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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 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 0-28386
CELL THERAPEUTICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Washington 91-1533912
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
201 Elliott Avenue West, Suite 400, 98119
Seattle, Washington (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(206) 282-7100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check [X] whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes X No ___
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
CLASS OUTSTANDING AT APRIL 30, 1999
----- -----------------------------
Common Stock, no par value (including asso-
ciated Preferred Stock Purchase Rights).... 15,534,359
This report on Form 10-Q, including all exhibits, contains __ pages.
The exhibit index is located on page __.
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CELL THERAPEUTICS, INC.
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Consolidated Balance Sheets -- March 31, 1999 and December 31,
1998............................................................
Consolidated Statements of Operations -- Three months ended
March 31, 1999 and 1998 and the period from September 4, 1991
(date of incorporation) to March 31, 1999.......................
Consolidated Statements of Cash Flows -- Three months ended
March 31, 1999 and 1998 and the period from September 4, 1991
(date of incorporation) to March 31, 1999.......................
Notes to Financial Statements...................................
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS...........................................
PART II OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K................................
SIGNATURES......................................................
EXHIBIT INDEX...................................................
</TABLE>
2
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PART I
ITEM 1. FINANCIAL STATEMENTS
CELL THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,534,959 $ 4,362,486
Securities available-for-sale 36,202,721 42,072,276
Interest receivable 770,176 637,330
Collaboration agreement receivables - 3,254,491
Prepaid expenses and other current assets 493,797 920,136
---------------- ----------------
Total current assets 41,001,653 51,246,719
Property and equipment 16,641,269 16,517,674
Accumulated depreciation (10,174,940) (9,691,777)
---------------- ----------------
Property and equipment, net 6,466,329 6,825,897
Other assets 76,603 83,879
---------------- ----------------
Total assets $ 47,544,585 $ 58,156,495
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 124,562 $ 1,106,832
Accrued expenses 3,486,535 4,816,385
Current portion of long-term obligations 1,153,398 1,180,702
---------------- ----------------
Total current liabilities 4,764,495 7,103,919
Long-term obligations, less current portion 3,604,794 3,887,603
Commitments
Shareholders' equity:
Common Stock, no par value:
Authorized shares--100,000,000
Issued and outstanding shares--15,534,359
at March 31, 1999 and December 31, 1998, respectively 169,713,678 169,618,635
Notes receivable from officers (380,000) (380,000)
Deficit accumulated during development stage (130,144,207) (122,070,032)
Accumulated other comprehensive loss (14,175) (3,630)
---------------- ----------------
Total shareholders' equity 39,175,296 47,164,973
---------------- ----------------
Total liabilities and shareholders' equity $ 47,544,585 $ 58,156,495
================ ================
</TABLE>
3
See accompanying notes.
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CELL THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Period from
September 4,
1991 (Date of
Three Months Ended Incorporation
March 31, To March 31,
--------------------------------------
1999 1998 1999
----------------- ----------------- ------------------
<S> <C> <C> <C>
Revenues:
Collaboration agreements $ - $ 3,277,935 $ 34,252,652
Operating expenses:
Research and development 6,364,195 7,768,621 123,751,623
General and administrative 2,145,675 2,574,910 48,578,148
----------------- ----------------- ------------------
8,509,870 10,343,531 172,329,771
----------------- ----------------- ------------------
Loss from operations: (8,509,870) (7,065,596) (138,077,119)
Other income (expense):
Investment income 583,332 971,789 10,545,834
Interest expense (133,462) (105,766) (2,598,747)
----------------- ----------------- ------------------
Net loss: $ (8,060,000) $ (6,199,573) $ (130,130,032)
================= ================= ==================
Net loss per share:
Basic and diluted net loss per share $ (0.52) $ (0.40)
================= =================
Shares used in computation of basic and
diluted net loss per share 15,534,359 15,381,435
================= =================
</TABLE>
See accompanying notes.
4
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CELL THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 4,
1991 (DATE OF
THREE MONTHS ENDED INCORPORATION)
MARCH 31, TO MARCH 31,
--------------------------------------
1999 1998 1999
--------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (8,060,000) $ (6,199,573) $ (130,130,032)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 483,163 406,833 10,573,577
Noncash research and development expense - - 1,155,750
Noncash interest expense - - 25,918
Noncash rent expense (32,273) (6,643) 493,138
Noncash compensation expense 80,868 - 603,977
Investment premium amortization 135,392 31,364 679,624
Changes in assets and liabilities:
Interest receivable (132,846) (115,141) (770,176)
Collaboration agreement receivables 3,254,491 (1,400,783) -
Prepaid expenses and other current assets 426,339 98,221 (493,797)
Other assets 7,276 (851,882) (187,828)
Accounts payable (982,270) 1,516,995 124,562
Accrued expenses (1,329,850) (505,553) 3,486,535
--------------- --------------- ---------------
Total adjustments 1,910,290 (826,589) 15,691,280
--------------- --------------- ---------------
Net cash used in operating activities (6,149,710) (7,026,162) (114,438,752)
--------------- --------------- ---------------
INVESTING ACTIVITIES
Purchases of securities available-for-sale (9,006,718) (33,651,831) (234,120,605)
Proceeds from sales of securities available-for-sale 3,415,335 8,079,211 46,330,318
Proceeds from maturities of securities available-for-sale 11,315,000 30,268,879 150,882,952
Purchase of property and equipment (123,595) (1,107,513) (16,800,661)
Dispositions of property and equipment - - 167,300
--------------- --------------- ---------------
Net cash provided/(used) in investing activities 5,600,022 3,588,746 (53,540,696)
--------------- --------------- ---------------
FINANCING ACTIVITIES
Sale of common stock to founders - - 80,000
Proceeds from borrowings from shareholders - - 850,000
Sale of common stock via initial public offering, net of offering costs - - 26,802,250
Sale of common stock via follow-on public offering, net of offering costs - - 34,262,000
Sale of Series A preferred stock via private placement, net of offering costs - - 47,366,204
Sale of Series B preferred stock via private placement, net of offering costs - - 4,960,000
Sale of common stock via private placements, net of offering costs - - 52,307,084
Repurchase of common stock - - (2,522)
Notes receivable from officers to acquire common stock - - (380,000)
Proceeds from common stock options exercised - 86,993 760,026
Proceeds from common stock warrants exercised - - 305,558
Proceeds from employee stock purchase plan - - 215,646
Repayment of long-term obligations (277,839) (366,075) (11,856,440)
Proceeds from the issuance of long-term obligations - - 15,844,601
--------------- --------------- ---------------
Net cash provided/(used) in financing activities (277,839) (279,082) 171,514,407
--------------- --------------- ---------------
</TABLE>
5
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<TABLE>
<S> <C> <C> <C>
Net increase (decrease) in cash and cash equivalents (827,527) (3,716,498) 3,534,959
Cash and cash equivalents at beginning of period 4,362,486 8,876,990 -
--------------- --------------- ---------------
Cash and cash equivalents at end of period $ 3,534,959 $ 5,160,492 $ 3,534,959
=============== =============== ===============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Acquisition of equipment pursuant to capital lease obligations $ - $ - $ 362,425
=============== =============== ===============
Conversion of convertible debt and related accrued interest into common
stock $ - $ - $ 875,918
=============== =============== ===============
Conversion of preferred stock into common stock $ - $ - $ 52,326,204
=============== =============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest obligations $ 133,462 $ 105,766 $ 2,572,310
=============== =============== ===============
</TABLE>
See accompanying notes.
6
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CELL THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial information of Cell Therapeutics, Inc.
(the "Company") as of March 31, 1999 and for the three months ended March 31,
1999 and 1998 has been prepared in accordance with the instructions to Form 10-
Q. In the opinion of management, such financial information includes all
adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair presentation of the financial position at such date and the
operating results and cash flows for such periods. Operating results for the
three month period ended March 31, 1999 are not necessarily indicative of the
results that may be expected for the entire year. These financial statements and
the related notes should be read in conjunction with the Company's audited
annual financial statements for the year ended December 31, 1998 included in the
Company's Form 10-K for the year ended December 31, 1998.
Certain prior year balances have been reclassified to conform to the current
year presentation.
(2) REPORTING COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement 130, "Reporting
Comprehensive Income." Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company's net income or shareholders'
equity. Statement 130 requires unrealized gains or losses on the Company's
available-for-sale securities, which prior to adoption were reported separately
in shareholders' equity, to be included in other comprehensive income. Prior
year financial statements have been reclassified to conform to the
requirements of Statement 130.
For the three months ended March 31, 1999 and 1998, the Company's
comprehensive loss was as follows:
Three months ended
--------------------------------
March 31, 1999 March 31, 1998
-------------- --------------
Net loss $(8,060,000) $(6,199,573)
Other comprehensive gain/(loss):
Unrealized holding gains/(losses)
arising during period (10,545) 30,277
-------------- --------------
Total comprehensive loss $(8,070,545) $(6,169,296)
============== ==============
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS, IN ADDITION TO HISTORICAL
INFORMATION, FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES.
WHEN USED IN THIS FORM 10-Q, THE WORDS "BELIEVES," "ANTICIPATES," "INTENDS,"
"EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING
STATEMENTS. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE
OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED BELOW AS WELL AS THOSE DISCUSSED IN THE COMPANY'S ANNUAL REPORTS ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998 WHICH IS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. READERS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE
HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF
ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS WHICH MAY BE MADE TO REFLECT
EVENTS OR CIRCUMSTANCES AFTER THE DATE OF THIS FORM 10-Q OR TO REFLECT THE
OCCURRENCE OF UNANTICIPATED EVENTS.
OVERVIEW
Since commencement of operations in 1992, the Company has been engaged in
research and development activities, including conducting preclinical studies
and clinical trials, recruiting its scientific and management personnel,
establishing laboratory facilities and raising capital. The Company has not
received any revenue from the sale of products to date and does not expect to
receive revenues from the sale of products for at least the next several years.
In the fourth quarter of 1995, the Company began to receive revenue under a
collaboration agreement with BioChem Pharma, Inc. ("BioChem Pharma") and in the
fourth quarter of 1996 the Company began to receive revenue under a
collaboration agreement (the "Collaboration Agreement") with subsidiaries of
Johnson & Johnson ("Johnson & Johnson"). Under the terms of the Collaboration
Agreement, Johnson & Johnson paid 60% of the U.S. development costs in
connection with obtaining regulatory approval of lisofylline ("LSF-TM") for use
with bone marrow transplants ("BMT"). After exercising its option in 1997,
Johnson & Johnson expanded its participation in the development of LSF to
include the treatment of patients undergoing induction chemotherapy to treat
acute myeloid leukemia ("AML"). In July 1998, after reviewing the results of
the Company's Phase III clinical trial for LSF among patients receiving BMT from
related donors, in which the primary endpoints were not met, Johnson & Johnson
reached an agreement in principle with the Company to revise the Collaboration
Agreement. On November 16, 1998, the Company and Johnson & Johnson formally
amended the Collaboration Agreement. Under the terms of the amended
Collaboration Agreement, Johnson & Johnson agreed to pay the Company $13.1
million for development cost reimbursements for BMT and AML for the year ending
December 31, 1998. After reviewing both the interim data from the Company's
pivotal Phase II/III trial for LSF in patients with acute lung injury and acute
respiratory distress syndrome and the results of the Company's Phase III trial
for LSF following induction chemotherapy for AML, Johnson & Johnson may elect to
resume responsibility for the development and commercialization of LSF subject
to certain additional payments upon resumption of its obligations. If Johnson &
Johnson does not elect to resume development activities, then the Company will
be free to license LSF to other third parties. As of December 31, 1998, the
Company had recorded approximately $40.8 million in equity payments, license and
milestone fees, and development cost reimbursements with Johnson & Johnson.
As of March 31, 1999, the Company had incurred aggregate net losses of
approximately $130.1 million since its inception. The Company expects to
continue to incur significant additional operating losses over the next several
years as its research, development and clinical trial efforts expand. Operating
losses may fluctuate from quarter to quarter as a result of differences in the
timing of expenses incurred and revenues recognized. To date, the Company's
operations have been funded primarily from sales of equity securities, which
have raised aggregate net proceeds of approximately $168.0 million.
8
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RESULTS OF OPERATIONS
Three months ended March 31, 1999 compared with three months ended March 31,
1998.
The Company did not record any development cost reimbursements from Johnson &
Johnson under the amended Collaboration Agreement during the three months ended
March 31, 1999. Development cost reimbursements for the comparable three month
period in 1998 were approximately $3.3 million.
Research and development expenses decreased to approximately $6.4 million for
the three months ended March 31, 1999, from approximately $7.8 million for the
three months ended March 31, 1998. This decline was due primarily to a decrease
in manufacturing and preclinical development activities for LSF. The Company
expects that research and development expenses will increase in future years as
the Company expands its research and development programs and undertakes
additional clinical trials.
General and administrative expenses decreased to approximately $2.1 million
for the three months ended March 31, 1999, from approximately $2.6 million for
the three months ended March 31, 1998. This decrease was due primarily to the
reduction in operating expenses associated with supporting the Company's
research, development and clinical activities. General and administrative
expenses are expected to increase to support the Company's expected increase in
research, development and clinical trial efforts.
Investment income principally comprises interest income from investment of the
Company's cash reserves. Interest expense results primarily from the financing
of laboratory and other equipment. Investment income decreased to approximately
$583,000 for the three months ended March 31, 1999 from approximately $972,000
for the three months ended March 31, 1998. This decrease was associated
primarily with interest earnings on lower average cash balances on hand during
the first quarter of 1999 when compared to the first quarter of 1998. Interest
expense increased slightly to approximately $133,000 for the three months ended
March 31, 1999 from approximately $106,000 for the three months ended March 31,
1998. This increase was due primarily to higher average balances of outstanding
long-term obligations.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily through the
sale of equity securities and from its collaboration with Johnson & Johnson. As
of March 31, 1999, the Company has raised aggregate net proceeds of
approximately $168.0 million through the sale of equity securities including
public offerings of common stock, private placements of Series A and B
convertible stock and common stock, a bridge loan, the exercise of stock
options and warrants and the sale of common stock pursuant to the Employee
Stock Purchase Plan. In addition, the Company financed the purchase of
$16.2 million of property and equipment through financing agreements and capital
lease obligations of which approximately $4.3 million remained outstanding as
of March 31, 1999.
At March 31, 1999, the Company had $40.5 million in cash, cash equivalents,
short-term investments and interest receivable. The Company invests in U.S.
government obligations and other highly rated liquid debt instruments. The
Company intends to use the substantial portion of its financial resources to
fund its research and development activities with respect to the Company's LSF
and Apra programs, including preclinical testing, clinical trials and process
development activities, and to fund other research and development activities.
The amounts actually expended for research and development activities and the
timing of such expenditures will depend upon numerous factors, including the
progress of the Company's research and development programs, the results of
preclinical and clinical trials, and timing of regulatory submissions and
approvals, if any, technological advances, determinations as to the commercial
potential of the Company's compounds, and the status and timing of competitive
products. The amount of expenditures will also depend upon the potential
resumption by Johnson & Johnson of its obligations under the Collaboration
Agreement, the timing and availability of alternative methods of financing the
Company's research and development activities and preclinical and clinical
trials, and the ability of the Company to establish collaborative agreements
with other companies. A variety of other factors, some of which are beyond the
Company's control, could also affect the application of the proceeds.
The Company also expects to use a portion of its financial resources to add
research and product development programs. On June 30, 1998, the Company
entered into an agreement with PG-TXL Company, L.P. and scientists at the M.D.
Anderson Cancer Center, granting the Company an exclusive worldwide license to
the rights to PG-TXL, a water
9
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soluble form of the cancer drug, Taxol(R), and to all potential uses of PG-TXL's
polymer technology. Under the terms of the agreement, the Company will fund the
research, development, manufacture, marketing and sale of anti-cancer drugs
developed using PG-TXL's polymer technology. On December 11, 1998, the Company
entered into an exclusive option agreement with SynChem Research, Inc.
("SynChem") to acquire an exclusive worldwide license (the "SynChem License") to
a novel class of compounds which are inhibitors of tumor angiogenesis. The
Company's option to acquire the SynChem license shall be exercisable at the end
of a six-month evaluation period upon the payment of an initial license fee.
Under the terms of the option agreement, the SynChem License will provide that
the Company will fund research, development, manufacture, marketing and sale of
anti-cancer drugs using SynChem's copper chelation technology. The Company's
research and development expenditures will vary as such research and product
development programs are added, expanded or discontinued.
The Company also expects to use portions of its financial resources to improve
facilities, purchase capital equipment and for general corporate purposes. The
Company has not identified precisely the amount it plans to spend on these
specific programs or the timing of such expenditures. Pending such uses, the
Company intends to invest its cash balances in U.S. government obligations and
other highly rated liquid debt instruments. The Company may also from time to
time consider the acquisition of other companies, technologies or products that
complement the business of the Company, although no agreements or understandings
are in effect with respect to any such transactions at this time.
The Company expects that its capital requirements will increase as the Company
expands its research and development programs and undertakes additional clinical
trials. In connection with such expansion, the Company expects to incur
substantial expenditures for hiring additional management, scientific and
administrative personnel, for planned expansion of its facilities, and for the
purchase or lease of additional equipment.
The Company does not expect to generate a positive cash flow from operations
for several years due to substantial additional research and development costs,
including costs related to drug discovery, preclinical testing, clinical
trials, manufacturing costs and operating expenses associated with supporting
such activities. The Company expects that its existing capital resources and
the interest earned thereon will enable the Company to maintain its current and
planned operations at least through mid 2000. The Company will need to raise
substantial additional capital to fund its operations beyond such time. The
Company's future capital requirements will depend on many factors, including
the potential resumption by Johnson & Johnson of its obligations under the
Collaboration Agreement; the ability of the Company to establish additional
collaborative arrangements and the terms of any additional collaborative
arrangements that the Company may enter into; the continued scientific
progress in the Company's research and development programs; the magnitude of
such programs; the progress of preclinical testing and clinical trials; the
time and costs involved in obtaining regulatory approvals; the costs involved
in preparing, filing, prosecuting, maintaining, enforcing and defending patent
claims; the competing technological and market developments; the cost of
establishing manufacturing facilities; the cost of commercialization activities
and the demand for the Company's products if and when approved.
The Company intends to raise additional funds through additional equity or
debt financings, research and development financings, collaborative
arrangements, acquisitions, or otherwise. Because of these long-term capital
requirements, the Company may seek to access the public or private equity
markets from time to time, even if it does not have an immediate need for
additional capital at that time. There can be no assurance that additional
financing will be available to the Company, or, if available, that it will be on
acceptable terms. If additional funds are raised by issuing equity securities,
further dilution to shareholders may result. If adequate funds are not
available, the Company may be required to delay, reduce the scope of, or
eliminate one or more of its research, development and clinical activities. If
the Company seeks to obtain funds through arrangements with collaborative
partners or others, such partners may require the Company to relinquish rights
to certain of its technologies, product candidates or products that the Company
would otherwise seek to develop or commercialize by itself.
The Company is exposed to market risk related to changes in interest rates and
foreign currency exchange rates, each of which could adversely affect the value
of the Company's investments. The Company does not use derivative financial
instruments for speculative or trading purposes. The Company maintains a short-
term investment portfolio consisting of interest bearing securities with an
average maturity of less than one year. These securities are classified as
"available-for-sale" securities. The interest bearing securities are subject to
interest rate risk and will fall in value if market interest
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rates increase. If market interest rates were to increase immediately and
uniformly by 10% from levels at March 31, 1999, the fair value of the portfolio
would decline by an immaterial amount. Because the Company has the ability to
hold its fixed income investments until maturity, it does not expect its
operating results or cash flows to be affected to any significant degree by a
sudden change in market interest rates on its securities portfolio. As of March
31, 1999, the Company has not entered into any foreign exchange contracts to
hedge any exposure in its primary overseas contract because such exposure is
immaterial.
As of March 31, 1999, the Company had available for Federal income tax
purposes net operating loss carryforwards of approximately $124.5 million and
research and development credit carryforwards of approximately $4.6 million.
These carryforwards begin to expire in 2007. The Company's ability to utilize
its net operating loss and research and development credit carryforwards is
subject to an annual limitation in future periods pursuant to the "change in
ownership" rules under Section 382 of the Internal Revenue Code of 1986.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company operates in a rapidly changing environment that involves a number
of risks, some of which are outside of the Company's control. The following
discussion highlights some of these risks and others are discussed elsewhere
herein and in other documents filed by the Company with the Securities and
Exchange Commission.
The time frame for market success for any of the Company's potential products
is long and uncertain. The Company is at an early stage of development and its
technology is unproven. All of the Company's proposed products are in research
or development and will require significant additional research and development
efforts prior to any commercial use, including extensive preclinical and
clinical testing as well as lengthy regulatory approval. There can be no
assurance that the Company's research and development and clinical trial efforts
will be successful, that its lead drug candidates, LSF and Apra, or any of its
other proposed products, will prove to be safe and efficacious in clinical
trials or meet applicable regulatory standards, that unforeseen problems will
not develop with the Company's technologies or applications, or that any
commercially successful products will ultimately be developed by the Company.
The Company faces substantial competition from a variety of sources, both direct
and indirect. There can be no assurance that research and discoveries by others
will not render some or all of the Company's programs or products noncompetitive
or obsolete or that the Company will be able to keep pace with technological
developments or other market factors.
A key element of the Company's strategy is to enhance its drug discovery and
development programs and to fund its capital requirements, in part, by entering
into various collaborative arrangements with corporate partners, such as Johnson
& Johnson, as well as academic collaborators and licensors. There can be no
assurance that Johnson & Johnson will resume its development activities under
the Collaboration Agreement, in which case, the Company would be free to license
LSF to other third parties. However, there can be no assurance that the Company
will be able to negotiate collaborative arrangements with such third parties or
that these collaborations, if entered into, will be on terms favorable to the
Company. If the Company is unable to enter into future collaborations with
capable partners and on commercially reasonable terms, the development and
commercialization of its product candidates would be delayed and possibly
postponed indefinitely.
There also can be no assurance that the Company will be able to establish
effective sales and distribution capacities or will be successful in gaining
market acceptance for LSF. The Company currently has no internal manufacturing
facilities and has no experience in sales, marketing or distribution. The
Company relies on one third party, ChiRex, Ltd. ("ChiRex"), to manufacture LSF
bulk drug and three suppliers for clinical trial quantities of the finished drug
product. The Company's products have never been manufactured on a commercial
scale and there can be no assurance that the Company, together with a third-
party collaborator, will be able to transition to commercial production. The
Company has identified manufacturers with adequate capacity to meet forecasted
commercial quantities of LSF; however, there can be no assurance that the
Company will be able to enter into an agreement with these manufacturers on
acceptable terms. There also can be no assurance that the manufacturing
facilities of contract manufacturers, including ChiRex, will comply with
applicable manufacturing regulations of the FDA or meet the Company's
requirements for quality, quantity or timeliness.
The Company's strategy for commercializing LSF for its oncology applications
is to establish a strategic alliance with a corporate partner that has an
established, skilled, and experienced field sales organization with which to
collaborate in the areas
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of marketing strategy and clinical liaison. There can be no assurance that the
Company will be able to establish such a strategic alliance. Should the Company
have to market and sell its products directly, it would need to develop a
marketing and sales force with technical expertise and distribution capability.
The creation of an infrastructure to commercialize pharmaceutical products is an
expensive and time-consuming process. There can be no assurance that the Company
would be able to develop the necessary marketing and sales capabilities or be
successful in gaining market acceptance for its products.
The foregoing risks reflect the Company's early stage of development and the
nature of the Company's industry and potential products. Other risk factors that
may affect the Company's future results include competition, uncertainties
regarding protection of patents and proprietary rights, government regulation
and uncertainties regarding pharmaceutical pricing and reimbursement.
The Company could be impacted by the Year 2000 issue, which results from
computer programs being written using two digits rather than four to define the
applicable year. Any of the Company's computer programs that have time-
sensitive software may recognize a date using "00" as the year 1900 rather than
the year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
The Company is in the process of assessing its computer systems to determine
the extent of modifications required so that its computer systems will function
properly with respect to dates in the year 2000 and thereafter. The Company's
systems are all relatively new and PC-based. All of the Company's business
software programs, with the exception of its fixed asset module, have been
evaluated as Year 2000 compliant. A Year 2000 compliant fixed asset module was
installed in the first quarter of 1999 and is expected to be operational by
September 30, 1999. The Company has also initiated an assessment of its non-
information technology ("non-IT") systems. Critical electro-mechanical
instruments containing software have been evaluated for Year 2000 compliance.
This evaluation was completed in the first quarter of 1999. The Company has
also initiated formal communications with all of its significant suppliers to
determine the extent to which the Company's interface systems are vulnerable to
those third parties' failure to remedy their own Year 2000 issues. During the
first quarter of 1999, the Company completed its follow up with these suppliers
to determine the extent of alternative sources or contingency plans that are
required. The Company presently believes the Year 2000 issue will not pose
significant operational problems for its computer systems, non-IT systems or
third-party relationships.
The Company has been continually upgrading its information technology systems
and critical laboratory instrumentation since inception in 1992. The Company
has not incurred to date, and does not have plans currently to incur, material
additional costs to accelerate the replacement of its existing information
technology systems or critical laboratory instrumentation due to Year 2000
issues. Costs incurred to date and costs estimated to complete the Year 2000
project are not expected to be material.
If corrections to the Company's Year 2000 issues are not completed, or the
systems of other companies on which the Company's systems rely are not timely
converted, the Year 2000 issue could have a material impact on the Company's
business, prospects, financial condition, liquidity and results of operations.
These impacts could include, but are not limited to, future revenue delays due
to delayed research, development, clinical trials or agency approvals.
The Company presently believes that the Year 2000 issues can be effectively
avoided, but it intends to develop a contingency plan to allow operations to
continue even if significant issues are experienced. The Company has a team
assigned to review all information technology systems, all equipment, and
vendors of equipment and services that may be impacted by Year 2000 issues.
Contingency plans will be developed for each critical activity by the end of the
second quarter of 1999.
12
<PAGE>
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
13
<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:
CELL THERAPEUTICS, INC.
(Registrant)
Dated: May 17, 1999 By: /s/ James A. Bianco, M.D.
-----------------------------
James A. Bianco, M.D.
President and Chief Executive
Officer
Dated: May 17, 1999 By: /s/ Louis A. Bianco
-----------------------------------
Louis A. Bianco
Executive Vice President,
Finance and Administration
(Principal Financial Officer,
Chief Accounting Officer)
14
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
EXHIBIT 27.1 Financial Data Schedule
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARCH 31,
1999 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,534,959
<SECURITIES> 36,972,897
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 41,001,653
<PP&E> 16,641,269
<DEPRECIATION> 10,174,940
<TOTAL-ASSETS> 47,544,585
<CURRENT-LIABILITIES> 4,746,495
<BONDS> 0
0
0
<COMMON> 169,713,678
<OTHER-SE> (130,538,382)
<TOTAL-LIABILITY-AND-EQUITY> 47,544,585
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 8,509,870
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 133,462
<INCOME-PRETAX> (8,060,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,060,000)
<EPS-PRIMARY> (.52)
<EPS-DILUTED> (.52)
</TABLE>
