SECURITIES AND EXCHANGE COMMISSION Conformed
Washington, D.C. 20549 Copy
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended June 30, 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 333-02015
CYTOGEN Corporation
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(Exact name of Registrant as specified in its charter)
Delaware 22-2322400
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(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 July 28, 2000
---------------------------- ----------------------------
Common Stock, $.01 par value 72,897,625
<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>
June 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents ............................................ $ 10,463 $ 10,801
Short-term investments ............................................... -- 1,593
Accounts receivable, net ............................................. 2,384 2,150
Inventories .......................................................... 810 685
Other current assets ................................................. 1,326 465
--------- ---------
Total current assets .............................................. 14,983 15,694
Property and Equipment, net .............................................. 2,085 1,997
Other Assets ............................................................. 871 914
--------- ---------
$ 17,939 $ 18,605
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Current portion of long-term liabilities ............................. $ 153 $ 162
Accounts payable and accrued liabilities ............................. 5,372 5,478
--------- ---------
Total current liabilities ....................................... 5,525 5,640
--------- ---------
Long-Term Liabilities .................................................... 2,453 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,
72,839,000 and 70,527,000 shares issued and outstanding
in 2000 and 1999, respectively .................................... 728 705
Additional paid-in capital ........................................... 316,121 311,209
Deferred compensation ................................................ (1,057) (82)
Accumulated deficit .................................................. (305,831) (301,283)
--------- ---------
Total stockholders' equity ........................................ 9,961 10,549
--------- ---------
$ 17,939 $ 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 Six Months
Ended June 30, Ended June 30,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Product related:
ProstaScint ............................................... $ 1,492 $ 1,661 $ 3,187 $ 3,253
OncoScint ................................................. 130 157 307 321
-------- -------- -------- --------
Total product sales ................................ 1,622 1,818 3,494 3,574
Quadramet royalties ....................................... 508 262 1,006 461
-------- -------- -------- --------
Total product related .............................. 2,130 2,080 4,500 4,035
License and contract ......................................... 90 2,370 148 2,739
-------- -------- -------- --------
Total revenues ..................................... 2,220 4,450 4,648 6,774
-------- -------- -------- --------
Operating Expenses:
Cost of product and
contract manufacturing revenues ............................ 981 1,170 1,911 2,274
Research and development ..................................... 1,540 981 3,032 2,038
Acquisition of technology rights ............................. -- 1,214 -- 1,214
Selling and marketing ........................................ 1,323 1,082 2,453 2,028
General and administrative ................................... 1,107 981 2,054 1,892
-------- -------- -------- --------
Total operating expenses ........................... 4,951 5,428 9,450 9,446
-------- -------- -------- --------
Operating loss ..................................... (2,731) (978) (4,802) (2,672)
Gain on sale of laboratory and
manufacturing facilities ..................................... -- -- -- 3,298
Interest income ............................................... 195 56 363 151
Interest expense ............................................... (51) (42) (109) (84)
-------- -------- -------- --------
Net (loss) income .............................................. $ (2,587) $ (964) $ (4,548) $ 693
======== ======== ======== ========
Basic and diluted net (loss) income
per share .................................................... $ (0.04) $ (0.01) $ (0.06) $ 0.01
======== ======== ======== ========
Basic weighted average
common shares outstanding .................................... 72,779 65,632 72,130 64,884
======== ======== ======== ========
Diluted weighted average
common shares outstanding .................................... 72,779 65,632 72,130 65,042
======== ======== ======== ========
</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>
Six Months Ended June 30,
---------------------------
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income ................................................. $ (4,548) $ 693
-------- --------
Adjustments to reconcile net (loss) income to cash used in
operating activities:
Depreciation and amortization .............................. 472 519
Imputed interest ........................................... (29) (8)
Stock option and warrant grants ............................ 129 142
Stock based compensation ................................... 72 --
Acquisition of technology rights ........................... -- 1,214
Write down of assets ....................................... -- 53
Gain on sale of laboratory and manufacturing facilities .... -- (3,298)
Gain on sale of equipment .................................. (148) --
Changes in assets and liabilites:
Accounts receivable, net ................................ (190) (1,627)
Inventories ............................................. (125) 74
Other assets ............................................ (818) (23)
Accounts payable and accrued liabilities ................ (121) (3,600)
Other liabilities ....................................... 76 71
-------- --------
Total adjustments ............................. (682) (6,483)
-------- --------
Net cash used in operating activities ...................... (5,230) (5,790)
-------- --------
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
Purchases of property and equipment ............................... (597) (93)
-------- --------
Net cash (used for) provided by investing activities ....... (449) 4,041
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ............................ 3,759 4,840
Redemption of short-term investments .............................. 1,593 --
Payment of long-term liabilities .................................. (11) (774)
-------- --------
Net cash provided by financing activities .................. 5,341 4,066
-------- --------
Net (decrease) increase in cash and cash equivalents .............. (338) 2,317
Cash and cash equivalents, beginning of period .................... 10,801 3,015
-------- --------
Cash and cash equivalents, end of period .......................... $ 10,463 $ 5,332
======== ========
</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. 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 wholly owned 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 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, 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 Income (Loss) Per Share
Basic net income (loss) per share is based upon the weighted average common
shares outstanding during each period. Diluted net income per share for the six
months ended June 30, 1999 is based upon the weighted average common stock
outstanding and common stock 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. Diluted
net loss per share is the same as basic net loss per share, as the inclusion of
common stock equivalents would be antidilutive.
2. SALES OF CYTOGEN COMMON STOCK:
During the six months ended June 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 1.3
million additional shares of Cytogen common stock for total proceeds of $2.7
million at an average price of $2.06 per share upon the exercises of employee
stock options and other warrants.
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. SAB 101 is effective for fiscal quarters beginning after
September 30, 2000. The Company is evaluating SAB 101 and the effect it may have
on the Company's financial position or results of operations.
4. PROPOSED ACQUISITION:
On July 7, 2000, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Advanced Magnetics, Inc. ("Advanced Magnetics"), a
developer of novel diagnostic pharmaceuticals for use in magnetic resonance
imaging (MRI), pursuant to which Advanced Magnetics will become a wholly owned
subsidiary of the Company. At the effective time of the merger, Advanced
Magnetics shareholders will receive $60 million in shares of Cytogen common
stock. Each outstanding share of Advanced Magnetics common stock will be
6
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
converted into Cytogen common stock at an exchange ratio equal to $8.75 divided
by the average closing price of Cytogen common stock for 20 trading days ending
3 trading days prior to the closing of the merger. The number of shares of
Cytogen common stock exchanged per share of Advanced Magnetics common stock will
not, however, be less than 0.7566 shares or more than 1.0237 shares. In
addition, Cytogen will assume all outstanding options to purchase Advanced
Magnetics common stock under Advanced Magnetics' employee stock option and stock
purchase plans. Consummation of the merger is subject to various conditions
including, but not limited to, approval by the stockholders of Advanced
Magnetics.
The merger is intended to be accounted for as a pooling of interests. As of
June 30, 2000, approximately $582,000 of merger transaction costs are included
in other current assets and will be charged to the Company's statement of
operations upon consummation of the merger.
7
<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 conjuction
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
During this year, the Company terminated the co-marketing arrangement with
the Bard Urological Division of the C.R. Bard Company, Inc. ("Bard") to assume
sole responsibility for the marketing and sales of the Company's ProstaScint
product. The Company has expanded its sales force and believes that the highly
trained and dedicated internal sales force will be able to most effectively
market the Company's product and build capability for possible future products.
The Company, however, has limited experience in direct selling and can not give
any assurance as to the impact on sales by assuming selling efforts itself.
On July 7, 2000, the Company entered into a Merger Agreement to acquire
Advanced Magnetics, Inc., a developer of novel diagnostic pharmaceuticals for
use in MRI procedures (see Note 4 to the Consolidated Financial Statements). The
proposed transaction represents a strategic step for Cytogen to broaden its
oncology franchise, which it intends to leverage through its proteomics business
and the development of products using its PSMA technology. This stock-for-stock
transaction, which includes the acquisition of products, technology, and cash
assets provides the combined company with the following benefits:
- The acquisition broadens Cytogen's medical oncology presence and
strengthens its position in the area of cancer staging and detection, in
which Cytogen currently markets two products, ProstaScint(R) and OncoScint
CR/OV(R).
- Advanced Magnetics' late stage clinical product, Combidex(R), a MRI
contrast agent for the detection of lymph node metastases, has produced
promising clinical results and creates the potential for an enhanced
revenue stream if approved by the U.S. Food and Drug Administration (FDA).
The FDA recently issued an approvable letter subject to certain conditions
with respect to Combidex, following a priority review.
8
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
- The combined company plans to utilize Cytogen's oncology sales and
marketing organization for the expected launch of Combidex provided it is
able to satisfy the conditions specified for final approval by the FDA.
- At June 30, 2000, Advanced Magnetics had $18.9 million in working capital.
The enhanced cash position created by the merger secures development
resources and provides leverage to other areas of the combined business,
including prostate cancer diagnostics and therapeutics based on PSMA
technology and Cytogen's AxCell Biosciences proteomics subsidiary.
- Advanced Magnetics' next-generation imaging agent, Code 7228, is expected
to enter Phase II clinical development later this year. Code 7228 is being
developed for oncology and magnetic resonance angiography applications.
- Cytogen gains a state-of-the-art manufacturing facility, and a patent
portfolio consisting of 25 U.S. patents and additional U.S. and foreign
pending patent applications.
Consummation of the merger is subject to various conditions including, but
not limited to, approval by the stockholders of Advanced Magnetics.
Results of Operations
Three Months Ended June 30, 2000 and 1999
Revenues. Total revenues for the second quarter of 2000 were $2.2 million
compared to $4.5 million for the same period in 1999. The decrease from the
prior year period is primarily due to the $1.8 million license fee recorded in
1999 for the licensing of certain applications of PSMA and the discontinuance of
contract manufacturing services in 2000. Product related revenues, which
included product sales and royalties, accounted for 96% of total revenues in
2000, versus 47% from the comparable period of 1999. License and contract
revenues accounted for the remainder of revenues.
Product related revenues were $2.1 million for each of the second quarters
of 2000 and 1999. ProstaScint accounted for 70% and 80% of product related
revenues in the second quarters of 2000 and 1999, respectively, while Quadramet
royalties accounted for 24% and 13% of related product revenues, respectively.
Sales of ProstaScint were $1.5 million in 2000, $169,000 lower than the $1.7
million recorded in 1999. During this year, the Company assumed sole
responsibility for selling and marketing ProstaScint from 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. No assurance can be given, however, as to the
effect on sales of ProstaScint as a result of this action.
9
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
Quadramet royalties for the second quarter of 2000 increased to $508,000
from the $262,000 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 second quarter of 2000 were $130,000,
$27,000 lower than the $157,000 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 same or higher
sensitivity than OncoScint CR/OV.
License and contract revenues for the second quarter of 2000 were $90,000
compared to $2.4 million for the same period of 1999. The decrease from prior
year period is due to $1.8 million license fee recorded in 1999 for the
licensing of certain applications of PSMA to a joint venture formed by Cytogen
and Progenics and the discontinuance of contract manufacturing services in 2000
as a result of the sale of Cytogen's manufacturing facility in 1999. The Company
recorded $212,000 of contract manufacturing revenues in the second quarter of
1999.
Operating Expenses. Total operating expenses for the second quarter of 2000
were $5.0 million compared to $5.4 million recorded in the same quarter of 1999.
The decrease from the prior year period is attributable primarily to the 1999
non-cash charge of $1.2 million relating to the acquisition of the exclusive
technology rights to PSMA for immunotherapy through the acquisition of
Prostagen, Inc. ("Prostagen"), partially offset by increased spending on the
proteomics research program at AxCell and the expansion of Cytogen's in-house
sales force to assume sole responsibility of marketing and sales of ProstaScint.
Cost of product and contract manufacturing revenues for the second quarter
of 2000 were $981,000 compared to $1.2 million recorded in the same period of
the prior year. The decrease from the prior year period is due to the
termination of contract manufacturing activities in 2000.
Research and development expenses for the second quarter of 2000 were $1.5
million compared to $981,000 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 balance of the year.
Acquisition of technology rights of $1.2 million in 1999 represents a
non-cash charge related to the acquisition of Prostagen.
Selling and marketing expenses were $1.3 million for the second 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.
10
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
General and administrative expenses for the second quarter 2000 were $1.1
million compared to $981,000 for the comparable period in 1999. The increase
from the prior year period is due to expenses related to stock based
compensation for a key employee and additional staffing and related costs.
Interest Income/Expense. Interest income for the second quarter of 2000 was
$195,000 compared to $56,000 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 second quarter of 2000 was $51,000 compared to
$42,000 recorded in the same period of 1999. The increase from the prior year
period is due to interest expenses associated with various equipment leases.
Net Income/Loss. Net loss for the second quarter of 2000 was $2.6 million
compared to $1.0 million recorded in the same period of 1999. The net loss per
share was $0.04 based on average common shares outstanding of 72.8 million
compared to the second quarter of 1999 loss per share of $0.01 based on average
common shares outstanding of 65.7 million.
Six months ended June 30, 2000 and 1999
Revenues. Total revenues for the first half of 2000 and 1999 were $4.6
million and $6.8 million, respectively. The decrease from the prior year period
is due primarily to the $1.8 million licensing fee for PSMA technology 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 97% of total revenues
in 2000 versus 60% in the comparable period of 1999. License and contract
revenues accounted for the remainder of revenues.
Product related revenues for the first half of 2000 and 1999 were $4.5
million and $4.0 million, respectively. ProstaScint accounted for 71% and 81% of
product related revenues in the first half of 2000 and 1999, respectively, while
revenues from Quadramet accounted for 22% and 11% of product related revenues,
respectively. Sales of ProstaScint were $3.2 million in 2000 compared to $3.3
million in 1999. Beginning in July 2000, the Company assumed sole responsibility
for the selling and marketing of ProstaScint from Bard. Royalties from Quadramet
increased to $1.0 million in the first half of 2000 from $461,000 in the same
period of 1999. Quadramet royalties are based on net sales of Quadramet by
Berlex.
Sales of OncoScint CR/OV were $307,000 in 2000 versus $321,000 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.
11
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
License and contract revenues for the first half of 2000 and 1999 were
$148,000 and $2.7 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 $501,000 of contract manufacturing
revenues. The Company has discontinued contract manufacturing services in 2000.
Operating Expenses. Total operating expenses for the first half of 2000 and
1999 were $9.5 million in each period. The current year expenditures principally
reflect development efforts in the proteomics programs, PSMA technologies and
expansion of Cytogen's in-house sales force. 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 first half of
2000 were $1.9 million compared to $2.3 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 first half of 2000 were $3.0
million compared to $2.0 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 the transfer of manufacturing
technology to a new vendor who, if approved by the FDA, will manufacture
Cytogen's ProstaScint and OncoScint products. The Company anticipates that
funding for AxCell will continue to increase over the balance of the year and
costs to transfer manufacturing technology will continue at their current level.
Acquisition of technology rights of $1.2 million in 1999 represents a
non-cash charge related to the acquisition of Prostagen.
Selling and marketing expenses were $2.5 million for the first half of 2000
compared to $2.0 million in the same period of 1999. The current year expenses
reflect the Company's efforts to expand its in-house sales force. During this
year, Cytogen assumed sole responsibility for the selling and marketing of
ProstaScint.
General and administrative expenses for the first half of 2000 were $2.1
million compared to $1.9 million for the comparable period in 1999. The increase
from the prior year is due to expenses related to 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 a sale of the
Company's laboratory and manufacturing facilities.
12
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
Interest Income/Expense. Interest income for the first half of 2000 was
$363,000 compared to $151,000 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 first half of 2000 was $109,000 compared to
$84,000 recorded in the same period of 1999. The increase from the prior year
period is due to interest expenses associated with various equipment leases.
Net Income/Loss. Net loss for the first half of 2000 was $4.5 million
compared to a net income of $693,000 recorded in the same period of 1999. The
1999 net income resulted from a $3.3 million gain from the sale of the
manufacturing and laboratory facilities. The 2000 net loss per share was $0.06
based on average common shares outstanding of 72.1 million compared to the first
half of 1999 income per share of $0.01 based on average common shares
outstanding of 64.9 million for basic and 65.0 million for diluted
Liquidity and Capital Resources
The Company's cash, cash equivalents and short-term investments were $10.5
million as of June 30, 2000, compared to $12.4 million as of December 31, 1999.
The cash used for operating activities for the first half of 2000 was $5.2
million versus $5.8 million in the same period of 1999. The decrease from the
prior year period is due primarily to the 1999 final payment of $1.0 million to
The Dupont Pharmaceuticals Company for the Quadramet manufacturing commitment.
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 common stock at $1.00 per share. Also in the first
half of 2000, the Company sold approximately 1.3 million shares of Cytogen
common stock for total proceeds of $2.7 million at an average price of $2.06 per
share upon the exercises of employee stock options and other warrants.
The Company expects to significantly increase the funding of AxCell for the
proteomics program in 2000. The operating requirement for AxCell will be funded
by Cytogen's existing cash balance. The capital requirement for AxCell may be
funded by a $1.4 million line-of-credit agreement entered into in February 2000
between the Company and Finova Capital Corporation ("Finova Facility"). Through
November 2000, the Company may draw on the Finova Facility to finance the
acquisition of computers and equipment. Borrowings under the Finova Facility
will have a fixed term of 42 months at an interest rate equal to 8.65% plus the
Index Rate and will be collateralized by the newly purchased equipment.
13
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
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, license and research
contracts, and control of spending. To achieve its strategic objectives, the
Company may enter into research and development partnerships and acquire,
in-license and develop other technologies, products or services. Certain of
these strategies may require payments by the Company in either cash or stock in
addition to the costs associated with developing and marketing a product or
technology. 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
resources will be adequate to fund the Company's operations at least through the
middle of 2002. 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
14
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
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.
==============================
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
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; (xii) the ability of the Company to protect
its proprietary technology, trade secrets or know-how under the patent and other
intellectual property laws of the United States and other countries; (xiii)
failure of the Advanced Magnetics' shareholders to adopt the Merger Agreement
providing for the Company's acquisition of Advanced Magnetics; (xiv) the risk
that the businesses of the Company and Advanced Magnetics will not be integrated
successfully; and (xv) the ability to satisfy the conditions specified by the
FDA regarding the final approval of Combidex.
15
<PAGE>
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to the Vote of Security Holders
------
On May 16, 2000, the Company held its annual meeting of stockholders
to (i) elect directors; (ii) to consider and vote upon a proposal to
amend the Company's Restated Certificate of Incorporation to increase
the total number of authorized shares of capital stock from 95,000,000
shares, consisting of 89,600,000 shares of common stock and 5,400,000
shares of preferred stock, to 255,400,000 shares, consisting of
250,000,000 shares of common stock and 5,400,000 shares of preferred
stock; and (iii) transact such other business as might be brought
before the meeting.
The following tables set forth information regarding the number of
votes cast for, against or withheld, abstentions and broker non-votes,
with respect to each matter presented at the meeting. Under the rules
of the Nasdaq Stock Market, brokers who hold shares in street name for
customers who are beneficial owners of those shares may be prohibited
from giving a proxy to vote shares held for such customers on certain
matters without specific instructions from such customers (broker
non-votes). Under Delaware law, abstentions and broker non-votes are
counted as shares represented at the meeting for purposes of
determining the presence or absence of a quorum at a stockholders
meeting. The election of directors is decided by a plurality of the
votes cast. Therefore, votes that are withheld have no effect on the
outcome of the vote. Adoption of the remaining proposal required the
affirmative vote of a majority of shares cast at the meeting.
Therefore, abstentions and broker non-votes have no effect on the
vote.
(i) Election of Directors:
<TABLE>
<CAPTION>
Against or Broker
Nominee For Withheld Abstentions Non-Votes
------- --- ---------- ----------- ---------
<S> <C> <C> <C> <C>
John E. Bagalay Jr. 64,199,750 1,656,986 N/A N/A
Stephen K. Carter 65,421,063 435,673 N/A N/A
James A. Grigsby 65,412,373 444,363 N/A N/A
Robert F. Hendrickson 65,425,853 430,883 N/A N/A
S. Leslie Misrock 65,431,068 425,668 N/A N/A
H. Joseph Reiser 64,722,867 1,133,869 N/A N/A
</TABLE>
(ii) To consider and vote upon the proposal to amend the Restated
Certificate of Incorporation to increase authorized number of
shares.
<TABLE>
<CAPTION>
Against or Broker
For Withheld Abstentions Non-Votes
--- ---------- ----------- ---------
<S> <C> <C> <C> <C>
61,722,482 3,915,256 218,998 N/A
</TABLE>
(iii) No other business was transacted at the meeting.
16
<PAGE>
Item 5 - Lawrence R. Hoffman became Vice President and Chief Financial
------ Officer on July 10, 2000.
Item 6 - Exhibits and Reports on Form 8-K
------
(a) Exhibits:
3.1 Restated Certificate of Incorporation of Cytogen Corporation, as
amended. Filed herewith.
10.1 Amendment No. 1 Marketing and Co-Promotion Agreement effective as
of January 1, 2000 by and between Cytogen Corporation and C.R.
Bard, Inc. Filed herewith.
27 Financial Data Schedule (Submitted to SEC only in electronic
format)
(b) Reports on Form 8-K
None
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CYTOGEN CORPORATION
Date August 11, 2000 By /s/ Lawrence R. Hoffman
-------------------------- --------------------------------------------
Lawrence R. Hoffman
Vice President & Chief Financial Officer
(Principal Financial and Accounting Officer)
18
