the PSMA development
program. In addition the Company may issue up to 500,000 shares upon beneficial
resolution of other contractual arrangements entered by Prostagen.
3. PROGENICS PHARMACEUTICALS, INC. JOINT VENTURE:
On June 15, 1999, CYTOGEN entered into a joint venture with Progenics
Pharmaceuticals, Inc. ("Progenics") to develop vaccine and antibody-based
immunotherapeutic products utilizing CYTOGEN's proprietary PSMA technology. The
joint venture will be owned equally by CYTOGEN and Progenics. Progenics will
fund up to $3 million of development costs of the program. After that point, the
F-24
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Cont'd)
Company and Progenics will equally share the future costs of the program.
CYTOGEN has the exclusive North American marketing rights on products developed
by the joint venture. In connection with the licensing of the PSMA technology to
the joint venture, CYTOGEN will receive $2 million in payments of which $500,000
was received in June 1999, with the balance to be paid in installments through
December 31, 2001. As a result, CYTOGEN recorded approximately $1.8 million in
license fee revenue during the three months ended June 30, 1999, based on the
net present value of the future payments (using a discount rate of 10%).
4. SALE OF LABORATORY AND MANUFACTURING FACILITIES:
In January 1999, the Company sold certain of its laboratory and
manufacturing facilities to Bard BioPharma L.P., a subsidiary of Purdue Pharma
L.P. ("Purdue"), for $3.9 million. CYTOGEN also signed a three-year agreement
under which two of CYTOGEN's products, ProstaScint and OncoScint CR/OV, will
continue to be manufactured by CYTOGEN at its former facility. As a result of
the sale, the Company recognized a gain of approximately $3.3 million in its
consolidated statement of operations during the first quarter of 1999.
5. SALES OF CYTOGEN COMMON STOCK:
In January 1999, the Company sold 2,666,667 shares of CYTOGEN common
stock to a subsidiary of The Hillman Company for an aggregate price of $2.0
million or $0.75 per share. Also in January, the Company exercised a put right
granted to CYTOGEN under a $12.0 million equity line agreement with an
institutional investor, for the sale of 475,342 shares of common stock at an
aggregate price of $500,000 or $1.0519 per share. The Company will not draw on
the remaining $11.5 million of the equity line agreement and plans to take steps
to deregister shares which were previously registered with the Securities and
Exchange Commission ("SEC") to be issued under the facility.
In August 1999, the Company sold to the State of Wisconsin Investment
Board 3,105,590 shares of CYTOGEN common stock at an aggregate price of $5.0
million or $1.61 per share.
F-25
<PAGE>
200,000 Shares
CYTOGEN CORPORATION
Common Stock
____________________
PROSPECTUS
____________________
August __, 1999
<PAGE>
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. Other Expenses of Issuance and Distribution
The following is an itemized statement of the estimated
amounts of all expenses payable by the Registrant in connection
with the registration of the common stock offered hereby, other
than underwriting discounts and commissions:
Registration Fee-Securities and Exchange Commission........... $ 1,955
Blue Sky fees and expenses.................................... -
Accountants' fees and expenses................................ 15,000
Legal fees and expenses....................................... 25,000
Printing and engraving expenses............................... -
Transfer agent and registrar fees............................. 250
Miscellaneous................................................. 500
---------
Total.................................................... $ 42,705
=========
ITEM 14. Indemnification of Directors and Officers
Section 145(a) of the General Corporation Law of the State
of Delaware (the "DGCL") provides that a Delaware corporation
may indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that he is
or was a director, officer, employee or agent of the corporation
or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or
enterprise, against expenses, judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in
good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no cause to
believe his conduct was unlawful.
Section 145(b) of the DGCL provides that a Delaware
corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation
to procure a judgment in its favor by reason of the fact that
such person acted in any of the capacities set forth above,
against expenses actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit
if he acted under similar standards, except that no
indemnification may be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the
court in which such action or suit was brought shall determine
that despite the adjudication of liability, such person is
fairly and reasonably entitled to be indemnified for such
expenses which the court shall deem proper.
Section 145 of the DGCL further provides that to the extent
a director or officer of a corporation has been successful in
the defense of any action, suit or proceeding referred to in
subsections (a) and (b) or in the defense of any claim, issue,
or matter therein, he shall be indemnified against any expenses
actually and reasonably incurred by him in connection therewith;
that indemnification provided for by Section 145 shall not be
deemed exclusive of any rights to which the indemnified party
may be entitled; and that the corporation may purchase and
maintain insurance on behalf of a director or officer of the
II-1
<PAGE>
corporation against any liability asserted against him or
incurred by him in any such capacity or arising out of his
status as such whether or not the corporation would have the
power to indemnify him against such liabilities under Section
145.
Section 102(b)(7) of the DGCL provides that a corporation
in its original certificate of incorporation or an amendment
thereto validly approved by stockholders may eliminate or limit
personal liability of members of its board of directors or
governing body for breach of a director's fiduciary duty.
However, no such provision may eliminate or limit the liability
of a director for breaching his duty of loyalty, failing to
action good faith, engaging in intentional misconduct or
knowingly violating a law, paying a dividend or approving a
stock repurchase which was illegal, or obtaining an improper
personal benefit. A provision of this type has no effect on the
availability of equitable remedies, such as injunction or
rescission, for breach of fiduciary duty. The Company's
Restated Certificate of Incorporation contains such a provision.
The Company's Certificate of Incorporation and By-Laws
provide that the Company shall indemnify officers and directors
and, to the extent permitted by the Board of Directors,
employees and agents of the Company, to the full extent
permitted by and in the manner permissible under the laws of the
State of Delaware. In addition, the By-Laws permit the Board of
Directors to authorize the Company to purchase and maintain
insurance against any liability asserted against any director,
officer, employee or agent of the Company arising out of his
capacity as such.
ITEM 15. Recent Sales of Unregistered Securities
In the three years preceding the filing of this
Registration Statement, the Company has issued securities that
were not registered under the Securities Act of 1933, as amended
(the "Securities Act") to a limited number of persons, as
described below.
In June 1999, the Company issued 2,050,000 shares of common stock
and may issue additional shares in connection with the acquisition
of Prostagen (see Recent Developments).
In conjunction with the Equity Line Agreement, in October,
1998, the Company issued to the investor a warrant (the
"Warrant") which entitles the holder to purchase 200,000 shares
of Common Stock of the Company at a price of $1.0165 per share.
The Warrant is exercisable at any time beginning in April, 1999
and ending in April, 2002. The Warrant contains provisions that
protect against dilution by adjustment of the exercise price and
II-2
<PAGE>
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 Warrant is payable either (i) in cash or (ii) by a
"cashless exercise", in which that number of shares of Common
Stock underlying the Warrant having a fair market value at the
time of exercise equal to the aggregate exercise price are
cancelled as payment of the exercise price. Also in connection
with the Equity Line Agreement, in October, 1998, the Company
issued currently exercisable warrants for 100,000 shares of
common stock to the Placement Agent. Such warrants expire in
October, 2001.
In December 1997, the Company issued $7.5 million of
convertible preferred stock to a group of private investors in a
private placement. The preferred stock and the underlying
common shares into which it was convertible were subsequently
registered for resale.
In November 1995, the Company sold 1,256,565 shares of
CYTOGEN common stock to a European institutional investor (the
"Investor") in a private placement transaction pursuant to
Regulation S of the Securities Act for an aggregate price of
$5.0 million. The Company also sold to the Investor (i) 729,394
shares of CYTOGEN common stock in April 1996 for an aggregate
price of $5.0 million, (ii) 913,909 shares of CYTOGEN common
stock in October 1996 for an aggregate price of $5.0 million
pursuant to a Stock Purchase Agreement between CYTOGEN and the
Investor, dated as of August 27, 1996, as amended (the "Purchase
Agreement"), and (iii) 776,791 shares of CYTOGEN common stock in
November 1996 for an aggregate price of $4.0 million under the
Purchase Agreement.
The securities issued and to be issued by the Company
pursuant to the transactions described above have been and will
be issued without registration under the Securities Act of 1933
in reliance upon the exemptions from registration provided under
Section 4(2) of the Securities Act and Rule 506 of Regulation D
promulgated thereunder, or other exemptions. The foregoing
transactions did not involve any public offering, the investors
either received or had access to adequate information about the
Company in order to make an informed investment decision, and
the Company reasonably believed that each of the investors was
"sophisticated" within the meaning of Section 4(2) of the
Securities Act.
ITEM 16. Exhibits and Financial Statement Schedules
(a) Exhibits
3.1 - Certificate of Incorporation of the Registrant, restated
and amended. Filed as an exhibit to Form 10-Q Quarterly
Report for the quarter ended June 30, 1996 (Commission File
No. 0-14879) and incorporated herein by reference.
3.2 - By-Laws of the Registrant, as amended. Filed as an exhibit to
Form 10-Q Quarerly Report for the quarter ended June 30, 1999
(Commission File No. 0-14879)and incorporated herein by reference.
4.1 - Specimen Certificate for common stock of the Registrant.
Filed as an exhibit to Amendment No. 1 to Form S-1
Registration Statement (No. 33-5533) and incorporated
herein by reference.
5.1 - Opinion re legality. Filed herewith.
10.1- Manufacturing Space Agreement. Filed as an exhibit to
Amendment No. 1 to Form S-1 Registration Statement (Commission
File No. 333-67947) and incorporated herein by reference.
10.2- Stock Exchange Agreement between the Registrant and Prostagen, Inc.
Filed as an exhibit to Form S-3 Registration Statement dated
July 19, 1999 and incorporated herein by reference.
II-3
<PAGE>
10.3- Limited Liability Company Agreement of PSMA Development Company LLC,
dated June 15, 1999. Filed as an exhibit to Form S-3 Registration
Statement dated July 19, 1999 and incorporated herein by reference.
Confidential treatment has been requested.
10.4- PSMA/PSMP License Agreement by and among Progenics Pharmaceuticals,
Inc., Cytogen Corporation, PSMA Development Company LLC dated June 15,
1999. Filed as an exhibit to Form S-3 Registration Statement dated
July 19, 1999 and incorporated herein by reference. Confidential
treatment has been requested.
21.1- List of Subsidiaries. Filed as an exhibit to Form 10-K
Annual Report for the year ended December 31, 1997
(Commission File No. 0-14879) and incorporated herein by
reference.
23.1 - Consent of Arthur Andersen LLP. Filed herewith.
23.2 - Consent of counsel as to legal opinion. (included in Exhibit 5.1)
24.1 - Power of Attorney (included on page II-5)
27.1 - Financial Data Schedule
_________________
(b) Consolidated Financial Statement Schedules
All schedules have been omitted because they are not
required or because the required information is given in the
Consolidated Financial Statements or Notes thereto.
ITEM 17. Undertakings
The undersigned Registrant hereby undertakes to provide to
the underwriters, at the closing specified in the underwriting
agreement, certificates in such denominations and registered in
such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant to
the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under
the Securities Act of 1933, the information omitted from
the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall
be deemed to be part of this registration statement as of
the time it was declared effective.
(2) For the purpose of determining any liability
under the Securities Act of 1933, each post-effective
amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such
securities at the time shall be deemed to be the initial
bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Post Effective Amendment to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Princeton, State of New Jersey, on August 25, 1999.
CYTOGEN CORPORATION
/s/ H. Joseph Reiser
By: H. Joseph Reiser
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints
H. Joseph Reiser, Jane M. Maida, or Donald F. Crane, Jr.,
and each of them, as his or her true and lawful attorney-in-fact and
agents, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities,
to sign any and all amendments (including post-effective amendments)
and supplements to this registration statement or any prospectus included
herein, and to file the same, with the Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act and thing requisite and necessary
to be done in connection therewith, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agents, or any of them, or their or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post Effective Amendment to Registration Statement has been signed by the
following persons on August 25, 1999 in the capacities indicated:
Signature Title Date
/s/ H. Joseph Reiser Chief Executive Officer and August 25, 1999
- -------------------- President (Principal Executive
H. Jospeh Reiser Officer and Director
/s/ Jane M. Maida Chief Accounting Officer August 25, 1999
- -------------------- (Principal Accounting Officer)
Jane M. Maida
/s/ * Director August 25, 1999
- --------------------
John E. Bagalay
/s/ * Director August 25, 1999
- -------------------
Ronald J. Brenner
II-5
<PAGE>
/s/ * Director August 25, 1999
- -------------------
Stephen K. Carter
/s/ * Director; Chairman of the Board August 25, 1999
- -------------------
James A. Grigsby
- ------------------- Director August 25, 1999
S. Leslie Misrock
II-6
EXHIBIT 5.1
August 25, 1999
Cytogen Corporation
600 College Road East
Princeton, New Jersey 08540
Ladies and Gentlemen:
The undersigned has acted as counsel to Cytogen Corporation, a Delaware
corporation (the "Company"), in connection with the preparation and filing by
the Company of a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Act"), for the
registration of 200,000 shares of common stock, $.01 par value per share (the
"Common Stock"), of the Company which may be issued on the exercise of warrant
(the "Warrant").
I have examined and am familiar with originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and officers of the Company and such other
instruments as I have deemed necessary or appropriate as a basis for the
opinions expressed below, including the Registration Statement, the Restated
Certificate of Incorporation of the Company and the By-laws of the Company.
Based on the foregoing, I am of the opinion that the Common Stock issuable
pursuant to the Warrant has been duly authorized and reserved for issuance and,
when duly issued and delivered, will be validly issued, fully paid and
nonassessable.
I hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement. In giving such consent, I do not thereby admit
that we come within the category of persons whose consent is required under
Section 7 of the Act or the rules and regulations of the Securities and Exchange
Commission thereunder.
I express no opinion as to the laws of any jurisdiction other than the laws
of the State of New York, the general corporate laws of the State of Delaware
and the federal law of the United States of America. I have relied in part
upon the advice of New York counsel with respect to the laws of New York as
applicable. The foregoing opinion is rendered as of the date hereof, and I
assume no obligation to update such opinion to reflect any facts or
circumstances which may hereafter come to my attention or any changes in
the law which may hereafter occur.
Very truly yours,
/s/ Donald F. Crane
-------------------------
Donald F. Crane, Jr.
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of
our report and to all references to our Firm included in or made a
part of this S-1 Registration Statement.
ARTHUR ANDERSEN LLP
Philadelphia, PA
August 25, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1999 AND THE CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,332,000
<SECURITIES> 0
<RECEIVABLES> 3,070,000
<ALLOWANCES> (73,000)
<INVENTORY> 176,000
<CURRENT-ASSETS> 551,000
<PP&E> 14,038,000
<DEPRECIATION> (12,152,000)
<TOTAL-ASSETS> 12,356,000
<CURRENT-LIABILITIES> 4,629,000
<BONDS> 0
0
0
<COMMON> 672,000
<OTHER-SE> 4,791,000
<TOTAL-LIABILITY-AND-EQUITY> 12,356,000
<SALES> 3,574,000
<TOTAL-REVENUES> 6,774,000
<CGS> 2,274,000
<TOTAL-COSTS> 4,302,000
<OTHER-EXPENSES> 5,144,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 84,000
<INCOME-PRETAX> 693,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 693,000
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