SECURITIES AND EXCHANGE COMMISSION Conformed
Washington, D.C. 20549 Copy
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended September 30, 2000
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OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to
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Commission file number 000-14879
Cytogen Corporation
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(Exact name of Registrant as specified in its charter)
Delaware 22-2322400
------------------------------- ----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
600 College Road East, CN 5308, Princeton, NJ 08540-5308
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(Address of Principal Executive Offices and Zip Code)
Registrant's telephone number, including area code (609) 750-8200
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes X No .
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Class Outstanding at November 1, 2000
---------------------------- -------------------------------
Common Stock, $.01 par value 76,084,756
<PAGE>
PART I - FINANCIAL INFORMATION
-------------------------------
Item I - Consolidated Financial Statements
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents .......................................... $ 14,178 $ 10,801
Short-term investments ............................................. -- 1,593
Accounts receivable, net ........................................... 2,385 2,150
Inventories ........................................................ 631 685
Other current assets ............................................... 410 465
--------- ---------
Total current assets ............................................ 17,604 15,694
Property and Equipment, net ........................................... 2,032 1,997
Other Assets .......................................................... 1,060 914
--------- ---------
$ 20,696 $ 18,605
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Current portion of long-term liabilities ........................... $ 161 $ 162
Accounts payable and accrued liabilities ........................... 4,851 5,478
--------- ---------
Total current liabilities ....................................... 5,012 5,640
--------- ---------
Long-Term Liabilities ................................................. 2,441 2,416
--------- ---------
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, 250,000,000 shares authorized,
75,588,000 and 70,527,000 shares issued and outstanding
in 2000 and 1999, respectively ................................... 756 705
Additional paid-in capital .......................................... 335,971 311,209
Deferred compensation ............................................... (990) (82)
Accumulated deficit ................................................. (322,494) (301,283)
--------- ---------
Total stockholders' equity ........................................ 13,243 10,549
--------- ---------
$ 20,696 $ 18,605
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------- ---------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Product related:
ProstaScint ............................................... $ 1,849 $ 1,646 $ 5,036 $ 4,899
OncoScint ................................................. 130 188 437 509
-------- -------- -------- --------
Total product sales ............................. 1,979 1,834 5,473 5,408
Quadramet royalties ....................................... 523 245 1,529 706
-------- -------- -------- --------
Total product related ........................... 2,502 2,079 7,002 6,114
License and contract ......................................... 17 267 165 3,006
-------- -------- -------- --------
Total revenues .................................. 2,519 2,346 7,167 9,120
-------- -------- -------- --------
Operating Expenses:
Cost of product and
contract manufacturing revenues .......................... 1,136 955 3,047 3,229
Research and development ..................................... 2,005 708 5,037 2,746
Acquisition of marketing and technology rights ............... 13,241 -- 13,241 1,214
Selling and marketing ........................................ 1,242 1,094 3,695 3,122
General and administrative ................................... 1,716 892 3,770 2,784
-------- -------- -------- --------
Total operating expenses ........................ 19,340 3,649 28,790 13,095
-------- -------- -------- --------
Operating loss .................................. (16,821) (1,303) (21,623) (3,975)
Gain on sale of laboratory and
manufacturing facilities ..................................... -- -- -- 3,298
Interest income ................................................. 182 131 545 282
Interest expense ................................................. (24) (60) (133) (144)
-------- -------- -------- --------
Net loss ......................................................... $(16,663) $ (1,232) $(21,211) $ (539)
======== ======== ======== ========
Basic and diluted net loss
per share .................................................... $ (0.23) $ (0.02) $ (0.29) $ (0.01)
======== ======== ======== ========
Basic and diluted weighted average
common shares outstanding .................................... 73,632 68,757 72,660 66,204
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................................ $ (21,211) $ (539)
--------- ---------
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization ................................. 679 786
Imputed interest .............................................. (66) (33)
Stock option and warrant grants ............................... 129 122
Stock based compensation ...................................... 154 --
Acquisition of marketing and technology rights ................ 13,079 1,214
Write down of assets .......................................... -- 79
Gain on sale of laboratory and manufacturing facilities ....... -- (3,298)
Gain on sale of equipment ..................................... (148) --
Changes in assets and liabilites:
Accounts receivable, net .................................... (169) (1,421)
Inventories ................................................. 54 45
Other assets ................................................ (91) (151)
Accounts payable and accrued liabilities .................... (495) (3,660)
Other liabilities ........................................... 117 71
--------- ---------
Total adjustments ................................... 13,243 (6,246)
--------- ---------
Net cash used in operating activities ......................... (7,968) (6,785)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash acquired from Prostagen, Inc. .............................. -- 550
Net proceeds from sale of equipment ................................. 148 --
Net proceeds from sale of laboratory and manufacturing facilities ... -- 3,584
Redemption (purchases) of short-term investments .................... 1,593 (2,361)
Purchases of property and equipment ................................. (751) (139)
--------- ---------
Net cash provided by investing activities ..................... 990 1,634
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock .............................. 10,411 9,578
Payment of long-term liabilities .................................... (56) (782)
--------- ---------
Net cash provided by financing activities ..................... 10,355 8,796
--------- ---------
Net increase in cash and cash equivalents ........................... 3,377 3,645
Cash and cash equivalents, beginning of period ...................... 10,801 3,015
--------- ---------
Cash and cash equivalents, end of period ............................ $ 14,178 $ 6,660
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company
Cytogen Corporation ("Cytogen" or "the Company" which includes the Company
and its subsidiaries) is an established biopharmaceutical company with two
principal lines of business, proteomics and oncology. The Company is extending
its expertise in antibodies and molecular recognition to the development of new
products and a proteomics-driven drug discovery platform. The Company has
established a pipeline of product candidates based upon its proprietary antibody
and prostate specific membrane antigen, or PSMA, technologies. The Company, with
Progenics Pharmaceuticals, Inc. ("Progenics") has formed a joint venture
focusing on the development of cancer in vivo immunotherapies based on PSMA
technology. Cytogen's cancer management franchise currently comprises three
marketed FDA-approved products: ProstaScint(R), used to image the extent and
spread of prostate cancer; OncoScint CR/OV(R), a diagnostic imaging agent for
colorectal and ovarian cancer; and Quadramet(R), for the relief of
cancer-related bone pain. The Company's subsidiary, AxCell Biosciences
Corporation ("AxCell"), is developing a proprietary protein pathway database as
a drug discovery and development tool for the pharmaceutical and biotechnology
industries.
Basis of Consolidation
The consolidated financial statements include the accounts of Cytogen and
its 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, 1999. 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.
5
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
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.
Net Loss Per Share
Basic net loss per share is based upon the weighted average common
shares outstanding during each period. Diluted net loss per share is the same as
basic net loss per share, as the inclusion of common stock equivalents would be
antidilutive.
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:
September 30, December 31,
2000 1999
-------------- ------------
Raw materials................. $400,000 $529,000
Work-in process............... 9,000 28,000
Finished goods................ 222,000 128,000
-------- --------
$631,000 $685,000
======== ========
2. SALES OF CYTOGEN COMMON STOCK:
During the nine months ended September 30, 2000, the Company sold 1.0
million shares of Cytogen common stock to Berlex Laboratories ("Berlex") for
$1.0 million or $1.00 per share upon an exercise of a warrant, and approximately
1.7 million additional shares of Cytogen common stock for total proceeds of $3.5
million at an average price of $2.12 per share upon the exercises of employee
stock options and other warrants.
In September 2000, the Company sold to Acqua Wellington North American
Equities Fund, Ltd. ("Acqua Wellington") 902,601 registered shares of Cytogen
common stock at an aggregate price of $6.0 million or $6.647 per share. In
October 2000, the Company entered into an equity financing facility with Acqua
Wellington for up to $70 million. Pursuant to this facility, over the next 20
months, Cytogen may, at its discretion, sell additional shares of its common
stock to Acqua Wellington at a small discount to the market price to be
determined before each sale. The financing facility is not subject to any
minimum takedown requirements, nor did the Company pay any financing fees or
other compensation in connection with this transaction.
6
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
3. RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS:
In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
101). The bulletin draws on existing accounting rules and provides specific
guidance on how those accounting rules should be applied, and specifically
addresses revenue recognition for non-refundable technology access fees in the
biotechnology industry. The Company will adopt SAB 101 during the fourth quarter
of 2000 resulting in a cumulative effect adjustment. The Company will defer a
portion of the upfront licensing fees from Berlex Laboratories, Inc. related to
the licensing of Quadramet recognized in October 1998 and the licensing of
certain applications of PSMA to a joint venture formed by Cytogen and Progenics
recognized in June 1999 which will be recorded as deferred revenue with a
corresponding one-time, non-cash expense.
4. DSM BIOLOGICS COMPANY B.V.:
In July 2000, the Company entered into a Development and Manufacturing
Agreement with DSM Biologics Company B.V. ("DSM"), pursuant to which DSM will
conduct certain development activities with respect to ProstaScint, including
the delivery of a limited number of batches of ProstaScint for testing and
evaluation purposes. Under the terms of such agreement, and subject to the
satisfactory performance thereof by DSM and the achievement of certain
regulatory approvals for the manufacturing of ProstaScint, the parties are
obligated to negotiate in good faith a long term supply agreement.
Notwithstanding the parties' obligations to perform under the agreement or to
negotiate a supply agreement in good faith, the Company cannot be certain that
DSM will satisfactorily perform its obligations thereunder or that the parties
will be able to negotiate a supply agreement on commercially satisfactory terms,
if at all. Alternatively, the Company has the option, but not the obligation to
enter into certain licensing arrangements with DSM on terms and conditions to be
agreed upon by the parties.
5. ADVANCED MAGNETICS, INC.:
In August 2000, the Company and Advanced Magnetics, Inc. ("Advanced
Magnetics"), a developer of novel diagnostic pharmaceuticals for use in magnetic
resonance imaging (MRI), mutually terminated an agreement, under which Cytogen
was to acquire Advanced Magnetics. Instead, the two companies entered into
marketing, license and supply agreements ("AVM Agreements"). Under the AVM
Agreements, Cytogen acquired certain rights to Advanced Magnetics' product
candidates: Combidex(R), a magnetic resonance imaging contrast agent for the
detection of lymph node metastases and imaging agent Code 7228 for oncology
applications. Advanced Magnetics will be responsible for all costs associated
with the clinical development, supply and manufacture of Combidex and Code 7228
and will receive royalties based upon product sales. There can be no assurance
that Advanced Magnetics will receive approval from the U.S. Food and Drug
Administration ("FDA") to market Combidex in the United States.
7
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
In exchange for the future marketing rights to Combidex and Code 7228,
Cytogen issued 1.5 million shares of its common stock to Advanced Magnetics at
closing and may issue an additional 500,000 shares, which are currently in
escrow, subject to the achievement of certain milestones. Since the Advanced
Magnetics' product candidates have not yet received FDA approval, the Company
recorded a $13.2 million charge in the accompanying statement of operations for
the acquisition of marketing and technology rights, of which $13.1 million was
non-cash and represented the fair value of the 1.5 million shares of common
stock issued.
6. DRAXIS HEALTH INC.:
In September 2000, the Company signed a letter of intent with Draxis Health
and its subsidiary, Draximage Inc. ("Draxis") to market and distribute
BrachySeedTM implants for prostate cancer therapy in the U.S. The Company
currently is negotiating definitive documents reflective of the terms of the
letter of intent. Under the terms of the proposed agreement, Draximage will
supply radioactive iodine and palladium seeds to Cytogen in exchange for
royalties on sales and certain milestone payments. The FDA has granted marketing
approval for BrachySeed in September 2000. Upon execution of the definitive
documents, the Company believes it would launch the radioactive iodine
BrachySeed in the U.S. later this year. The Company cannot be certain, however,
as to the timing of the BrachySeed launch, the market acceptance of the product
or whether this product will significantly increase the revenues of the Company.
8
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion contains historical information as well as
forward looking statements that involve a number of risks and uncertainties.
Generally, forward looking statements can be identified by the use of phrases
like "believe", "expect", "anticipate", "plan", "may", "will", "could",
"estimate", "potential", "opportunity" and "project" and similar terms. The
Company's actual results could differ materially from the Company's historical
results of operations and those discussed in the forward looking statements.
Factors that could cause actual results to differ materially, include, but are
not limited to those identified in the Company's 1999 Form 10-K under the
captions, "Important Factors Regarding Forward Looking Statements" and "Risk
Factors". Stockholders are cautioned not to put undue reliance on any forward
looking statement.
The following discussion and analysis should also be read in conjunction
with the Financial Statements and related notes thereto contained elsewhere
herein, as well as the Company's 1999 Form 10-K and from time-to-time the
Company's other filings with the Securities and Exchange Commission.
Overview
In August 2000, the Company and Advanced Magnetics mutually terminated an
agreement, under which Cytogen was to acquire Advanced Magnetics. Instead, the
two companies entered into marketing, license and supply agreements (see Note 5
to the Consolidated Financial Statements.) Under the AVM Agreements, the Company
acquired exclusive U.S. rights to two product candidates, Combidex and imaging
agent Code 7228 for oncology applications. Combidex, a MRI contrast agent for
the detection of lymph node metastases, recently received an approvable letter
subject to certain conditions by the FDA, following a priority review. Code 7228
is being developed for oncology and magnetic resonance angiography applications
and is expected to enter Phase II clinical development early next year. There
can be no assurance that the Company will receive FDA approval to market
Combidex or Code 7228 in the United States.
In September 2000, the Company signed a letter of intent with Draxis to
market and distribute BrachySeed implants for prostate cancer therapy in the
U.S. The Company currently is negotiating definitive documents reflective of the
terms of the letter of intent. Under the terms of the proposed agreement, Draxis
will supply radioactive iodine and palladium seeds to Cytogen in exchange for
royalties on sales and certain milestone payments. The FDA has granted marketing
approval for BrachySeed in September 2000. Upon execution of the definitive
documents, the Company believes it would launch the radioactive iodine
BrachySeed in the U.S. later this year. The Company cannot be certain, however,
as to the timing of the BrachySeed launch, the market acceptance of the product
or whether this product will significantly increase the revenues of the Company.
9
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
The AVM licenses and the Draxis proposal represent a strategic step for
Cytogen to broaden its oncology presence and strengthen its position in the area
of cancer staging and detection and therapy, in which Cytogen currently markets
two products, ProstaScint and OncoScint. The Company plans to utilize Cytogen's
oncology sales and marketing organization for the expected launch of BrachySeed
and later Combidex, subject to the receipt of final approval of Combidex by FDA.
In September 2000, the Company sold to Acqua Wellington $6.0 million of
Cytogen common stock. In October 2000, the Company entered into an equity
financing facility with Acqua Wellington for up to $70 million. Pursuant to this
facility, over the next 20 months, Cytogen may, at its discretion, sell
additional shares of its common stock to Acqua Wellington at a small discount to
the market price to be determined before each sale (see Note 2 to the
Consolidated Financial Statements). This financing facility should give the
Company the flexibility to access capital, pursuant to the terms of the
Agreement, to accelerate its proteomics and drug development programs as well as
pursue other strategic opportunities.
Results of Operations
Three Months Ended September 30, 2000 and 1999
Revenues. Total revenues for the third quarter of 2000 were $2.5 million
compared to $2.3 million for the same period in 1999. The increase from the
prior year period is due to higher product related revenues, partially offset by
lower contract revenues as a result of the discontinuance of contract
manufacturing services in 2000. Product related revenues, which included product
sales and royalties, accounted for 99% of total revenues in 2000, versus 89%
from the comparable period of 1999. License and contract revenues accounted for
the remainder of revenues in such period.
Product related revenues for the third quarter of 2000 were $2.5 million
compared to $2.1 million for the same period in 1999. ProstaScint accounted for
74% and 79% of product related revenues in the third quarters of 2000 and 1999,
respectively, while Quadramet royalties accounted for 21% and 12% of product
related revenues, respectively. Sales of ProstaScint were approximately $1.8
million in the third quarter of 2000, $200,000 higher than the $1.6 million
recorded in the third quarter of 1999. Beginning in July 2000, the Company
assumed sole responsibility for selling and marketing ProstaScint from Bard
Urological Division of the C.R. Bard Company ("Bard"), its former co-marketing
partner. The Company took this step because it believes that a highly trained
and dedicated internal sales force will be able to market its products most
effectively and to build a marketing capability for anticipated future product
acquisitions. The Company cannot be certain, however, as to the effect on sales
of ProstaScint as a result of this action.
10
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
Quadramet royalties for the third quarter of 2000 increased to $523,000
from the $245,000 recorded in the same period of 1999. Quadramet was re-launched
by Berlex in March 1999. Although Cytogen believes that Berlex is an
advantageous marketing partner, there can be no assurance that Quadramet will
achieve greater market acceptance on a timely basis or result in significant
revenues for Cytogen.
Sales of OncoScint CR/OV for the third quarter of 2000 were $130,000,
$58,000 lower than the $188,000 recorded in the same period of 1999. The market
for OncoScint CR/OV for colorectal cancer diagnosis has been negatively affected
by positron emission tomography or "PET" scans which have shown the same or
higher sensitivity than OncoScint CR/OV.
License and contract revenues for the third quarter of 2000 were $17,000
compared to $267,000 for the same period of 1999. The decrease from the prior
year period is due primarily to the discontinuance of contract manufacturing
services in 2000, a result of the sale of Cytogen's manufacturing facility in
1999. The Company recorded $102,000 of contract manufacturing revenues in the
third quarter of 1999.
Operating Expenses. Total operating expenses for the third quarter of 2000
were $19.3 million compared to $3.6 million recorded in the same quarter of
1999. The increase from the prior year period is attributable primarily to a
$13.2 million charge related to the acquisition of the marketing and technology
rights to Combidex and Code 7228, of which $13.1 million was non-cash. The 2000
operating expenses further increased due to the additional funding for the
proteomics research program at AxCell, the expansion of Cytogen's in-house sales
force to assume sole responsibility of marketing and sales of ProstaScint and
costs associated with the termination of the proposed merger with Advanced
Magnetics.
Cost of product and contract manufacturing revenues for the third quarter
of 2000 were $1.1 million compared to $1.0 million recorded in the same period
of the prior year. The increase from the prior year period is due to increased
manufacturing costs and increased product sales.
Research and development expenses for the third quarter of 2000 were $2.0
million compared to $708,000 recorded in the same period of 1999. The increase
from the prior year period is due to increased funding for the proteomics
program at AxCell and product development efforts relating to PSMA technologies.
The Company anticipates that funding for AxCell will continue to increase over
the remainder of this year.
Acquisition of marketing and technology rights of $13.2 million represents
a charge related to the acquisition of certain rights to product candidates
Combidex and Code 7228 from Advanced Magnetics, of which $13.1 million was a
non-cash charge (see Note 5 to the Consolidated Financial Statements).
11
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
Selling and marketing expenses were $1.2 million for the third quarter of
2000 compared to $1.1 million in the same period of 1999. The current year
expenses reflect the Company's efforts to expand its in-house sales force and
assume sole responsibility for the selling and marketing of ProstaScint from
Bard.
General and administrative expenses for the third quarter 2000 were $1.7
million compared to $892,000 for the comparable period in 1999. The increase
from the prior year period is due to expenses related to the termination of the
proposed merger with Advanced Magnetics, stock based compensation for a key
employee and additional staffing and related costs.
Interest Income/Expense. Interest income for the third quarter of 2000 was
$182,000 compared to $131,000 recorded in the same period of 1999. The increase
from the prior year period is due to higher average cash balance during 2000.
Interest expense for the third quarter of 2000 was $24,000 compared to $60,000
recorded in the same period of 1999. The interest expenses included finance
charges related with various equipment leases.
Net Loss. Net loss for the third quarter of 2000 was $16.7 million
compared to $1.2 million recorded in the same period of 1999. The net loss per
share was $0.23 based on average common shares outstanding of 73.6 million
compared to a loss of $0.02 per share based on average common shares outstanding
of 68.8 million for the same period in 1999.
Nine months ended September 30, 2000 and 1999
Revenues. Total revenues for the nine months ended September 30, 2000 and
1999 were $7.2 million and $9.1 million, respectively. The decrease from the
prior year period is due primarily to the $1.8 million licensing fee for PSMA
technology in the second quarter of 1999 and the discontinuance of contract
manufacturing services in 2000, partially offset by the increase in 2000 of
product related revenues. Product related revenues, which included product sales
and royalties, accounted for 98% of total revenues in 2000 versus 67% of total
revenues for the comparable period of 1999. License and contract revenues
accounted for the remainder of revenues.
Product related revenues for the nine months ended September 30, 2000 and
1999 were $7.0 million and $6.1 million, respectively. ProstaScint accounted for
72% and 80% of product related revenues in the nine months ended September 30,
2000 and 1999, respectively, while revenues from Quadramet accounted for 22% and
12% of product related revenues, respectively. Sales of ProstaScint were $5.0
million in the nine months of 2000 compared to $4.9 million in the nine months
of 1999. Beginning in July 2000, the Company assumed sole responsibility for the
selling and marketing of ProstaScint from Bard. Royalties from Quadramet
increased to $1.5 million in the nine months ended September 30, 2000 from
$706,000 in the same period of 1999. Quadramet royalties are based on net sales
of Quadramet by Berlex.
12
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
Sales of OncoScint CR/OV were $437,000 in 2000 versus $509,000 in the same
period of 1999. The market for OncoScint CR/OV for colorectal cancer diagnosis
has been negatively affected by positron emission tomography or "PET" scans
which have shown the same or higher sensitivity than OncoScint CR/OV. To date,
OncoScint CR/OV has not realized substantial sales.
License and contract revenues for the nine months ended September 30, 2000
and 1999 were $165,000 and $3.0 million, respectively. The 1999 license fee
included $1.8 million of revenue from the licensing of certain applications of
PSMA to a joint venture formed by Cytogen and Progenics and $603,000 of contract
manufacturing revenues. The Company has discontinued contract manufacturing
services in 2000.
Operating Expenses. Total operating expenses for the nine months ended
September 30, 2000 and 1999 were $28.8 million and $13.1 million, respectively.
The increase from the prior year period is due primarily to the acquisition of
marketing and technology rights to Combidex and Code 7228 from Advanced
Magnetics, resulting in a charge of $13.2 million, of which $13.1 million was
non-cash. The current year expenditures also reflect development efforts in the
proteomics programs, PSMA technologies, expansion of Cytogen's in-house sales
force and costs associated with the termination of the proposed merger with
Advanced Magnetics. The 1999 expenses included a non-cash charge of $1.2 million
related to the acquisition of exclusive technology rights to PSMA for
immunotherapy through the acquisition of Prostagen.
Cost of product and contract manufacturing revenues for the nine months
ended September 30, 2000 were $3.0 million compared to $3.2 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 discontinuance of
contract manufacturing activities in 2000.
Research and development expenses for the nine months ended September 30,
2000 were $5.0 million compared to $2.7 million recorded in the same period of
1999. The increase from the prior year period is due to increased funding for
the proteomics program at AxCell, the product development efforts related to the
PSMA technologies and costs associated with certain manufacturing development by
DSM with respect to ProstaScint (see Note 4 to the Consolidated Financial
Statements). The Company anticipates that funding for AxCell will continue to
increase over the balance of the year and costs to DSM for manufacturing
development will continue at their current level.
Acquisition of marketing and technology rights of $13.2 million in 2000
represents a non-cash charge of $13.1 million related to the acquisition of
certain rights to product candidates Combidex and Code 7228 from Advanced
Magnetics. In 1999 the acquisition of technology rights was $1.2 million and
represents a non-cash charge related to the acquisition of Prostagen.
13
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
Selling and marketing expenses were $3.7 million for the nine months ended
September 30, 2000 compared to $3.1 million in the same period of 1999. The
current year expenses reflect the Company's efforts to expand its in-house sales
force as well as payments to Bard, its former co-marketing partner. In July
2000, Cytogen assumed sole responsibility for the selling and marketing of
ProstaScint.
General and administrative expenses for the nine months ended September
30, 2000 were $3.8 million compared to $2.8 million for the comparable period in
1999. The increase from the prior year is due to expenses related to the
termination of the proposed merger with Advanced Magnetics, stock based
compensation for a key employee, additional staffing and related costs.
Gain on sale of laboratory and manufacturing facilities. The Company
recorded a gain of $3.3 million in the first quarter of 1999 from the sale of
the Company's laboratory and manufacturing facilities.
Interest Income/Expense. Interest income for the nine months ended
September 30, 2000 was $545,000 compared to $282,000 in the same period of 1999.
The increase from the prior year period is due to higher average cash balance
during 2000. Interest expense for the nine months ended September 30, 2000 was
$133,000 compared to $144,000 recorded in the same period of 1999. The interest
expenses included finance charges related with various equipment leases.
Net Loss. Net loss for the nine months ended September 30, 2000 was $21.2
million compared to a net loss of $539,000 recorded in the same period of 1999.
The net loss per share was $0.29 based on average common shares outstanding of
72.7 million compared to a net loss of $0.01 per share based on average common
shares outstanding of 66.2 million for the same period in 1999.
Liquidity and Capital Resources
The Company's cash, cash equivalents and short-term investments were $14.2
million as of September 30, 2000, compared to $12.4 million as of December 31,
1999. The cash used for operating activities for the nine months ended September
30, 2000 was $8.0 million versus $6.8 million in the same period of 1999. The
increase from the prior year period is due primarily to the increased funding
for the proteomics program at AxCell, the Company's efforts to expand its
in-house sales force, and various expenses related to the termination of the
proposed merger with Advanced Magnetics.
14
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
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 license agreements and interest earned on
cash and short term investments. In February 2000, the Company received $1.0
million from Berlex Laboratories for the exercise of a warrant to purchase
1,000,000 shares of Cytogen's common stock at $1.00 per share. In addition,
during the nine months ended September 30, 2000, the Company sold approximately
1.7 million additional shares of Cytogen common stock for total proceeds of $3.5
million at an average price of $2.12 per share upon the exercises of employee
stock options and other warrants.
In September 2000, the Company sold to Acqua Wellington 902,601 registered
shares of Cytogen common stock at an aggregate price of $6.0 million or $6.647
per share. In October 2000, the Company entered into an equity financing
facility with Acqua Wellington for up to $70 million. Pursuant to this facility,
over the next 20 months, Cytogen may, at its discretion, sell additional shares
of its common stock to Acqua Wellington at a small discount to the market price
to be determined before each sale. The financing facility is not subject to any
minimum takedown requirements, nor did the Company pay any financing fees or
other compensation in connection with this transaction.
The Company's capital and operating requirements may change depending upon
various factors, including: (i) whether the Company and its strategic partners
achieve success in manufacturing, marketing and commercialization of its
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, in particular the Company may expend funds for
development of its proteomics and PSMA technologies.
The Company's financial objectives are to meet its capital and operating
requirements through revenues from existing products and licensing arrangements.
To achieve its strategic objectives, the Company may enter into research and
development partnerships and acquire, in-license and develop other technologies,
products or services. Certain of these strategies may require payments by the
Company in either cash or stock in addition to the costs associated with
developing and marketing a product or technology. However, the Company believes
that, if successful, such strategies may increase long-term revenues. There can
be no assurance as to the success of such strategies or that resulting funds
will be sufficient to meet cash requirements until product revenues are
sufficient to cover operating expenses. To fund these strategic and operating
activities, the Company may sell equity and debt securities as market conditions
permit or enter into credit facilities.
The Company has incurred negative cash flows from operations since its
inception, and has expended, and expects to continue to expend in the future,
substantial funds to implement 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 programs. The Company expects that its existing capital
15
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
resources together with the Acqua Wellington equity line should be adequate to
fund the Company's operations for the foreseable future. The Company cannot be
certain that it will not consume a significant amount of its currently available
resources and reasonably 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. 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.
=================================
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 Partners in Excellence or 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
16
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
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 in obtaining marketing approvals for its products in
Canada and Europe; (xii) the ability of the Company to protect proprietary
technology, its trade secrets or know-how under the patent and other
intellectual property laws of the United States and other countries; and (xiii)
the ability of Advanced Magnetics to satisfy the conditions specified by the FDA
regarding approval to market Combidex in the United States.
17
<PAGE>
PART II - OTHER INFORMATION
Item 5 - Other Information
------
In October 2000, the Company entered into an equity financing facility
with Acqua Wellington for up to $70 million. Pursuant to this facility, over the
next 20 months, Cytogen may, at its discretion, sell additional shares of its
common stock to Acqua Wellington at a small discount to the market price to be
determined before each sale. The financing facility is not subject to any
minimum takedown requirements, nor did the Company pay any financing fees or
other compensation in connection with this transaction.
Item 6 - Exhibits and Reports on Form 8-K
------
(a) Exhibits:
10.1 License and Marketing Agreement by and between Cytogen
Corporation and Advanced Magnetics, Inc. dated August 25, 2000.
Filed herewith.*
10.2 Development and Manufacturing Agreement by and between Cytogen
Corporation and DSM Biologics Company B.V. dated July 12, 2000.
Filed herewith.*
27 Financial Data Schedule(Submitted to SEC only in electronic
format).
*Cytogen Corporation has requested confidential treatment of certain
provisions contained in this exhibit. The copy filed as an exhibit
omits the information subject to the confidentiality request.
(b) Reports on Form 8-K
During the three months ended September 30, 2000, the Company
filed two reports on Form 8-K. The Form 8-K dated July 14, 2000,
reported on "Item 5. Other Events" a press release announcing the
proposed acquisition by Cytogen Corporation of Advanced Magnetics,
Inc. The Form 8-K dated September 7, 2000, reported on "Item 5. Other
Events" a press release announcing the mutual agreement of Cytogen
Corporation and Advanced Magnetics, Inc. to terminate the proposed
merger and to enter into licensing, marketing and supply agreements.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CYTOGEN CORPORATION
Date November 14, 2000 By /s/ H. Joseph Reiser
-------------------- --------------------------------------------
H. Joseph Reiser
President and Chief Executive Officer
Date November 14, 2000 By /s/ Lawrence R. Hoffman
-------------------- --------------------------------------------
Lawrence R. Hoffman
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
19
