FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-12830
BioTime, Inc.
(Exact name of registrant as specified in its charter)
California 94-3127919
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
935 Pardee Street
Berkeley, California 94710
(Address of principal executive offices)
(510) 845-9535
(Registrant's telephone number, including area code)
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__
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. 10,819,733 common
shares, no par value, as of August 11, 1999.
<PAGE>
PART 1--FINANCIAL INFORMATION
Statements made in this Report that are not historical facts may
constitute forward-looking statements that are subject to risks and
uncertainties that could cause actual results to differ materially from those
discussed. Such risks and uncertainties include but are not limited to those
discussed in this report under Item 1 of the Notes to Financial Statements, and
in BioTime's Annual Report on Form 10-K filed with the Securities and Exchange
Commission. Words such as "expects," "may," "will," "anticipates," "intends,"
"plans," "believes," "seeks," "estimates," and similar expressions identify
forward-looking statements.
Item 1. Financial Statements
<TABLE>
BIOTIME, INC,
(A Development Stage Company)
<CAPTION>
CONDENSED BALANCE SHEETS
(Unaudited)
June 30, December 31,
ASSETS 1999 1998
--------------- -----------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 7,155,075 $ 2,429,014
License fee receivable 850,000 -
Prepaid expenses and other current assets 138,548 153,267
--------------- -----------------
Total current assets 8,143,623 2,582,281
EQUIPMENT, Net of accumulated depreciation of $242,931 and $217,107 194,409 166,474
DEPOSITS AND OTHER ASSETS 26,900 60,700
--------------- -----------------
TOTAL ASSETS $ 8,364,932 $ 2,809,455
=============== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 268,281 $ 237,203
Deferred revenue - current portion -- 187,500
--------------- -----------------
Total current liabilities 268,281 424,703
COMMITMENTS
SHAREHOLDERS' EQUITY:
Preferred Shares, no par value, undesignated as to Series,
authorized 1,000,000 shares; none outstanding
Common Shares, no par value, authorized 40,000,000 shares; issued
and outstanding 10,819,733 and 10,033,079 26,511,548 19,022,116
Contributed Capital 93,972 93,972
Deficit accumulated during development stage (18,508,869) (16,731,336)
--------------- -----------------
Total shareholders' equity 8,096,651 2,384,752
--------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,364,932 $ 2,809,455
=============== =================
<FN>
See notes to condensed financial statements.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
BIOTIME, INC.
(A Development Stage Company)
<CAPTION>
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Period from Inception
Three Months Ended Six Months Ended (November 30, 1990) to
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998 June 30, 1999
---------------- --------------- ------------- ------------ ----------------------
<S> <C> <C> <C> <C> <C>
REVENUE:
License fee $ 600,000 $ 375,000 $ 1,037,500 $ 500,000 $ 2,500,000
---------------- --------------- ------------- ------------- ---------------
EXPENSES:
Research and development (1,072,522) (627,805) (1,812,006) (1,506,227) (13,493,994)
General and administrative (599,502) (568,068) (1,112,952) (958,972) (8,902,716)
---------------- --------------- ------------- ------------- ---------------
Total expenses (1,672,024) (1,195,873) (2,924,958) (2,465,199) (22,396,710)
---------------- --------------- ------------- ------------- ---------------
INTEREST AND OTHER INCOME: 81,430 58,863 109,925 131,651 1,412,672
---------------- --------------- ------------- ------------- ---------------
NET LOSS $ (990,594) $ (762,010) $ (1,777,533) $ (1,833,548) $ (18,484,038)
================ =============== ============= ============= ===============
BASIC AND DILUTED
LOSS PER SHARE $ (0.09) $ (0.08) $ (0.17) $ (0.18)
================ =============== ============= =============
COMMON AND EQUIVALENT
SHARES USED IN
COMPUTING PER SHARE
AMOUNTS:
BASIC AND DILUTED 10,816,766 9,943,623 10,526,137 9,931,513
================ =============== ============= =============
<FN>
See notes to condensed financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
BIOTIME, INC.
(A Development Stage Company)
<CAPTION>
STATEMENTS OF SHAREHOLDERS' EQUITY
Series A Convertible Deficit
Preferred Shares Common Shares Accumulated
---------------------- ----------------------- During
Number Number Contributed Development
of Shares Amount of Shares Amount Capital Stage
---------- ---------- ---------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, November 30, 1990
(date of inception) - - - - - -
NOVEMBER 1990
Common shares issued for cash 1,312,761 $ 263
DECEMBER 1990:
Common shares issued for
stock of a separate entity at
fair value 1,050,210 137,400
Contributed equipment at
appraised value $ 16,425
Contributed cash 77,547
MAY 1991:
Common shares issued for cash
less offering costs 101,175 54,463
Common shares issued for stock
of a separate entity at fair
value 100,020 60,000
JULY 1991:
Common shares issued for
services performed 30,000 18,000
AUGUST-DECEMBER 1991
Preferred shares issued for
cash less offering costs of
$125,700 360,000 474,300
MARCH 1992:
Common shares issued for
cash less offering costs of
$1,015,873 2,173,500 4,780,127
Preferred shares converted
into common shares (360,000) (474,300) 360,000 474,300
Dividends declared and paid
on preferred shares $ (24,831)
MARCH 1994:
Common shares issued for cash
less offering costs of $865,826 2,805,600 3,927,074
JANUARY-JUNE 1995:
Common shares repurchased
with cash (253,800) (190,029)
NET LOSS SINCE INCEPTION (6,099,136)
---------- ---------- ---------- ------------ ----------- --------------
BALANCE AT JUNE 30, 1995 $ - $ - 7,679,466 9,261,598 $ 93,972 $ (6,123,967)
Common shares issued for cash
(exercise of options and
warrants) 496,521 1,162,370
Common shares issued for cash
(lapse of recision) 112,176 67,300
Common shares repurchased with
cash (18,600) (12,693)
Common shares warrants and
options granted for services 356,000
NET LOSS (1,965,335)
---------- ---------- ---------- ------------ ------------ -------------
BALANCE AT JUNE 30, 1996 - $ - 8,269,563 10,834,575 93,972 (8,089,302)
<FN>
See notes to financial statements. (Continued)
</FN>
</TABLE>
4
<PAGE>
<TABLE>
BIOTIME, INC.
(A Development Stage Company)
<CAPTION>
STATEMENTS OF SHAREHOLDERS' EQUITY
Series A Convertible Deficit
Preferred Shares Common Shares Accumulated
---------------------- ----------------------- During
Number Number Contributed Development
of Shares Amount of Shares Amount Capital Stage
---------- ---------- ---------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Common shares issued for cash less
offering costs of $170,597 849,327 5,491,583
Common shares issued for cash
(exercise of options and warrants) 490,689 1,194,488
Common shares warrants and options
granted for service 105,000
NET LOSS (3,094,210)
---------- ---------- ----------- ----------- ----------- --------------
BALANCE AT JUNE 30, 1997 - $ - 9,609,579 $17,625,646 $ 93,972 $ (11,183,512)
Common shares issued for cash
(exercise of options) 337,500 887,690
Common shares warrants and options
granted for service 38,050
Common shares issued for services 500 6,250
NET LOSS (3,453,346)
---------- ---------- ----------- ----------- ----------- --------------
BALANCE AT JUNE 30,1998 - $ - 9,947,579 $18,557,636 $ 93,972 $ (14,636,858)
Common shares issued for cash
(exercise of options and warrants) 84,000 395,730
Common shares options granted for
services 50,000
Common shares issued for
services 1,500 18,750
NET LOSS (2,094,478)
---------- ---------- ----------- ----------- ----------- --------------
BALANCE AT DECEMBER 31, 1998 - $ - 10,033,079 $19,022,116 $ 93,972 $ (16,731,336)
Common shares issued for cash
(exercise of options) - unaudited 35,000 195,850
Common shares issued for cash (less
offering costs of $128,024) -
unaudited 751,654 7,200,602
NET LOSS - unaudited (1,777,533)
---------- ---------- ----------- ----------- ----------- --------------
BALANCE AT JUNE 30, 1999 - unaudited - $ - 10,819,733 $26,511,548 $ 93,972 $ (18,508,869)
========== ========== =========== ============ =========== ==============
<FN>
See Notes to financial statements. (Concluded)
</FN>
</TABLE>
5
<PAGE>
<TABLE>
BIOTIME, INC.
(A Development Stage Company)
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Period from Inception
Six Months Ended (November 30, 1990)
1999 1998 to June 30,1999
------------ ------------- --------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(1,777,533) $ (1,833,548) $ (18,484,038)
Adjustments to reconcile net loss to net cash
used in operating activities:
Deferred Revenue (187,500) 150,000 (1,000,000)
Depreciation 25,824 25,654 242,931
Cost of Services - options and warrants 92,980 16,475 680,308
Supply Reserves - - 200,000
Changes in operating assets and liabilities:
License fee receivables (850,000) - (850,000)
Research and development supplies on hand - - (200,000)
Prepaid expenses and other current assets 4,719 21,370 (133,826)
Deposits 33,800 (75,000) (26,900)
Accounts payable 31,078 (143,708) 268,281
Deferred revenue (400,000) 1,000,000
------------ ------------- -------------
Net cash used in operating activities (2,626,632) (2,238,757) (18,303,244)
------------ ------------- -------------
INVESTING ACTIVITIES:
Sale of investments - - 197,400
Purchase of short-term investments - - (9,946,203)
Redemption of short-term investments - - 9,946,203
Purchase of equipment and furniture (53,759) (89,264) (420,915)
------------ ------------- -------------
Net cash used in investing activities (53,759) (89,264) (223,515)
------------ ------------- -------------
FINANCING ACTIVITIES:
Issuance of preferred shares for cash - - 600,000
Preferred shares placement costs - - (125,700)
Issuance of common shares for cash 7,328,626 - 23,701,732
Common shares placement costs (128,024) - (2,180,320)
Net proceeds from exercise of common share
options and warrants 195,850 112,560 3,836,128
Contributed capital - cash - - 77,547
Dividends paid on preferred shares - - (24,831)
Repurchase Common Shares - - (202,722)
------------ ------------- -------------
Net cash provided by (used in) financing
activities 7,396,452 112,560 25,681,834
------------ ------------- -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,726,061 (2,215,461) 7,155,075
CASH AND CASH EQUIVALENTS:
At beginning of period 2,429,014 6,321,242 --
------------ ------------- -------------
At end of period $ 7,155,075 $ 4,105,781 $ 7,155,075
============ ============= =============
<FN>
(Continued)
</FN>
</TABLE>
6
<PAGE>
<TABLE>
BIOTIME, INC.
(A Development Stage Company)
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Period from Inception
Six Months Ended (November 30, 1990)
1999 1998 to June 30,1999
------------ ------------- --------------------
<S> <C> <C> <C>
NONCASH FINANCING AND INVESTING ACTIVITIES:
Receipt of contributed equipment $ 16,425
Issuance of common shares in exchange
for shares of common stock of Cryomedical
Sciences, Inc. in a stock-for-stock
transaction 197,400
Granting of options and warrants for services $ 92,980 $ 27,750 $ 660,030
Common shares for services $ 25,000
<FN>
See notes to condensed financial statements. (Concluded)
</FN>
</TABLE>
7
<PAGE>
BIOTIME, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
1. GENERAL AND DEVELOPMENT STAGE ENTERPRISE
General - BioTime, Inc. (the Company) was organized November 30, 1990 as
a California corporation. The Company is a biomedical organization,
currently in the development stage, which is engaged in the research and
development of synthetic plasma expanders, blood volume substitute
solutions, and organ preservation solutions, for use in surgery, trauma
care, organ transplant procedures, and other areas of medicine. On March
31, 1999, the Company received approval from the U.S. Food and Drug
Administration to market its first product, Hextend.
The balance sheet as of June 30, 1999, the statements of operations for
the three and six months ended June 30, 1999 and 1998 and the period
from inception (November 30, 1990) to June 30, 1999, the statement of
shareholders' equity for the six month period ended June 30, 1999, and
the statements of cash flows for the six months ended June 30, 1999 and
1998 and the period from inception (November 30, 1990) to June 30, 1999
have been prepared by the Company without audit. In the opinion of
management, all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial position, results
of operations, shareholders' equity and cash flows at June 30, 1999 and
for all periods presented have been made. The balance sheet as of
December 31, 1998 is derived from the Company's audited financial
statements as of that date. The results of operations for the period
ended June 30, 1999 are not necessarily indicative of the operating
results anticipated for the full year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted as permitted by
regulations of the Securities and Exchange Commission. Certain
previously furnished amounts have been reclassified to conform with
presentations made during the current periods. It is suggested that
these interim condensed financial statements be read in conjunction with
the annual audited financial statements and notes thereto included in
the Company's Form 10-K for the year (six months) ended December 31,
1998.
Certain Significant Risks and Uncertainties - The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Such management estimates include certain accruals.
Actual results could differ from those estimates.
8
<PAGE>
The Company's operations are subject to a number of factors that can
affect its operating results and financial condition. Such factors
include, but are not limited to, the following: the results of clinical
trials of the Company's products; the Company's ability to obtain United
States Food and Drug Administration and foreign regulatory approval to
market its products; competition from products manufactured and sold or
being developed by other companies; the price of and demand for Company
products; the Company's ability to obtain additional financing and the
terms of any such financing that may be obtained; the Company's ability
to negotiate favorable licensing or other manufacturing and marketing
agreements for its products; the availability of ingredients used in the
Company's products; and the availability of reimbursement for the cost
of the Company's products (and related treatment) from government health
administration authorities, private health coverage insurers and other
organizations.
Development Stage Enterprise - Since inception, the Company has been
engaged in research and development activities in connection with the
development of synthetic plasma expanders, blood volume substitute
solutions and organ preservation products. The Company has limited
operating revenues and has incurred operating losses of $18,484,038 from
inception to June 30, 1999. The successful completion of the Company's
product development program and, ultimately, achieving profitable
operations is dependent upon future events including maintaining
adequate capital to finance its future development activities, obtaining
regulatory approvals for the products it develops and achieving a level
of revenues adequate to support the Company's cost structure.
2. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," (SFAS 133) which establishes accounting and
reporting standards for derivative instruments and for hedging
activities. SFAS 133 requires that entities recognize all derivatives as
either assets or liabilities and measure those instruments at fair
value. Adoption of this statement will not impact the Company's
financial position, results of operations or cash flows. The Company is
currently required to adopt SFAS 133 in the first quarter of the fiscal
year ending December 31, 2001.
3. SHAREHOLDERS' EQUITY
On March 9, 1999, the Company completed a subscription rights offering
raising $7,328,626 (less offering costs of $128,024), through the sale
of 751,654 common shares.
9
<PAGE>
The Board of Directors of the Company adopted the 1992 Stock Option Plan
(the "Plan") in September 1992, which was approved by the shareholders
at the 1992 Annual Meeting of Shareholders on December 1, 1992. Under
the Plan, as amended, the Company has reserved 1,800,000 common shares
for issuance under options granted to eligible persons. No options may
be granted under the Plan more than ten years after the date the Plan
was adopted by the Board of Directors, and no options granted under the
Plan may be exercised after the expiration of ten years from the date of
grant.
Under the Plan, options to purchase common shares may be granted to
employees, directors and certain consultants at prices not less than the
fair market value at date of grant for incentive stock options and not
less than 85% of fair market value for nonstatutory stock options. These
options expire five to ten years from the date of grant and may be fully
exercisable immediately, or may be exercisable according to a schedule
or conditions specified by the Board of Directors or the Option
Committee. During the quarter ended June 30, 1999, 20,000 options were
issued to directors and 63,000 options to consultants. Of the options
granted to consultants, options to purchase 60,000 common shares vest
upon achievement of certain milestones. The Company is amortizing into
compensation the estimated fair value of such options ($600,000 at June
30, 1999), subject to remeasurement at the end of each reporting period,
over the period estimated to achieve such milestones (one to two years).
Compensation expense recognized on these options during the quarter
ended June 30, 1999 was $68,000. The fair value the remaining options
granted to a consultant to purchase 3,000 common shares ($25,000) was
recognized during the quarter as the options were vested when granted.
As of June 30, 1999, 504,000 shares were available for future grants
under the Option Plan; and options to purchase 530,500 shares had been
granted and were outstanding at exercise prices ranging from $0.66 to
$18.25.
4. LICENSE AGREEMENT
In April 1997, BioTime and Abbott Laboratories ("Abbott") entered into
an Exclusive License Agreement (the "License Agreement") under which
BioTime granted to Abbott an exclusive license to manufacture and sell
BioTime's proprietary blood plasma volume expander solution Hextend in
the United States and Canada for certain therapeutic uses.
Under the License Agreement, Abbott has agreed to pay the Company
license fees based upon achievement of specified milestones and product
sales. As of June 30, 1999, $2,500,000 of the license fees for the
achievement of milestones has been earned and accrued, including revenue
and associated receivables of $250,000 recognized in the first quarter
of 1999, and $600,000 recognized in the second quarter of 1999 related
to the achievement of milestones during these quarters. Up to
$37,500,000 of additional license fees will be payable based upon annual
net sales of Hextend at the rate of 10% of annual net sales if annual
net sales exceed $30,000,000 or 5% if annual net sales are between
$15,000,000 and $30,000,000. Abbott's obligation to pay license fees on
sales of Hextend will expire on the earlier of January 1, 2007 or, on a
country by country basis, when all patents protecting Hextend in the
applicable country expire or any third party obtains certain regulatory
approvals to market a generic equivalent product in that country.
10
<PAGE>
In addition to the license fees, Abbott will pay the Company a royalty
on annual net sales of Hextend. The royalty rate will be 5% plus an
additional .22% for each increment of $1,000,000 of annual net sales, up
to a maximum royalty rate of 36%. Abbott's obligation to pay royalties
on sales of Hextend will expire in the United States or Canada when all
patents protecting Hextend in the applicable country expire and any
third party obtains certain regulatory approvals to market a generic
equivalent product in that country.
Abbott has agreed that the Company may convert Abbott's exclusive
license to a non-exclusive license or may terminate the license outright
if certain minimum sales and royalty payments are not met. In order to
terminate the license outright, BioTime would pay a termination fee in
an amount ranging from the milestone payments made by Abbott to an
amount equal to three times prior year net sales, depending upon when
termination occurs. Abbott's exclusive license also may terminate,
without the payment of termination fees by the Company, if Abbott fails
to market Hextend. Management believes that the probability of payments
of any termination fee by the Company is remote.
5. NET INCOME PER SHARE
During February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" (SFAS 128). The Company adopted SFAS 128 in the second quarter of
fiscal 1998 and restated earnings per share (EPS) data for prior periods
to conform with current presentation.
SFAS 128 replaces current EPS reporting requirements and requires a dual
presentation of basic and diluted EPS. Basic EPS excludes dilution and
is computed by dividing net income (loss) by the weighted average number
of common shares outstanding during the period. Diluted EPS reflects the
potential dilution from securities and other contracts which are
exercisable or convertible into common shares.
Diluted EPS is computed by dividing net income (loss) by the weighted
average number of common shares that would have been outstanding during
the period assuming the issuance of common shares for all dilutive
potential common shares outstanding. As a result of operating losses,
there is no difference between the basic and diluted calculations of
EPS.
6. SUBSEQUENT EVENT
On July 15, 1999, the Company established the "BioTime Endowment for the
Study of Aging and Low-Temperature Medicine" (the "Endowment") at the
University of California at Berkeley. This endowment will support the
research activities of faculty and researchers in the areas of aging and
low temperature medicine. The initial term of the Endowment shall be for
ten years, and upon review, may be renewed every five years thereafter.
The Company funded the Endowment with $65,000 in cash and a warrant to
the University to purchase 40,000 of the Company's common shares for
$0.50 per share. At July 15, 1999, the Company estimated the fair value
of the warrant to be approximately $550,000. The warrant will expire on
August 14, 2000.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Since its inception in November 1990, the Company has been engaged
primarily in research and development activities. The Company has not yet
generated significant operating revenues, and as of June 30, 1999 the Company
had incurred a cumulative net loss of $18,484,038. The Company's ability to
generate substantial operating revenue depends upon its success in developing
and marketing or licensing its plasma volume expanders and organ preservation
solutions and technology for medical use.
Most of the Company's research and development efforts have been
devoted to the development of the Company's first three blood volume replacement
products: Hextend, PentaLyte, and HetaCool. By testing and bringing all three
products to the market, BioTime can increase its market share by providing the
medical community with solutions to match patients' needs.
On March 31, 1999, the Company received approval from the U.S. Food and
Drug Administration (FDA) to market Hextend, the Company's physiologically
balanced blood plasma volume expander, for the treatment of hypovolemia.
Hypovolemia is a condition often associated with blood loss during surgery or
from injury. Hextend maintains circulatory system fluid volume and oncotic
pressure and keeps vital organs perfused during surgery. Hextend, approved for
large-volume use in major surgery, is the only blood plasma volume expander that
contains hetastarch, buffer, multiple electrolytes and glucose. Hextend is also
completely sterile to avoid risk of infection.
BioTime has granted to Abbott Laboratories an exclusive license to
manufacture and sell Hextend in the United States and Canada for all therapeutic
uses other than those involving hypothermic surgery or the replacement of
substantially all of a patient's circulating blood volume. BioTime has retained
all rights to manufacture, sell or license Hextend and other products in all
other countries. Abbott also has a right to obtain licenses to manufacture and
sell other BioTime products.
12
<PAGE>
Under the License Agreement, Abbott has agreed to pay BioTime license
fees based upon product sales and the achievement of certain milestones. As of
June 30, 1999, the Company has earned and accrued $2,500,000 of license fee
milestone payments. Up to $37,500,000 of the license fees will be payable based
upon annual net sales of Hextend at the rate of 10% of annual net sales if
annual net sales exceed $30,000,000 or 5% if annual net sales are between
$15,000,000 and $30,000,000. In addition to the license fees, Abbott will pay
BioTime a royalty on total annual net sales of Hextend. The royalty rate will be
5% plus an additional .22% for each $1,000,000 of annual net sales, up to a
maximum royalty rate of 36%. The royalty rate for each year will be applied on a
total net sales basis so that once the highest royalty rate for a year is
determined, that rate will be paid with respect to all sales for that year.
Abbott's obligation to pay royalties on sales of Hextend will expire in the
United States or Canada when all patents protecting Hextend in the applicable
country expire and any third party obtains certain regulatory approvals to
market a generic equivalent product in that country. Abbott has also agreed to
manufacture Hextend for sale by BioTime in the event that Abbott's exclusive
license is terminated prior to expiration.
Abbott began marketing Hextend in the United States during the third
quarter of 1999. BioTime expects sales of Hextend to ramp up over a period of
months, as Abbott implements its marketing plans, including educational
presentations for its sales force and physicians, explaining the benefits of
using Hextend in the operating room.
The Company intends to enter global markets through licensing
agreements with overseas pharmaceutical companies. By licensing its products
abroad, the Company will avoid the capital costs and delays inherent in
acquiring or establishing its own pharmaceutical manufacturing facilities and
establishing an international marketing organization. A number of pharmaceutical
companies in Europe, Asia and other markets around the world have expressed
their interest in obtaining licenses to manufacture and market the Company's
products. The Company is continuing to meet with representatives of interested
companies and is approaching agreement to license its products in certain parts
of the world.
The Company is also pursuing a global clinical trial strategy, the goal
of which is to permit the Company to obtain regulatory approval for its products
as quickly and economically as practicable. For example, the United States Phase
III clinical trials of Hextend involved 120 patients and were completed in less
than 12 months. Although regulatory requirements vary from country to country,
the Company may be able to file applications for foreign regulatory approval of
its products based upon the results of the United States clinical trials. Based
upon discussions with the Canadian Bureau of Pharmaceutical Assessment, the
Company plans to file for Canadian market approval based on the results of its
United States clinical trials. Regulatory approvals for countries that are
members of the European Union may be obtained through a mutual recognition
process. The Company has determined that several member nations would accept an
application based upon the United States clinical trials. If approvals based
upon those trials can be obtained in the requisite number of member nations,
then the Company would be permitted to market Hextend in all 16 member nations.
In order to commence clinical trials for regulatory approval of new
products, such as PentaLyte and HetaCool, or new therapeutic uses of Hextend, it
will be necessary for the Company to prepare and file with the FDA an
Investigational New Drug Application ("IND") or an amendment to expand the
present IND for additional Hextend studies. Filings with foreign regulatory
agencies will be required to commence clinical trials overseas.
On July 15, 1999, the Company established the "BioTime Endowment for
the Study of Aging and Low-Temperature Medicine" at the University of California
at Berkeley and Lawrence Berkeley National Laboratory. This endowment will
support the research activities of faculty and researchers in the areas of aging
and low temperature medicine. BioTime sees a need for its products in the
treatment of geriatric patients and also maintains an active reasearch program
in hypothermic medicine.
13
<PAGE>
BioTime is currently conducting a clinical study at the University
College of London Hospitals involving elderly patients undergoing major elective
surgery in which large quantities of blood are often lost. In this study,
patients are being treated with BioTime's Hextend plasma volume expander and
other fluids designed to replace lost blood volume. The goal of the study is to
determine whether administering physiologically-balanced plasma expanders such
as Hextend can contribute to better outcomes in older patients. This study is
approximately two-thirds complete based upon the expected number of patients
that will participate in the trial.
BioTime is also planning clinical studies of products for hypothermic
surgery. BioTime is preparing a protocol for the use of HetaCool (a modified
formulation of Hextend) to replace a portion of a patient's blood volume at
temperatures ranging from 12 to 20 degrees Celsius. When the protocol is
completed and approved by physicians who may participate in clinical trials,
BioTime plans to submit the protocol to the FDA as part of an amendment to
BioTime's Hextend IND. The amendment will seek permission to conduct clinical
trials of HetaCool as a blood volume replacement solution in low temperature
surgeries for the correction of aneurysms, and for the use of Hextend as a
priming solution for cardio-pulmonary bypass pumps. Aneurysms are vascular
disorders that are often found in patients suffering from aging-related
cardiovascular disease.
After surgical procedures have been performed in the 12 to 20 degree
Celsius temperature range, BioTime plans to conduct additional clinical studies
in which HetaCool will be used to replace all of the patient's circulating blood
volume at near-freezing temperatures in aneurysm surgery. BioTime has developed
techniques to permit cardiovascular surgery while the patient is maintained in a
state of circulatory arrest at near freezing temperatures. These techniques have
been successfully used to maintain dogs and pigs in a state of circulatory
arrest for periods ranging from one hour to more than two hours, and hamsters
for more than six hours.
A preliminary clinical trial protocol for the use of PentaLyte as a
plasma volume expander is also being written, and BioTime is preparing to file
an IND application for this product as well.
The cost of preparing regulatory filings and conducting clinical trials
is not presently determinable, but could be substantial. It will be necessary
for the Company to obtain additional funds in order to complete any clinical
trials that may begin for its new products or for new uses of Hextend. The
Company plans to negotiate product licensing and marketing agreements that
require overseas licensees and distributors of Company products to bear
regulatory approval and clinical trial costs for their territories.
In addition to developing clinical trial programs, the Company plans to
continue to provide funding for its laboratory testing programs at selected
universities, medical schools and hospitals for the purpose of developing
additional uses of Hextend, PentaLyte, HetaCool, and other new products, but the
amount of research that will be conducted at those institutions will depend upon
the Company's financial status. Because the Company's research and development
expenses, clinical trial expenses, and production and marketing expenses will be
charged against earnings for financial reporting purposes, management expects
that losses from operations will continue to be incurred for the foreseeable
future.
14
<PAGE>
During the quarter ended June 30, 1999, the Company began leasehold
improvements of additional space at its facility to increase laboratory and
regulatory capabilities.
Year 2000 Considerations
The year 2000 issue is a result of computer programs which were written
with two digits rather than four to signify a year (i.e., the year 1999 is
denoted as "99" and not "1999"). Computer programs written using only two digits
may recognize the year 2000 as 1900. This could result in a system failure or
miscalculations causing disruption of operations.
The Company has reviewed its internal computer and software systems and
has determined that it is highly unlikely that any of those systems will be
adversely affected by problems associated with the year 2000. Accordingly, the
Company does not expect to incur any material expense in bringing its computer
systems into year 2000 compliance.
The Company relies upon data analysis provided by independent third
parties that conduct tests on Company products and compile and analyze data from
Company laboratory studies and clinical trials. The Company is asking its third
party contractors to inform the Company's management whether their systems will
be adversely affected by the year 2000 problem and what plans they have to
remedy any such problems in a timely manner.
Because the Company does not have its own pharmaceutical production
facilities, it will rely upon Abbott and others to manufacture and distribute
Company products. If year 2000 problems were to impede the ability of those
companies to manufacture and distribute Company products or raw materials used
in the manufacture of Company products, future sales of Company products could
be adversely affected. BioTime does not have a contingency plan to address those
problems if they were to arise, and it may not be able to replace Abbott or any
other company that may obtain a license to manufacture and distribute BioTime
products. Abbott has announced the implementation of a program to assess and
remedy any year 2000 problems that may affect its operations, and has asked its
key suppliers to certify that their systems are year 2000 compliant. The results
of the year 2000 compliance programs implemented by Abbott and its suppliers are
not presently known.
15
<PAGE>
Hextend(R) and PentaLyte(R) are registered trademarks, and HetaCool(TM) is a
trademark, of BioTime.
Results of Operations
Revenues
From inception (November 30, 1990) through June 30, 1999, the Company
recognized $2,500,000 of license fee revenues. For the three months ended June
30, 1999, the Company recognized revenue of $600,000 for the achievement of
certain milestones. For the six months ended June 30, 1999, the Company of
recognized revenues of $1,037,500 as compared to $500,000 for the six months
ended June 30, 1998, as additional license fee milestones were achieved in 1999.
See Note 4 to the accompanying financial statements.
Operating Expenses
From inception (November 30, 1990) through June 30, 1999, the Company
incurred $13,493,994 of research and development expenses, including salaries,
supplies and other related expense items. Research and development expenses were
$1,072,522 for the three months ended June 30, 1999, compared to $627,805 for
the three months ended June 30, 1998. Additionally, research and development
expenses increased to $1,812,006 for the six months ended June 30, 1999, from
$1,506,227 for the six months ended June 30, 1998. The increase in research and
development expenses is attributable to an increase in basic laboratory research
projects, and commencement of a clinical trial of Hextend in the United Kingdom
in January 1999. It is expected that research and development expenses will
increase in the future as the Company commences additional clinical trials of
Hextend in the United States and abroad, and commences clinical studies of other
products.
From inception (November 30, 1990) through June 30, 1999, the Company
incurred $8,902,716 of general and administrative expenses. General and
administrative expenses were $599,502 for the three months ended June 30, 1999,
compared to $568,068 for the three months ended June 30, 1998. General and
administrative expenses also increased to $1,112,952 for the six months ended
June 30, 1999, from $958,972 for the six months ended June 30, 1998. The
increase is primarily attributable to increased personnel costs and an increase
in the general operations of the Company.
Interest and Other Income
From inception (November 30, 1990) through June 30, 1999, the Company
generated $1,412,672 of interest and other income. For the three months ended
June 30, 1999, the Company generated $81,430 of interest and other income,
compared to $58,863 for the three months ended June 30, 1998. The increase in
interest income in 1999 is attributable to an increase in cash and cash
equivalents from completion of the Company's subscription rights offering on
March 9, 1999. The interest and other income generated decreased to $109,925,
for the six months ended June 30, 1999, from $131,651 for the six months ended
June 30, 1998. The decrease in interest and other income during the six months
ended June 30, 1999 is attributable to lower average cash balances during that
six month period.
16
<PAGE>
Liquidity and Capital Resources
Since inception, the Company has primarily financed its operations
through the sale of equity securities and licensing fees, and at June 30, 1999
the Company had cash and cash equivalents of $7,155,075. On March 9, 1999, the
Company completed the sale of 751,654 common shares through a subscription
rights offer and raised an additional $7,328,626, before deducting expenses of
the offer. The Company expects that its cash on hand will be sufficient to
finance its operations beyond the next 12 months. However, additional funds may
be required for the successful completion of the Company's product development
activities. The Company plans to obtain financing for its future operations
through royalties and licensing fees from Abbott, from licensing fees from other
pharmaceutical companies, and/or additional sales of equity or debt securities.
Sales of additional equity securities could result in the dilution of the
interests of present shareholders.
Under its License Agreement with Abbott, the Company has earned and
accrued $2,500,000 of license fees for signing the agreement and achieving
certain milestones. Additional license fees and royalties will become payable
based upon product sales.
License fees and royalties will also be sought from Abbott or other
pharmaceutical companies for United States and Canadian licenses of new products
and uses of Hextend that are not covered by Abbott's license, and for licenses
to manufacture and market the Company's products abroad.
The amount of license fees and royalties that may be earned through the
licensing and sale of the Company's products, as well as the future availability
and terms of equity and debt financings, are uncertain. The unavailability or
inadequacy of financing or revenues to meet future capital needs could force the
Company to modify, curtail, delay or suspend some or all aspects of its planned
operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company did not hold any market risk sensitive instruments as of June 30,
1999, December 31, 1998, or June 30, 1998.
17
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit
Numbers Description
- -------- -----------
3.1 Articles of Incorporation, as Amended.+
3.3 By-Laws, As Amended.#
4.1 Specimen of Common Share Certificate.+
10.1 Lease Agreement dated July 1, 1994 between the Registrant and Robert
and Norah Brower, relating to principal executive offices of the
Registrant.*
10.2 Employment Agreement dated June 1, 1996 between the Company and Paul
Segall.++
10.3 Employment Agreement dated June 1, 1996 between the Company and Hal
Sternberg.++
10.4 Employment Agreement dated June 1, 1996 between the Company and Harold
Waitz.++
10.5 Employment Agreement dated June 1, 1996 between the Company and Judith
Segall.++
10.6 Employment Agreement dated June 1, 1996 between the Company and
Victoria Bellport.++
10.7 Intellectual Property Agreement between the Company and Paul Segall.+
10.8 Intellectual Property Agreement between the Company and Hal Sternberg.+
10.9 Intellectual Property Agreement between the Company and Harold Waitz.+
10.10 Intellectual Property Agreement between the Company and Judith Segall.+
10.11 Intellectual Property Agreement between the Company and Victoria
Bellport.+
10.12 Agreement between CMSI and BioTime Officers Releasing Employment
Agreements, Selling Shares, and Transferring Non-Exclusive License.+
10.13 Agreement for Trans Time, Inc. to Exchange CMSI Common Stock for
BioTime, Inc. Common Shares.+
18
<PAGE>
10.14 1992 Stock Option Plan, as amended.##
10.15 Employment Agreement dated April 1, 1997 between the Company and Ronald
S. Barkin.^
10.16 Intellectual Property Agreement between the Company and Ronald S.
Barkin.^
10.17 Addenda to Lease Agreement between the Company and Donn Logan.++
10.18 Amendment to Employment Agreement between the Company and Paul
Segall.^^
10.19 Amendment to Employment Agreement between the Company and Hal
Sternberg.^^
10.20 Amendment to Employment Agreement between the Company and Harold
Waitz.^^
10.21 Amendment to Employment Agreement between the Company and Judith
Segall.^^
10.22 Amendment to Employment Agreement between the Company and Victoria
Bellport.^^
10.23 Amendment to Employment Agreement between the Company and Ronald S.
Barkin.^^
10.24 Exclusive License Agreement between Abbott Laboratories and
BioTime, Inc. (Portions of this exhibit have been omitted pursuant to a
request for confidential treatment).###
10.25 Modification of Exclusive License Agreement between Abbott Laboratories
and BioTime, Inc.(Portions of this exhibit have been omitted pursuant
to a request for confidential treatment).**
27 Financial Data Schedule**
+Incorporated by reference to the Company's Form 10-K for the fiscal year ended
June 30, 1998.
# Incorporated by reference to Registration Statement on Form S-1, File Number
33-48717 and Post-Effective Amendment No. 1 thereto filed with the Securities
and Exchange Commission on June 22, 1992, and August 27, 1992, respectively.
+ Incorporated by reference to Registration Statement on Form S-1, File
Number 33-44549 filed with the Securities and Exchange Commission on
December 18, 1991, and Amendment No. 1 and Amendment No. 2 thereto filed with
the Securities and Exchange Commission on February 6, 1992 and March 7, 1992,
respectively.
* Incorporated by reference to the Company's Form 10-K for the fiscal year ended
June 30, 1994.
++ Incorporated by reference to the Company's Form 10-K for the fiscal year
ended June 30, 1996.
## Incorporated by reference to Registration Statement on Form S-8, File Number
333-30603 filed with the Securities and Exchange Commission on July 2, 1997.
19
<PAGE>
^ Incorporated by reference to the Company's Form 10-Q for the quarter ended
March 31, 1997.
++Incorporated by reference to the Company's Form 10-K for the fiscal year ended
December 31, 1998.
^^ Incorporated by reference to the Company's Form 10-Q for the quarter ended
March 31, 1999.
### Incorporated by reference to the Company's Form 8-K, filed April 24, 1997.
** Filed herewith.
(b) Reports on Form 8-K
The Company did not file any reports of Form 8-K for the three months ended June
30, 1999.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIOTIME, INC.
/s/Paul Segall
Date: August 11, 1999 ---------------------------
Paul Segall
Chief Executive Officer
/s/Victoria Bellport
Date: August 11, 1999 ----------------------------
Victoria Bellport
Chief Financial Officer
21
<PAGE>
Exhibits Index
Exhibit
Numbers Description
- -------- -----------
3.1 Articles of Incorporation, as Amended.+
3.3 By-Laws, As Amended.#
4.1 Specimen of Common Share Certificate.+
10.1 Lease Agreement dated July 1, 1994 between the Registrant and Robert
and Norah Brower, relating to principal executive offices of the
Registrant.*
10.2 Employment Agreement dated June 1, 1996 between the Company and Paul
Segall.++
10.3 Employment Agreement dated June 1, 1996 between the Company and Hal
Sternberg.++
10.4 Employment Agreement dated June 1, 1996 between the Company and Harold
Waitz.++
10.5 Employment Agreement dated June 1, 1996 between the Company and Judith
Segall.++
10.6 Employment Agreement dated June 1, 1996 between the Company and
Victoria Bellport.++
10.7 Intellectual Property Agreement between the Company and Paul Segall.+
10.8 Intellectual Property Agreement between the Company and Hal Sternberg.+
10.9 Intellectual Property Agreement between the Company and Harold Waitz.+
10.10 Intellectual Property Agreement between the Company and Judith Segall.+
10.11 Intellectual Property Agreement between the Company and Victoria
Bellport.+
10.12 Agreement between CMSI and BioTime Officers Releasing Employment
Agreements, Selling Shares, and Transferring Non-Exclusive License.+
10.13 Agreement for Trans Time, Inc. to Exchange CMSI Common Stock for
BioTime, Inc. Common Shares.+
22
<PAGE>
10.14 1992 Stock Option Plan, as amended.##
10.15 Employment Agreement dated April 1, 1997 between the Company and Ronald
S. Barkin.^
10.16 Intellectual Property Agreement between the Company and Ronald S.
Barkin.^
10.17 Addenda to Lease Agreement between the Company and Donn Logan.++
10.18 Amendment to Employment Agreement between the Company and Paul
Segall.^^
10.19 Amendment to Employment Agreement between the Company and Hal
Sternberg.^^
10.20 Amendment to Employment Agreement between the Company and Harold
Waitz.^^
10.21 Amendment to Employment Agreement between the Company and Judith
Segall.^^
10.22 Amendment to Employment Agreement between the Company and Victoria
Bellport.^^
10.23 Amendment to Employment Agreement between the Company and Ronald S.
Barkin.^^
10.24 Exclusive License Agreement between Abbott Laboratories and
BioTime, Inc. (Portions of this exhibit have been omitted pursuant to a
request for confidential treatment).###
10.25 Modification of Exclusive License Agreement between Abbott Laboratories
and BioTime, Inc.(Portions of this exhibit have been omitted pursuant
to a request for confidential treatment).**
27 Financial Data Schedule**
+Incorporated by reference to the Company's Form 10-K for the fiscal year ended
June 30, 1998.
# Incorporated by reference to Registration Statement on Form S-1, File Number
33-48717 and Post-Effective Amendment No. 1 thereto filed with the Securities
and Exchange Commission on June 22, 1992, and August 27, 1992, respectively.
+ Incorporated by reference to Registration Statement on Form S-1, File Number
33-44549 filed with the Securities and Exchange Commission on December 18, 1991,
and Amendment No. 1 and Amendment No. 2 thereto filed with the Securities and
Exchange Commission on February 6, 1992 and March 7, 1992, respectively.
* Incorporated by reference to the Company's Form 10-K for the fiscal year ended
June 30, 1994.
++ Incorporated by reference to the Company's Form 10-K for the fiscal year
ended June 30, 1996.
## Incorporated by reference to Registration Statement on Form S-8, File Number
333-30603 filed with the Securities and Exchange Commission on July 2, 1997.
^ Incorporated by reference to the Company's Form 10-Q for the quarter ended
March 31, 1997.
23
<PAGE>
++Incorporated by reference to the Company's Form 10-K for the fiscal year ended
December 31, 1998.
^^ Incorporated by reference to the Company's Form 10-Q for the quarter ended
March 31, 1999.
### Incorporated by reference to the Company's Form 8-K, filed April 24, 1997.
** Filed herewith.
24
BIOTIME, INC.
935 Pardee Street
Berkeley, CA 94710
Tel: 510-845-9535 o Fax: 510-845-7914
July 29, 1999
Sheldon M. Wecker, Ph.D., Director
Hospital Products Division
Abbott Laboratories, D-977, AP30
200 Abbott Park Road
Abbott Park, IL 60064-3537
Dear Mr. Wecker:
This is to confirm in writing a modification of Article 8 of our
Exclusive License Agreement, dated April 23, 1997 (the "Agreement"), as follows.
The caption, first sentence and table portion of Article 8(a) of the agreement
is hereby deleted and replaced with the following:
(a) Minimum Amounts. Abbott agrees to the establishment of the
following minimum Product sales targets in the Territory for each twelve month
period, commencing on and after October 1, 2000, subject to Abbott's option not
to market the Product as provided in 8(b) below.
[Confidential Information has been omitted and filed separately with the
Securities and Exchange Commission]
All other terms and conditions of the Agreement remain in full force
and effect. If this modification is acceptable, each party shall so signify by
having an authorized officer counter sign this letter in the place provided
below. Thank you.
Very truly yours,
/s/Ronald S. Barkin
--------------------
President and COO
<PAGE>
ABBOTT LABORATORIES
July 29, 1999
Page 2
ACCEPTED AND AGREED:
Abbott Laboratories BioTime, Inc.
By: /s/Richard A. Gonzalez By: /s/Ronald S. Barkin
----------------------------- -------------------------
Title: President HPD Title: President
--------------------------- -------------------------
D
ate: August 3, 1999 Date: July 29, 1999
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