<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2000
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 MARCH 31, 2000
----- -----------------------------
Common Stock, no par value (including
associated Preferred Stock Purchase Rights).... 24,223,486
This report on Form 10-Q/A contains 12 pages.
The exhibit index is located on page 12.
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1
<PAGE>
CELL THERAPEUTICS, INC.
REPORT ON FORM 10-Q/A
FOR THE QUARTER ENDED MARCH 31, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Consolidated Balance Sheets -- March 31, 2000 and December 31, 1999.......... 3
Consolidated Statements of Operations -- Three months ended March 31, 2000
and 1999 and the period from September 4, 1991 (date of incorporation)
to March 31, 2000............................................................ 4
Consolidated Statements of Cash Flows -- Three months ended March 31, 2000
and 1999 and the period from September 4, 1991 (date of incorporation)
to March 31, 2000............................................................ 5
Notes to Consolidated Financial Statements................................... 6
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................................................... 8
SIGNATURES................................................................... 11
EXHIBIT INDEX................................................................ 12
</TABLE>
2
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
CELL THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
(unaudited)
(restated)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 29,891,732 $ 5,674,386
Securities available-for-sale 22,461,839 18,205,630
Interest receivable 364,116 367,636
Prepaid expenses and other current assets 1,492,084 748,506
------------ ------------
Total current assets 54,209,771 24,996,158
Property and equipment 16,580,220 16,550,053
Accumulated depreciation (11,959,891) (11,514,370)
------------ ------------
Property and equipment, net 4,620,329 5,035,683
Acquisition related intangible assets, net 34,051,255 -
Other assets and deferred charges 917,848 816,050
------------ ------------
Total assets $ 93,799,203 $ 30,847,891
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 832,120 $ 1,224,994
Accrued expenses 6,646,629 4,940,626
Notes payable 2,442,500 -
Current portion of long-term obligations 1,253,019 1,125,211
------------ ------------
Total current liabilities 11,174,268 7,290,831
Long-term obligations, less current portion 2,233,384 2,653,111
Commitments
Shareholders' equity:
Preferred Stock, no par value:
Series A and B, 161,118.645 shares designated,
none issued or outstanding - -
Series D, designated, issued and outstanding shares - 3,800 and 10,000
at March 31, 2000 and December 31, 1999, respectively
liquidation preference - $3,800,000 2,366,625 6,227,960
Common Stock, no par value:
Authorized shares--100,000,000
Issued and outstanding shares--24,223,486 and 15,595,536
at March 31, 2000 and December 31, 1999, respectively 230,194,315 173,391,407
Common shares issuable in PolaRx transaction 17,620,500 -
Notes receivable from officers (330,000) (330,000)
Deficit accumulated during development stage (169,419,261) (158,350,182)
Accumulated other comprehensive loss (40,628) (35,236)
------------ ------------
Total shareholders' equity 80,391,551 20,903,949
------------ ------------
Total liabilities and shareholders' equity $ 93,799,203 $ 30,847,891
============ ============
</TABLE>
See accompanying notes.
3
<PAGE>
CELL THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Period from
September 4, 1991
Three Months Ended March 31, (Date of Incorporation)
-------------------------------------- To March 31,
2000 1999 2000
----------------- ----------------- -------------------
(restated) (restated)
<S> <C> <C> <C>
Revenues:
Collaboration agreements $ - $ - $ 34,252,652
Operating expenses:
Research and development 7,070,932 6,364,195 152,140,534
General and administrative 1,932,932 2,145,675 58,153,697
Amortization of acquisition related intangibles 2,351,105 - 2,351,105
----------------- ----------------- -------------------
11,354,969 8,509,870 212,645,336
----------------- ----------------- -------------------
Loss from operations: (11,354,969) (8,509,870) (178,392,684)
Other income (expense):
Investment income 481,728 583,332 12,136,142
Interest expense (195,838) (133,462) (3,162,719)
----------------- ----------------- -------------------
Net loss: (11,069,079) (8,060,000) (169,419,261)
----------------- ----------------- -------------------
Preferred stock dividend (126,389) - (5,326,902)
----------------- ----------------- -------------------
Net loss applicable to common shareholders: $(11,195,468) $ (8,060,000) $ (174,746,163)
================= ================= ===================
Basic and diluted net loss per common share $ (0.58) $ (0.52)
================= =================
Shares used in calculation of basic and
diluted net loss per common share 19,439,774 15,534,359
================= =================
</TABLE>
See accompanying notes.
4
<PAGE>
CELL THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
2000 1999
------------- ------------
(restated)
<S> <C> <C>
Operating Activities
Net loss applicable to common shareholders $ (11,195,468) $ (8,060,000)
Adjustments to reconcile net loss applicable to common shareholders
to net cash used in operating activities:
Preferred stock dividend 126,389 -
Depreciation and amortization 2,796,626 483,163
Noncash research and development expense - -
Noncash interest expense - -
Noncash rent expense (benefit) (28,728) (32,273)
Noncash compensation expense 471,433 80,868
Loss on disposition of property and equipment - -
Investment premium (discount) amortization (accretion) 6,751 135,392
(Gain) loss on sale of investment securities 1,431 -
Changes in assets and liabilities, net of business acquired:
Interest receivable 3,520 (132,846)
Collaboration agreement receivables - 3,254,491
Prepaid expenses and other current assets (716,919) 426,339
Other assets and deferred charges 61,810 7,276
Accounts payable (392,875) (982,270)
Accrued expenses (156,699) (1,329,850)
------------- ------------
Total adjustments 2,172,739 1,910,290
------------- ------------
Net cash used in operating activities (9,022,729) (6,149,710)
------------- ------------
Investing activities
Purchases of securities available-for-sale (10,569,937) (9,006,718)
Proceeds from sales of securities available-for-sale 1,495,155 3,415,335
Proceeds from maturities of securities available-for-sale 4,805,000 11,315,000
Purchases of property and equipment (30,167) (123,595)
PolaRx acquisition, net (781,438) -
------------- ------------
Net cash provided by (used in) investing activities (5,081,387) 5,600,022
------------- ------------
Financing activities
Sale of common stock to founders - -
Proceeds from borrowings from shareholders - -
Sale of common stock via public offerings, net of offering costs - -
Sale of Series A preferred stock via private placement, net of offering costs - -
Sale of Series B preferred stock via private placement, net of offering costs - -
Sale of Series D preferred stock via private placement, net of offering costs 49,129 -
Sale of common stock via private placements, net of offering costs 37,248,374 -
Repurchase of common stock - -
Notes receivable from officers to acquire common stock - -
Proceeds from common stock options exercised 1,517,957 -
Proceeds from common stock warrants exercised - -
Proceeds from employee stock purchase plan - -
Repayment of notes payable (230,806) -
Repayment of long-term obligations (263,192) (277,839)
Proceeds from the issuance of long-term obligations - -
------------- ------------
Net cash provided by (used in) financing activities 38,321,462 (277,839)
------------- ------------
Net increase (decrease) in cash and cash equivalents 24,217,346 (827,527)
Cash and cash equivalents at beginning of period 5,674,386 4,362,486
------------- ------------
Cash and cash equivalents at end of period $ 29,891,732 $ 3,534,959
============= ============
Supplemental schedule of noncash investing and financing activities
Acquisition of equipment pursuant to capital lease obligations $ - $ -
============= ============
Conversion of convertible debt and related accrued interest into common stock $ - $ -
============= ============
Conversion of preferred stock into common stock $ 3,861,335 $ -
============= ============
Common stock warrants issued in conjunction with Series D $ - $ -
============= ============
Reclass to current asset of note receivable from former officer $ - $ -
============= ============
Common Stock issued and issuable in PolaRx acquisition $ 31,440,000 $ -
============= ============
Supplemental disclosure of cash flow information
Cash paid during the period for interest obligations $ 195,838 $ 133,462
============= ============
</TABLE>
<TABLE>
<CAPTION>
Period From
September 4, 1991
(Date of Incorporation)
to March 31, 2000
-----------------------
(restated)
<S> <C>
Operating Activities
Net loss applicable to common shareholders $ (174,746,163)
Adjustments to reconcile net loss applicable to common shareholders
to net cash used in operating activities:
Preferred stock dividend 5,326,902
Depreciation and amortization 14,709,633
Noncash research and development expense 1,155,750
Noncash interest expense 25,918
Noncash rent expense (benefit) 325,595
Noncash compensation expense 1,563,309
Loss on disposition of property and equipment 693,084
Investment premium (discount) amortization (accretion) 917,037
(Gain) loss on sale of investment securities (25,609)
Changes in assets and liabilities, net of businesses acquired:
Interest receivable (94,422)
Collaboration agreement receivables -
Prepaid expenses and other current assets (1,415,425)
Other assets and deferred charges (865,465)
Accounts payable 832,119
Accrued expenses 4,739,483
--------------
Total adjustments 27,887,909
--------------
Net cash used in operating activities (146,858,254)
--------------
Investing activities
Purchases of securities available-for-sale (265,483,831)
Proceeds from sales of securities available-for-sale 55,521,477
Proceeds from maturities of securities available-for-sale 186,287,952
Purchases of property and equipment (17,265,396)
PolaRx acquisition, net of cash acquired (781,438)
--------------
Net cash provided by (used in) investing activities (41,721,236)
--------------
Financing activities
Sale of common stock to founders 80,000
Proceeds from borrowings from shareholders 850,000
Sale of common stock via public offerings, net of offering costs 61,064,250
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 Series D preferred stock via private placement, net of offering costs 9,394,089
Sale of common stock via private placements, net of offering costs 89,555,458
Repurchase of common stock (2,522)
Notes receivable from officers to acquire common stock (380,000)
Proceeds from common stock options exercised 2,291,985
Proceeds from common stock warrants exercised 305,558
Proceeds from employee stock purchase plan 333,093
Repayment of notes payable (230,806)
Repayment of long-term obligations (12,960,688)
Proceeds from the issuance of long-term obligations 15,844,601
--------------
Net cash provided by (used in) financing activities 218,471,222
--------------
Net increase (decrease) in cash and cash equivalents 29,891,732
Cash and cash equivalents at beginning of period -
--------------
Cash and cash equivalents at end of period $ 29,891,732
==============
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 $ 56,187,539
==============
Common stock warrants issued in conjunction with Series D $ 3,117,000
==============
Reclass to current asset of note receivable from former officer $ 50,000
==============
Common Stock issued and issuable in PolaRx acquisition $ 31,440,000
==============
Supplemental disclosure of cash flow information
Cash paid during the period for interest obligations $ 3,162,719
==============
</TABLE>
See accompanying notes.
5
<PAGE>
CELL THERAPEUTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
(RESTATED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial information of Cell Therapeutics, Inc.
(the Company) as of March 31, 2000 and for the three months ended March 31, 2000
and 1999 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, 2000 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, 1999 included in the Company's Form
10-K for the year ended December 31, 1999.
Research and development expenses consist of costs incurred for proprietary
and collaboration research and development. These costs are expensed as
incurred.
Certain prior year balances have been reclassified to conform to the
current year presentation.
(2) REPORTING COMPREHENSIVE INCOME
For the three months ended March 31, 2000 and 1999, the Company's
comprehensive loss was as follows:
<TABLE>
<CAPTION>
Three months ended
---------------------------------
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Net loss applicable to common shareholders $(11,195,468) $(8,060,000)
Other comprehensive loss:
Unrealized holding losses arising
during period (5,392) (10,545)
-------------- --------------
Total comprehensive loss $(11,200,860) $(8,070,545)
============== ==============
</TABLE>
3) CAPITAL STOCK
In February, 2000, the Company completed a $40 million private placement of
3,333,334 shares of common stock at an offering price of $12.00 per share,
resulting in net proceeds of approximately $37.2 million. In connection with
the offering, the Company issued 170,000 warrants to purchase shares of common
stock to a placement agent and finder. The warrants are exercisable for a
period of five years at a price equal to 110% of the price per share of common
stock sold in the offering. The value of warrants were accounted for as a cost
of the offering. The shares of common stock issued and issuable upon the
exercise of the warrants have certain registration rights.
6
<PAGE>
(4) ACQUISITION OF POLARX BIOPHARMACEUTICALS, INC.
On January 7, 2000, the Company acquired PolaRx Biopharmaceuticals, Inc.
(PolaRx), a biopharmaceutical company that owns the rights to Arsenic Trioxide
(ATO), an anti-cancer compound for which the Company has submitted a New Drug
Application with the FDA. Under the terms of the Agreement and Plan of Merger
and Reorganization, dated January 7, 2000, (the Agreement), the Company assumed
PolaRx's liabilities and commitments. In addition, PolaRx's shareholders
received 2,000,000 shares of the Company's common stock at signing and will earn
3,000,000 additional shares upon the earlier of the approval of a New Drug
Application by the FDA of PolaRx's anti-cancer compound ATO, or January 6, 2005.
The aggregate consideration of $36.1 million consisted of the 5 million
shares of common stock valued at $31.4 million, assumed net liabilities of $3.9
million and transaction costs of approximately $825,000. The 2 million shares
issued at closing were valued at $6.91 per share (aggregating $13,820,000),
which represented the average closing price of the Company's common stock during
the 3 day periods prior to and following the January 7, 2000 transaction date.
The 3 million shares to be issued at the earlier of the approval of a New Drug
Application by the FDA of PolaRx's anti-cancer compound ATO, or January 6, 2005,
were valued at $5.87 per share (aggregating $17,620,000), reflecting a discount
of 15% from $6.91 due to the lack of marketability inherent in those shares of
stock.
The value of the 3 million shares yet to be issued is included in
Shareholders' Equity as "Common shares issuable in PolaRx transaction." The
issuance of 2 million of the 3 million shares to be issued at the earlier of a
New Drug Application by the FDA of PolaRx's anti-cancer compound ATO, or January
6, 2005, is subject to shareholder approval. If the issuance of the 2 million
shares is not approved by the shareholders, the Company is required to pay this
portion of the remaining purchase price with cash (or other equity securities as
may be offered by CTI and acceptable to a majority of the PolaRx Stockholders
(based upon the number of shares held by each), to be determined in the sole and
absolute discretion of a majority of the PolaRx Stockholders) based on the value
of the Company's stock when payment is due. If the issuance of the shares is
not approved by the shareholders and the obligation is settled in cash, the
amount of cash paid will be reflected as a reduction of common stock.
The Company is required to make contingent payments of up to $9.0 million
and future royalties if certain milestones and target net sales specified in the
merger agreement are attained. Any additional or contingent payments made to
PolaRx shareholders will be considered additional purchase price and be
capitalized as additional goodwill and amortized appropriately.
The acquisition was accounted for as a purchase transaction. The aggregate
purchase price of approximately $36.1 million was allocated, based on the fair
value on the acquisition date, to the marketing intangible assets ($16.1
million), patented technology ($6.6 million) and goodwill ($13.4 million). The
intangible assets are amortized over their estimated useful lives of three to
five years. Notes payable aggregating $2,673,306 were assumed in connection with
the PolaRx acquisition. The notes carry interest rates of 9% to 15% and become
due between March and November 2000. CTI also assumed and paid a fee of $750,000
to a placement agent in connection with the acquisition.
The 3 million shares issuable in the future are not considered in earnings
per share for the period ended March 31, 2000 as their effect would currently be
anti-dilutive. These securities could potentially dilute earnings per share in
the future.
The marketing of a commercial product bridges the gap in the Company's
pipeline of products and creates an opportunity to access a broader market
segment with a relatively non-controversial and accepted product. The value of
this marketing strategy is related to the acquisition of successfully-completed
clinical trial studies which included bioanalytical and statistical data,
analyses and reports which have enabled the subsequent timely filing of a New
Drug Application.
The timely filing of the New Drug Application greatly enhances the
Company's relative competitive market position. The value of the preclinical
and clinical research acquired together with the Orphan Drug Designation by the
FDA accelerates the potential for regulatory approval and commercialization of a
marketable product.
The fair value of the marketing intangibles was determined by the
replacement cost approach, which seeks to measure the future benefits of
ownership by quantifying the amount of money that would be required to replace
the future service capability of the subject intangible property. Replacement
cost was the total cost to create a successful marketing strategy and included
an examination of the substantial research and development cost savings achieved
by the Company through the acquisition of PolaRx.
Through the purchase of PolaRx the Company also acquired a patent for the
treatment of primary and metastic neoplastic diseases using arsenic compounds.
By forecasting the incremental revenues and net incomes expected by the
utilization of this patent in the areas of Acute Promyelocytic Leukemia (APL)
and Multiple Myeloma over an expected five year period, it is possible to
separate the value attributable to the patent by utilizing an income approach.
The fair value of the patented technology was determined by discounting the
forecasted earnings streams to each application at 30% over the anticipated
revenue life of five years, which produced net present values of $2,018,000 and
$4,594,000 for the APL and Multiple Myeloma indications, respectively.
The pro forma consolidated financial information for the quarter ended
March 31, 1999, determined as if the acquisition had occurred on January 1,
1999, would have resulted in no revenues, a net loss applicable to common
shareholders of $11,085,994 and basic and diluted net loss per common share of
$.63. Pro forma information for the period ended March 31, 2000 has not been
included as the transaction was consummated on January 7, 2000, which is near
the beginning of the period. This unaudited pro forma information is presented
for illustrative purposes only and is not necessarily indicative of the results
that would have been achieved had the Company and PolaRx been combined during
the specified period.
(5) RESTATEMENT OF MARCH 31, 2000 FINANCIAL STATEMENTS
Subsequent to quarter-end the Company finalized its accounting for its
January 7, 2000 acquisition of PolaRx. In conjunction with that process, the
Company reclassified the $10.3 million value of 2 million shares of common stock
issuable in the transaction from long-term liability and the $5.2 million value
of 1 million shares of common stock issuable in the transaction to "Common
shares issuable in PolaRx transaction." In conjunction with that process it also
determined that the average stock price used to value the common stock issued
and to be issued in the transaction should have been $6.91 and $5.87,
respectively, rather than $6.08 and $5.17, respectively. The effect of this
revision was to increase the aggregate purchase price by approximately $3.8
million (specifically, goodwill by $3.8 million, common stock by $1.7 million,
and common shares issuable in PolaRx transaction by $2.1 million) and goodwill
amortization (and, accordingly, the net loss) for the three month period ended
March 31, 2000 by $188,500. The net loss per share for the period increased by
$.01 per share. The accompanying March 31, 2000 financial statements have been
restated to reflect these changes.
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. OUR 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 OUR ANNUAL REPORTS ON FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 1999 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. WE UNDERTAKE 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
We focus on developing, acquiring and commercializing novel treatments for
cancer. Our goal is to build a leading, vertically-integrated pharmaceutical
company with a diversified portfolio of oncology drugs and drug candidates.
Since commencement of operations in 1992, we have been engaged in research
and development activities, including conducting preclinical studies and
clinical trials. We have not received any revenue from product sales to date. As
of March 31, 2000, we had incurred aggregate net losses of approximately $169.2
since inception. We expect to continue to incur significant additional operating
losses over the next several years from our research and development efforts.
Operating losses may fluctuate from quarter to quarter as a result of
differences in the timing of expenses incurred and revenues recognized.
In the fourth quarter of 1995, we began to receive revenue under a
collaboration agreement with BioChem Pharma, Inc. (BioChem Pharma) and in the
fourth quarter of 1996, we began to receive revenue under a collaboration
agreement (the Collaboration Agreement) with subsidiaries of Johnson & Johnson.
Under the terms of the Collaboration Agreement, Johnson & Johnson paid 60% of
the U.S. development costs of lisofylline (LSF), a product we are no longer
developing. In November 1998, after reviewing the results of our phase III
clinical trial for LSF, we and Johnson & Johnson formally amended the
Collaboration Agreement. Under the terms of the amended Collaboration Agreement,
Johnson & Johnson agreed to pay us $13.1 million for development cost
reimbursements for the year ended December 31, 1998. On April 18, 2000, we and
Johnson & Johnson terminated the Collaboration Agreement.
On June 30, 1998, we entered into an agreement with PG-TXL Company, L.P.
and scientists at the M.D. Anderson Cancer Center, granting us an exclusive
worldwide license to the rights to PG-TXL, and to all potential uses of its
polymer technology. Under the terms of the agreement, we will fund the research,
development, manufacture, marketing and sale of drugs developed using PG-TXL's
polymer technology.
On January 7, 2000, we acquired ATO upon our acquisition of PolaRx, a
single product company that owned the rights to ATO. Now in connection with the
acquisition, we issued 2,000,000 shares of our common stock at signing and will
issue an additional 3,000,000 shares to PolaRx shareholders upon the earlier of
approval of an NDA by the FDA for ATO or five years from the acquisition date.
The acquisition agreement requires shareholder approval for 2,000,000 of the
3,000,000 additional shares. If our shareholders do not approve the issuance of
these additional shares, we will pay the PolaRx shareholders in cash. Two
additional payouts tied to sales thresholds of $10 million and $20 million in
any four consecutive quarters, may be payable in tranches of $4 million and $5
million at the then fair market value of our stock, at the time such thresholds
are achieved. For annual sales of ATO in excess of $40 million, PolaRx
shareholders will receive a 2% royalty on net sales payable at the then fair
market value of our common stock or, in certain circumstances, cash. We assumed
$5 million of PolaRx's outstanding liabilities and commitments and expect to
incur substantial pre-commercialization expenses associated with the launch of
ATO, should we receive marketing approval from the FDA.
RESULTS OF OPERATIONS
Quarters ended March 31, 2000 and 1999.
Revenues. We did not record any collaboration agreement revenues during
the quarters ended March 31, 2000 and 1999.
8
<PAGE>
Research and development expenses. Research and development expenses
increased to approximately $7.1 million for the quarter ended March 31, 2000,
from approximately $6.4 million for the quarter ended March 31, 1999. This
increase was due primarily to clinical and manufacturing development activities
for ATO and increased manufacturing and preclinical development activities for
PG-TXL ($2.3 million), offset in part by the winding down of manufacturing and
clinical activities for LSF and a reduction in research and development staff
personnel ($1.6 million). We have almost eliminated research and development
expenses for LSF and anticipate increased research and development expenses in
connection with our other products.
General and administrative expenses. General and administrative expenses
decreased to approximately $1.9 million for the quarter ended March 31, 2000,
from approximately $2.1 million for the quarter ended March 31, 1999. This
decrease was due primarily to a reduction in operating expenses required to
support research and development activities ($600,000), offset in part by
premarketing expenses for ATO ($400,000). General and administrative expenses
are expected to increase to support our expected increase in research,
development and commercialization efforts.
Amortization of acquisition related intangibles. In January, 2000, we
acquired PolaRx Biopharmaceuticals, Inc. and used the purchase method of
accounting for the acquisition. Accordingly, we recorded acquired intangible
assets for marketing, patents and excess of purchase price over assets acquired
which totaled approximately $36.1 million. These intangible assets are amortized
over their remaining lives, estimated to be three to five years. The
amortization for the quarter ended March 31, 2000 was approximately $2.4
million.
Investment income. Investment income decreased to approximately $482,000
for the quarter ended March 31, 2000 from approximately $583,000 for the quarter
ended March 31, 1999. This decrease was associated primarily with lower average
cash balances on hand during the quarter ended March 31, 2000 compared to the
quarter ended March 31, 1999.
Interest expense. Interest expense increased to approximately $196,000 for
the quarter ended March 31, 2000 from approximately $133,000 for the quarter
ended March 31, 1999. This increase was due primarily to higher average balances
of outstanding long-term obligations and the assumption of approximately $2.7
million in notes payable associated with the acquisition of PolaRx.
Preferred stock dividend. We issued preferred stock in November, 1999. The
preferred stock has a 5% dividend, payable annually for four years in cash or in
shares of our common stock, commencing September 30, 2000. We accrued
approximately $126,000 for the preferred stock dividend for the quarter ended
March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations since inception primarily through the sale
of equity securities and our collaboration with Johnson & Johnson. As of March
31, 2000, we had raised aggregate net proceeds of approximately $215.7 million
through the sale of equity securities, including $37.2 million in net proceeds
from a private placement of common stock completed in February, 2000. We have
received approximately $40.8 million from Johnson & Johnson including $10
million from the sale of equity securities. In addition, we financed the
purchase of $16.2 million of property and equipment through financing agreements
and capital lease obligations of which approximately $3.2 million remained
outstanding as of March 31, 2000.
At March 31, 2000, we had $52.4 million in cash, cash equivalents, and
securities available-for-sale.
We expect to generate losses from operations for several years due to
substantial additional research and development costs, including costs related
to clinical trials, and increased sales and marketing expenditures. We expect
that our existing capital resources will enable us to maintain our current and
planned operations through at least mid-2001. Our future capital requirements
will depend on many factors, including:
. success of our sales and marketing efforts
. progress in and scope of our research and development activities
. competitive market developments
. success in acquiring complementary products, technologies or
businesses
Future capital requirements will also depend on the extent to which we acquire
or invest in businesses, products and technologies. If we should require
additional financing due to unanticipated developments, additional financing may
not be available when needed or, if
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available, we may not be able to obtain this financing on terms favorable to us
or to our shareholders. Insufficient funds may require us to delay, scale back
or eliminate some or all of our research and development programs, or may
adversely affect our ability to operate as a going concern. If additional funds
are raised by issuing equity securities, substantial dilution to existing
shareholders may result.
INCOME TAXES
As of March 31, 2000, we had available for Federal income tax purposes net
operating loss carryforwards of approximately $163.6 million and research and
development credit carryforwards of approximately $5.8 million. These
carryforwards begin to expire in 2007. Our ability to utilize these net
operating loss and research and development credit carryforwards is subject to
annual limitations of $5.6 million for losses incurred prior to March 26, 1997
and may be subject to additional limitations thereafter pursuant to the "change
in ownership" rules under Section 382 of the Internal Revenue Code of 1986.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are exposed to market risk related to changes in interest rates that
could adversely affect the value of our investments. We do not use derivative
financial instruments for speculative or trading purposes. We maintain 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. These securities are interest bearing and thus
subject to interest rate risk and will fall in value if market interest rates
increase. Because we have the ability to hold our fixed income investments until
maturity, we do not expect our operating results or cash flows to be affected to
any significant degree by a sudden change in market interest rates on our
securities portfolio. We have operated primarily in the United States and all
revenues to date have been in U.S. dollars. Accordingly, we do not have material
exposure to foreign currency rate fluctuations. We have not entered into any
foreign exchange contracts to hedge any exposure to foreign currency rate
fluctuations because such exposure is immaterial.
YEAR 2000
Based on a review of our computer and business systems and significant
third party vendors, we have concluded that the change from the year 1999 to the
year 2000 did not have an effect on our day-to-day operations or otherwise pose
significant operational problems. However, we will continue to monitor our
mission critical computer applications and those of our suppliers and vendors
throughout the year 2000 to ensure that any latent year 2000 matters that may
arise are promptly addressed.
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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: September 11, 2000 By: /s/ James A. Bianco, M.D.
-----------------------------------
James A. Bianco, M.D.
President and Chief Executive
Officer
Dated: September 11, 2000 By: /s/ Louis A. Bianco
-----------------------------------
Louis A. Bianco
Executive Vice President,
Finance and Administration
(Principal Financial Officer,
Chief Accounting Officer)
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
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27.1 Financial Data Schedule
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