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 September 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. 10,860,522 common
shares, no par value, as of November 10, 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
BIOTIME, INC,
(A Development Stage Company)
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
(Unaudited)
September 30, December 31,
ASSETS 1999 1998
--------------- -----------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 6,602,031 $ 2,429,014
Prepaid expenses and other current assets 95,140 153,267
--------------- -----------------
Total current assets 6,697,171 2,582,281
EQUIPMENT, Net of accumulated depreciation of $258,835 and $217,107 249,974 166,474
DEPOSITS AND OTHER ASSETS 9,900 60,700
--------------- -----------------
TOTAL ASSETS $ 6,957,045 $ 2,809,455
=============== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 487,564 $ 237,203
Deferred revenue - current portion -- 187,500
--------------- -----------------
Total current liabilities 487,564 424,703
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 10,860,522 and 10,033,079 27,138,966 19,022,116
Contributed Capital 93,972 93,972
Deficit accumulated during development stage (20,763,457) (16,731,336)
--------------- -----------------
Total shareholders' equity 6,469,481 2,384,752
--------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,957,045 $ 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
Three Months Ended Nine Months Ended Inception (November
September 30, September 30, September 30, September 30, 30, 1990) to
1999 1998 1999 1998 September 30, 1999
------------------ ------------------ ------------------ ----------------- --------------------
<S> <C> <C> <C> <C> <C>
REVENUE:
License fee $ -- $ 125,000 $ 1,037,500 $ 625,000 $ 2,500,000
------------------ ------------------ ----------------- ------------------ ---------------
EXPENSES:
Research and development (1,957,094) (930,418) (3,769,100) (2,436,645) (15,451,088)
General and administrative (383,913) (380,453) (1,496,865) (1,339,425) (9,286,629)
------------------ ------------------ ----------------- ------------------- ---------------
Total expenses (2,341,007) (1,310,871) (5,265,965) (3,776,070) (24,737,717)
------------------ ------------------ ----------------- ------------------ ---------------
INTEREST AND OTHER INCOME: 86,419 48,129 196,344 179,780 1,499,091
------------------ ------------------ ----------------- ------------------ ---------------
NET LOSS $ (2,254,588) $ (1,137,742) $ (4,032,121) $ (2,971,290) $ (20,738,626)
================== ================== ================= ================== ===============
BASIC AND DILUTED LOSS
PER SHARE $ (0.21) $ (0.11) $ (0.38) $ (0.30)
================== ================== ================= ==================
COMMON AND EQUIVALENT
SHARES USED IN
COMPUTING PER SHARE AMOUNTS:
BASIC AND DILUTED 10,823,754 9,985,525 10,626,433 9,919,268
================== ================== ================= ==================
<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 1,312,758 $ 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 $ - $ - 7,679,463 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 - $ - 8,269,560 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 - $ - 9,609,576 $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 - $ - 9,947,576 $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 - $ - 10,033,076 $19,022,116 $ 93,972 $ (16,731,336)
Common shares issued for cash
(less offering costs of $128,024)
- unaudited 751,654 7,200,602
Common shares issued for cash
(exercise of options and warrants)
- unaudited 75,000 215,850
Common shares issued for services -
unaudited 792 9,900
Warrant granted for donation
- unaudited 552,000
Options granted for services
- unaudited 138,498
NET LOSS - unaudited (4,032,121)
---------- ---------- ----------- ----------- ----------- --------------
BALANCE AT JUNE 30, 1999 - unaudited - $ - 10,860,522 $27,138,966 $ 93,972 $ (20,763,457)
========== ========== =========== ============ =========== ==============
<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
Nine Months Ended (November 30, 1990)
1999 1998 to September 30,1999
------------ ------------- --------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(4,032,121) $ (2,971,290) $ (20,738,626)
Adjustments to reconcile net loss to net cash
used in operating activities:
Deferred Revenue (187,500) 25,000 (1,000,000)
Depreciation 41,727 40,703 258,834
Cost of Services - options and warrants 163,120 83,975 740,448
Cost of Donation - warrants 552,000 552,000
Supply Reserves - - 200,000
Changes in operating assets and liabilities:
Research and development supplies on hand - - (200,000)
Prepaid expenses and other current assets 43,406 55,171 (95,139)
Deposits 50,800 (53,278) (9,900)
Accounts payable 250,361 (195,911) 487,564
Deferred revenue - (400,000) 1,000,000
------------ ------------- -------------
Net cash used in operating activities (3,118,207) (3,415,630) (18,804,819)
------------ ------------- -------------
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 (125,228) (90,562) (492,384)
------------ ------------- -------------
Net cash used in investing activities (125,228) (90,562) (294,984)
------------ ------------- -------------
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 215,850 487,950 3,856,128
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 7,416,452 487,950 25,701,834
------------ ------------- -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,173,017 (3,018,242) 6,602,031
CASH AND CASH EQUIVALENTS:
At beginning of period 2,429,014 6,321,242 --
------------ ------------- -------------
At end of period $ 6,602,031 $ 3,303,000 $ 6,602,031
============ ============= =============
<FN>
(Continued)
</FN>
</TABLE>
6
<PAGE>
<TABLE>
BIOTIME, INC.
(A Development Stage Company)
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Period from Inception
Nine Months Ended (November 30, 1990)
1999 1998 to September 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 $ 138,498 $ 88,050 $ 705,548
Common shares for services $ 9,900 $ 8,450 $ 34,900
Granting of warrant for donation $ 552,000 $ 552,000
<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 September 30, 1999, the statements of operations
for the three and six months ended September 30, 1999 and 1998 and the
period from inception (November 30, 1990) to September 30, 1999, the
statement of shareholders' equity for the six month period ended
September 30, 1999, and the statements of cash flows for the six months
ended September 30, 1999 and 1998 and the period from inception
(November 30, 1990) to September 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 September 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 September 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 $20,738,626 from
inception to September 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>
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. The 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, 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. On September 23, 1999, the University of California at
Berkeley exercised its warrant for 40,000 shares. The fair value of the
warrant, estimated to be approximately $552,000, was recognized in
research and development expenses during the quarter.
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. 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 ($460,000 at September 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 September 30, 1999 was
approximately $46,000. No options were granted during the quarter ended
September 30, 1999. As of September 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.
10
<PAGE>
Under the License Agreement, Abbott has agreed to pay the Company
license fees based upon achievement of specified milestones and product
sales. As of September 30, 1999, $2,500,000 of the license fees for the
achievement of milestones has been earned and paid. 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.
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. 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.
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 September 30, 1999 the
Company had incurred a cumulative net loss of $20,738,626. 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. Health insurance reimbursements
and HMO coverage of surgical procedures now include the cost of Hextend when
used.
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.
Under the License Agreement, Abbott paid BioTime $2,500,00 license fees
based upon the achievement of certain milestones. 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. 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
12
<PAGE>
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.
Hextend is designed to compete with and to replace flawed older
products such as albumin and other colloid solutions, as well as crystalloid
solutions, that have been used to maintain fluid volume and blood pressure
during surgery. Because Hextend is a surgical product, sales will be determined
by anesthesiologists, surgeons and hospital pharmacists. Abbott's marketing
plans for Hextend include, in addition to advertisements in medical journals,
educational presentations for its sales force and physicians explaining the
various benefits of using Hextend. Abbott is also working with hospitals to have
Hextend approved for use and added to hospital formularies.
As part of the marketing program, Abbott and the Company will finance a
number of limited medical studies comparing outcomes of patients receiving
Hextend and patients receiving other products during surgery. It will take time
to complete these studies and publish the results. The outcome of the planned
medical studies and timing of the publication of the results could have an
effect on the growth of demand for Hextend and sales by Abbott.
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. In addition, the Company is discussing an arrangement with a
leading producer of the hydroxyethyl starch used in Hextend through which the
Company would obtain a source of supply of that ingredient and assistance in
regulatory matters for approval of Hextend for the European market.
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. The
Company's application to market Hextend in Canada had been found acceptable for
review as a New Drug Submission by the Canadian Health Protection Branch (HPB),
and the Company is now awaiting completion of HPB's review of that application.
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.
13
<PAGE>
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.
BioTime recently completed a clinical study at the University College
of London Hospitals involving elderly patients undergoing major elective surgery
in which large quantities of blood were often lost. In this study, patients were
treated with BioTime's Hextend plasma volume expander and other fluids designed
to replace lost blood volume. Preliminary analysis indicated that the Hextend
treated group showed significantly better preservation of blood pH, chloride and
calcium levels, compared to those treated with 6% hetastarch in saline.
Hyperchloremic acidemia was found in those surgical patients treated with
saline-based surgical fluids, but not in those treated with Hextend. The Company
will issue a complete report of the clinical trial findings after a
comprehensive formal statistical analysis.
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 12N to 20NC. 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 12N to 20N C
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.
14
<PAGE>
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.
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, but the Company has no reason to believe that its
operations will be adversely affected.
Listing on American Stock Exchange
On August 31, 1999, the Company's common shares began trading on the
American Stock Exchange (AMEX), under the symbol "BTX."
15
<PAGE>
Trademarks
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 September 30, 1999, the
Company recognized $2,500,000 of license fee revenues. For the three months
ended September 30, 1999, no revenue was recognized. For the three months ended
September 30, 1998, the Company recognized revenue of $125,000, comprised of
amortization of deferred license fees. For the nine months ended September 30,
1999, the Company recognized revenues of $1,037,500 as compared to $625,000 for
the nine months ended September 30, 1998, as additional license fee milestones
were achieved in 1999. See Note 4 to the accompanying financial statements.
Abbott began marketing Hextend in the United States during the third
quarter of 1999. Under its License Agreement with the Company, Abbott will
report sales of Hextend and pay the Company the royalties and license fees due
on account of such sales within 90 days after the end of each calendar quarter.
The Company plans to recognize such revenues in the quarter in which the sales
report is received. Revenues from sales of Hextend during the three months ended
September 30, 1999 will be recognized by the Company during the fourth quarter.
Abbott's marketing efforts have only recently begun, and the Company does not
expect significant revenues from the sale of Hextend during the third quarter.
Operating Expenses
From inception (November 30, 1990) through September 30, 1999, the
Company incurred $15,451,088 of research and development expenses, including
salaries, supplies and other related expense items. Research and development
expenses were $1,957,094 for the three months ended September 30, 1999, compared
to $930,418 for the three months ended September 30, 1998. Additionally,
research and development expenses increased to $3,769,100 for the nine months
ended September 30, 1999, from $2,436,645 for the nine months ended September
30, 1998. The increase in research and development expenses for both periods is
attributable to an increase in basic laboratory research projects, continuation
of a clinical trial of Hextend in the United Kingdom, and recognition of a
$552,000 expense associated with an endowment the Company funded by granting
warrants to purchase the Company's common shares during the quarter (See Note 3
to the financial statements). 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 September 30, 1999, the
Company incurred $9,286,629 of general and administrative expenses. General and
administrative expenses were $383,913 for the three months ended September 30,
1999, compared to $380,453 for the three months ended September 30, 1998.
16
<PAGE>
General and administrative expenses also increased to $1,496,865 for the nine
months ended September 30, 1999, from $1,339,425 for the nine months ended
September 30, 1998. The slight increase is attributable to an increase in the
general operations of the Company.
Interest and Other Income
From inception (November 30, 1990) through September 30, 1999, the
Company generated $1,499,091 of interest and other income. For the three months
ended September 30, 1999, the Company generated $86,419 of interest and other
income, compared to $48,129 for the three months ended September 30, 1998. The
interest and other income generated increased to $196,344, for the nine months
ended September 30, 1999, from $179,780 for the nine months ended September 30,
1998. The increase in interest income for both periods is attributable to an
increase in cash and cash equivalents from completion of the Company's
subscription rights offering on March 9, 1999.
Liquidity and Capital Resources
Since inception, the Company has primarily financed its operations
through the sale of equity securities and licensing fees, and at September 30,
1999 the Company had cash and cash equivalents of $6,602,031. 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 for 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.
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 September
30, 1999, December 31, 1998, or September 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.
19
<PAGE>
++ 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.
++ 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.
^^^ Incorporated by reference to the Company's Form 10-Q for the quarter ended
June 30, 1999.
** Filed herewith.
(b) Reports on Form 8-K
The Company did not file any reports of Form 8-K for the three months ended
September 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/Ronald S. Barkin
Date: November 11, 1999 -------------------
Ronald S. Barkin
President
/s/Victoria Bellport
Date: November 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.
23
<PAGE>
++ 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.
++ 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.
^^^ Incorporated by reference to the Company's Form 10-Q for the quarter ended
June 30, 1999.
** Filed herewith.
24
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