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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: September 30, 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 SEPTEMBER 30, 2000
----- ---------------------------------
Common Stock, no par value (including asso-
ciated Preferred Stock Purchase Rights).... 28,989,251
This report on Form 10-Q, including all exhibits, contains 17 pages.
The exhibit index is located on page 16.
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CELL THERAPEUTICS, INC.
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets -- September 30, 2000 (unaudited) and
December 31, 1999................................................... 3
Consolidated Statements of Operations (unaudited) -- Three and
nine months ended September 30, 2000 and 1999....................... 4
Consolidated Statements of Cash Flows (unaudited) -- Nine months
ended September 30, 2000 and 1999................................... 5
Notes to Consolidated Financial Statements.......................... 6
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................... 9
PART II OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................. 13
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.................................... 14
SIGNATURES.......................................................... 15
EXHIBIT INDEX....................................................... 16
</TABLE>
2
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Cell Therapeutics, Inc.
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---------------- ----------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 135,601,320 $ 5,674,386
Securities available-for-sale 27,054,594 18,205,630
Interest receivable 434,135 367,636
Prepaid expenses and other current assets 921,240 748,506
---------------- ----------------
Total current assets 164,011,289 24,996,158
Property and equipment 16,797,543 16,550,053
Accumulated depreciation (12,819,438) (11,514,370)
---------------- ----------------
Property and equipment, net 3,978,105 5,035,683
Acquisition related intangible assets, net 29,179,187 -
Other assets and deferred charges 853,159 816,050
---------------- ----------------
Total assets $ 198,021,740 $ 30,847,891
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 371,510 $ 1,224,994
Accrued expenses 6,726,843 4,940,626
Notes payable 495,000 -
Current portion of long-term obligations 1,325,665 1,125,211
---------------- ----------------
Total current liabilities 8,919,018 7,290,831
Long-term obligations, less current portion 1,551,828 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 - 2,425
and 10,000 at September 30, 2000 and December 31, 1999,
respectively, liquidation preference - $2,425,000 1,510,280 6,227,960
Common Stock, no par value:
Authorized shares--100,000,000
Issued and outstanding shares - 28,989,251 and 15,595,536
at September 30, 2000 and December 31, 1999, respectively 363,923,329 173,391,407
Common shares issuable in PolaRx transaction 17,620,500 -
Notes receivable from officers (255,000) (330,000)
Accumulated deficit (195,230,842) (158,350,182)
Accumulated other comprehensive loss (17,373) (35,236)
---------------- ----------------
Total shareholders' equity 187,550,894 20,903,949
---------------- ----------------
Total liabilities and shareholders' equity $ 198,021,740 $ 30,847,891
================ ================
</TABLE>
See accompanying notes.
3
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CELL THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- ---------------------------------
2000 1999 2000 1999
---------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Operating expenses:
Research and development $ 6,186,301 $ 7,948,743 $ 18,300,711 $ 21,617,730
General and administrative 5,036,516 2,236,208 11,205,400 7,340,158
Sales and marketing 1,068,712 - 1,814,813 -
Amortization of purchased intangibles 2,326,135 - 7,043,385 -
---------------- --------------- --------------- ----------------
14,617,664 10,184,951 38,364,309 28,957,888
---------------- --------------- --------------- ----------------
Loss from operations: (14,617,664) (10,184,951) (38,364,309) (28,957,888)
Other income (expense):
Investment income 718,744 343,676 1,933,548 1,402,517
Interest expense (80,814) (125,183) (449,900) (390,544)
---------------- --------------- --------------- ----------------
Net loss (13,979,734) (9,966,458) (36,880,661) (27,945,915)
---------------- --------------- --------------- ----------------
Preferred stock dividend (127,778) - (380,556) -
---------------- --------------- --------------- ----------------
Net loss applicable to common shareholders $ (14,107,512) $ (9,966,458) $ (37,261,217) $ (27,945,915)
================ =============== =============== ================
Basic and diluted net loss per common share $ (0.55) $ (0.64) $ (1.61) $ (1.80)
================ =============== =============== ================
Shares used in calculation of basic and
diluted net loss per common share 25,443,484 15,567,959 23,119,327 15,545,805
================ =============== =============== ================
</TABLE>
see accompanying notes.
4
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CELL THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------------
2000 1999
---- ----
<S> <C> <C>
Operating Activities
Net loss applicable to common shareholders $ (37,261,217) $ (27,945,915)
Adjustments to reconcile net loss applicable to common shareholders
to net cash used in operating activities:
Preferred stock dividend 380,556 -
Depreciation and amortization 8,348,453 1,461,269
Noncash rent benefit (86,184) (100,618)
Noncash compensation expense 4,510,158 349,515
Investment premium/discount amortization (accretion) (133,790) 326,269
Loss on sale of investment securities 1,431 4,387
Changes in operating assets and liabilities, net of businesses acquired:
Interest receivable (66,499) 327,297
Collaboration agreement receivables - 3,254,491
Prepaid expenses and other current assets (71,075) 370,736
Other assets and deferred charges 118,095 (139)
Accounts payable (853,484) (809,360)
Accrued expenses (172,739) (828,358)
------------- -------------
Total adjustments 11,974,922 4,355,489
------------- -------------
Net cash used in operating activities (25,286,295) (23,590,426)
------------- -------------
Investing activities
Purchases of securities available-for-sale (32,528,577) (18,154,892)
Proceeds from sales of securities available-for-sale 1,514,837 10,613,646
Proceeds from maturities of securities available-for-sale 22,315,000 32,090,000
Purchases of property and equipment (247,490) (330,498)
PolaRx acquisition, net of cash acquired (781,438) -
------------- -------------
Net cash provided by (used in) investing activities (9,727,668) 24,218,256
------------- -------------
Financing activities
Sale of common stock via public offerings, net of offering costs 127,990,071 -
Sale of common stock via private placements, net of offering costs 37,120,190 -
Proceeds from common stock options exercised 2,409,528 -
Proceeds from common stock warrants exercised 332,115 -
Proceeds from employee stock purchase plan 81,944 70,526
Repayment of notes payable (2,178,306) -
Repayment of long-term obligations (814,645) (863,722)
------------- -------------
Net cash provided by (used in) financing activities 164,940,897 (793,196)
------------- -------------
Net increase (decrease) in cash and cash equivalents 129,926,934 (165,366)
Cash and cash equivalents at beginning of period 5,674,386 4,362,486
------------- -------------
Cash and cash equivalents at end of period $ 135,601,320 $ 4,197,120
============= =============
Supplemental disclosure of cash flow information
Conversion of preferred stock into common stock $ 4,717,680 $ -
============= =============
Reclass to current assets of note receivable from former officer $ 75,000 $ -
============= =============
Common Stock issued in PolaRx acquisition $ 31,440,000 $ -
============= =============
Equity issued in exchange for services $ 2,176,399 $ -
============= =============
Cash paid during the period for interest obligations $ 449,900 $ 390,544
============= =============
</TABLE>
See accompanying notes.
5
<PAGE>
CELL THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial information of Cell Therapeutics, Inc.
(the Company) as of September 30, 2000 and for the three and nine months ended
September 30, 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 and nine month periods ended September 30, 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/A-2 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.
The Company concluded during the quarter ended June 30, 2000 that it is no
longer in the development stage.
(2) REPORTING COMPREHENSIVE INCOME
For the three months ended September 30, 2000 and 1999, the Company's
comprehensive loss was as follows:
<TABLE>
<CAPTION>
Three months ended
---------------------------------------
September 30, 2000 September 30, 1999
------------------- ------------------
<S> <C> <C>
Net loss applicable to common shareholders $(14,107,512) $(9,966,458)
Other comprehensive loss:
Unrealized holding gains arising
during period 12,154 61,329
------------ -----------
Total comprehensive loss $(14,095,358) $(9,905,129)
============ ===========
</TABLE>
For the nine months ended September 30, 2000 and 1999, the Company's
comprehensive loss was as follows:
<TABLE>
<CAPTION>
Nine months ended
-----------------------------------------
September 30, 2000 September 30, 1999
------------------- ------------------
<S> <C> <C>
Net loss applicable to common shareholders $(37,261,217) $(27,945,915)
Other comprehensive loss:
Unrealized holding gains (losses) arising
during period 17,863 (26,630)
------------ ------------
Total comprehensive loss $(37,243,354) $(27,972,545)
============ ============
</TABLE>
3) NEW ACCOUNTING PRONOUNCEMENTS
In March 2000, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 44, "Accounting for Transactions Involving Stock
Compensation." This Interpretation clarifies the application of Accounting
Principles Board Opinion No. 25 for certain issues related to stock
compensation. The Company adopted the Interpretation effective July 1, 2000. The
adoption of this consensus did not have a material impact on the Company's
financial statements.
6
<PAGE>
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 (SAB
101), "Revenue Recognized in Financial Statements," effective for the first
quarter of 2000. Among other things, SAB 101 discusses the SEC staff's view on
accounting for non-refundable up-front fees received in connection with
collaborative agreements. In May 2000, the SEC delayed the effective date of
SAB 101 until the fourth quarter of 2000. A Frequently Asked Questions document
on SAB 101 was issued in October 2000 to provide additional implementation
guidance. The Company does not expect the adoption of SAB 101 to have a material
impact on its financial statements.
(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 Trisenox
(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 million shares of the Company's
common stock at signing and will earn 3 million 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 approximately $13.8 million), 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 approximately $17.6
million), 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, was originally subject to shareholder approval. Approval was received
in September 2000 (see Note 5).
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 3 million
shares issuable in the future are not considered in earnings per share for the
three and nine month periods ended September 30, 2000 as their effect would
currently be anti-dilutive. These securities could potentially dilute earnings
per share in the future. 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 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
7
<PAGE>
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 nine months ended
September 30, 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 $37,013,968 and basic and diluted net loss per common share of
$2.11. Pro forma information for the period ended September 30, 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) U.S. FOOD AND DRUG ADMINISTRATION'S APPROVAL AND SPECIAL MEETING OF
SHAREHOLDERS
In September 2000, the Company received approval from the U.S. Food and
Drug Administration (FDA) for Trisenox to treat patients with a severe form of
leukemia whose disease has recurred or who have failed to respond to standard
therapy.
In addition, at a Special Meeting of Shareholders held in September 2000,
the Company's shareholders approved the issuance of common stock in
connection with the PolaRx Biopharmaceuticals, Inc. acquisition (see Note 4).
The 3 million shares issuable to the PolaRx Biopharmaceuticals, Inc.
shareholders at September 30, 2000 were issued in October 2000.
6) EQUITY OFFERING
In September 2000, the Company completed a public offering of 3.6 million
shares of its common stock at $38 per share, which generated gross proceeds of
$136.8 million.
7) PANGENEX, INC.
In June 2000, the Company founded PanGenex, Inc. (PanGenex), a majority-
owned subsidiary focused on identifying novel drug development targets using the
recently completed human genome sequence database. Significant operations had
not yet started as of September 30, 2000.
8) CELL THERAPEUTICS (UK) LIMITED
In June 2000, the Company founded Cell Therapeutics (UK) Limited, a wholly-
owned and London-based subsidiary, to provide the necessary legal, regulatory
and administrative support for the filing of an ATO Marketing Authorization
Application in Europe, and to oversee the business interests of the Company in
that region. Significant operations had not yet started as of September 30,
2000.
8
<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/A-2 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
September 30, 2000, we had incurred aggregate net losses of approximately $195.2
million 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 May 5, 2000, we amended the agreement to pay an increased
amount upon the earlier of the acceptance by the FDA of the first
Investigational New Drug (IND) for a licensed product in the U.S., or November
13, 2000.
On January 7, 2000, we acquired Trisenox (arsenic trioxide, ATO) upon our
acquisition of PolaRx, a single product company that owned the rights to ATO.
In connection with the acquisition, we issued 2 million shares of our common
stock at signing and will issue an additional 3 million shares to PolaRx
shareholders upon the earlier of approval of an NDA by the FDA for ATO or
January 7, 2005. The acquisition agreement originally required shareholder
approval for 2 million of the 3 million additional shares. If our shareholders
do not approve the issuance of these additional shares, we will pay the PolaRx
shareholders in cash. At a Special Meeting of Shareholders held in September
2000, our shareholders approved the issuance of common stock in connection with
the PolaRx acquisition. The 3 million shares issuable to PolaRx shareholders at
September 30, 2000 were issued in October 2000. 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
NDA approval from the FDA.
In September 2000, we received approval from the FDA for Trisenox to
treat patients with a severe form of leukemia whose disease has recurred or
who have failed to respond to standard therapy.
9
<PAGE>
RESULTS OF OPERATIONS
Three months ended September 30, 2000 and 1999.
Research and development expenses. Research and development expenses
decreased $1.7 million, to approximately $6.2 million for the three months ended
September 30, 2000, from approximately $7.9 million for the three months ended
September 30, 1999. This decrease was due primarily to eliminating LSF-related
research and development expenses and focusing research and development
efforts on Trisenox, PG-TXL and Apra. In addition, research and development
expenses reflect noncash stock-based compensation of approximately $1.0
million for the three months ended September 30, 2000.
General and administrative expenses. General and administrative expenses
increased $2.8 million, to approximately $5.0 million for the three months ended
September 30, 2000, from approximately $2.2 million for the three months ended
September 30, 1999. This increase reflects noncash expenses of approximately
$1.5 million in stock-based compensation to our consultants and operating
expenses associated with supporting our research, development and marketing
activities of approximately $1.3 million. General and administrative expenses
are expected to increase to support our expected increase in research,
development and commercialization efforts.
Sales and marketing. We expensed approximately $1.1 million in our sales
and marketing effort for the three months ended September 30, 2000 as we
prepared for the launch of Trisenox.
Amortization of purchased intangibles. In January, 2000, we acquired PolaRx
Biopharmaceuticals, Inc. and used the purchase method of accounting for the
acquisition. We recorded acquired intangible assets for marketing, patents and
excess of purchase price over assets acquired aggregating $36.1 million. These
intangible assets are amortized over their remaining lives, estimated to be
three to five years. The amortization for the three months ended September 30,
2000 was approximately $2.3 million.
Investment income. Investment income increased $375,000, to approximately
$719,000 for the three months ended September 30, 2000 from approximately
$344,000 for the three months ended September 30, 1999. This increase was
associated primarily with higher average cash balances on hand during the three
months ended September 30, 2000 compared to the three months ended September 30,
1999.
Interest expense. Interest expense decreased $44,000, to approximately
$81,000 for the three months ended September 30, 2000 from approximately
$125,000 for the three months ended September 30, 1999. This decrease was due
primarily to the payment of notes payable, upon which interest expense was
accruing, in connection 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 $128,000 for the preferred stock dividend for the three months
ended September 30, 2000. In October 2000, we issued 6,366 shares of common
stock in lieu of cash as a preferred stock dividend.
Nine months ended September 30, 2000 and 1999.
Research and development expenses. Research and development expenses
decreased $3.3 million, to approximately $18.3 million for the nine months ended
September 30, 2000, from approximately $21.6 million for the nine months ended
September 30, 1999. This decrease was due primarily to eliminating LSF-related
research and development expenses ($5.2 million) and focusing research and
development efforts on Trisenox, PG-TXL and Apra ($1.9 million). In addition,
the research and development expenses reflect noncash stock-based compensation
of approximately $1.3 million for the nine months ended September 30, 2000.
General and administrative expenses. General and administrative expenses
increased $3.9 million, to approximately $11.2 million for the nine months ended
September 30, 2000, from approximately $7.3 million for the nine months ended
September 30, 1999. This increase reflects noncash expenses of approximately
$3.1 million in stock-based compensation to our consultants and operating
expenses associated with supporting our research, development and marketing
activities of approximately $800,000. General and administrative expenses are
expected to increase to support our expected increase in research, development
and commercialization efforts.
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Sales and marketing. We expensed approximately $1.8 million in our sales
and marketing effort for the nine months ended September 30, 2000 as we
prepared for the launch of Trisenox.
Amortization of purchased intangibles. We amortized approximately $7.0
million of goodwill and other purchased intangibles for the nine months ended
September 30, 2000 in connection with the acquisition of PolaRx.
Investment income. Investment income increased $500,000, to approximately
$1.9 million for the nine months ended September 30, 2000 from approximately
$1.4 million for the nine months ended September 30, 1999. This increase was
associated primarily with higher average cash balances on hand during the nine
months ended September 30, 2000 compared to the nine months ended September 30,
1999.
Interest expense. Interest expense increased $59,000, to approximately
$450,000 for the nine months ended September 30, 2000 from approximately
$391,000 for the nine months ended September 30, 1999. This increase was due
primarily to higher average balances of outstanding long-term obligations
resulting from the assumption of approximately $2.7 million in notes payable
associated with the acquisition of PolaRx.
Preferred stock dividend. We accrued approximately $381,000 for a preferred
stock dividend for the nine months ended September 30, 2000, in connection with
preferred stock issued in November, 1999.
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
September 30, 2000, we had raised aggregate net proceeds of approximately
$340.1 million through the sale of equity securities, including $128.0 million
in net proceeds from a public offering of common stock completed in September,
2000, and $37.1 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 $2.6 million remained outstanding as of September 30,
2000. At September 30, 2000, we had $162.7 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 2002. 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 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 September 30, 2000, we had available for Federal income tax purposes
net operating loss carryforwards of approximately $188.4 million and research
and development credit carryforwards of approximately $6.3 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.
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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.
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<PAGE>
PART II OTHER INFORMATION
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On July 7, 2000, the Company held its 2000 Annual Meeting of Shareholders
(the "Annual Meeting"). Each share of Common Stock was entitled to one vote per
share. Each share of Preferred Stock was convertible into 462.43 shares of
Common Stock, and was therefore entitled to 462.43 votes per share.
At the Annual Meeting, the following Directors were elected to serve until
the Annual Meeting of Shareholders indicated below and until their respective
successors are elected and qualified:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
DIRECTOR NOMINATED TERM EXPIRES VOTES FOR WITHHELD
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
James A. Bianco, M.D. 2003 17,529,482 148,066
-----------------------------------------------------------------------------------------------------------------------------
Jack W. Singer, M.D. 2003 17,516,771 160,777
-----------------------------------------------------------------------------------------------------------------------------
Mary O. Mundinger, DrPH 2003 17,529,663 147,885
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Other directors whose terms of office continued after the meeting are as
follows: Phillip M. Nudelman, Ph.D., Jack L. Bowman, Jeremy Curnock Cook, Max E.
Link, Ph.D., and Wilfred E. Jaeger, M.D. Jeremy Curnock Cook resigned from the
Board effective June 30, 2000.
The Company's shareholders approved the amendment to the Company's 1994
Equity Incentive Plan. With respect to this proposal, there were 14,533,608
votes cast for the proposal, 3,055,820 votes cast against the proposal, and
88,120 abstentions.
The Company's shareholders also ratified the selection of Ernst & Young LLP
as the independent auditors for the Company for the year ended December 31,
2000. With respect to this proposal, there were 17,627,555 votes cast for the
proposal, 36,653 votes cast against the proposal, and 13,340 abstentions.
The foregoing matters are described in detail in the Company's proxy
statement dated June 7, 2000 for the Annual Meeting. No other matters were voted
on at the Annual Meeting.
On September 29, 2000, the Company held a Special Meeting of Shareholders
(the "Special Meeting"). Each share of Common Stock was entitled to one vote per
share. Each share of Preferred Stock was convertible into 462.43 shares of
Common Stock, and was therefore entitled to 462.43 votes per share.
The Company's shareholders approved the issuance of Common Stock in
connection with the PolaRx Biopharmaceuticals, Inc. acquisition. With respect to
this proposal, there were 17,974,899 votes cast for the proposal, 176,279 votes
cast against the proposal, and 13,163 abstentions.
The foregoing matters are described in detail in the Company's proxy
statement dated September 11, 2000 for the Special Meeting. No other matters
were voted on at the Special Meeting.
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Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
(1) On September 11, 2000, the Company filed an amended current
report on Form 8-K/A-2 which supplements the report on Form 8-K
that was filed on January 25, 2000 to report its acquisition of
PolaRx Biopharmaceuticals, Inc.
(2) On September 22, 2000, the Company filed a current report on Form
8-K reporting that on September 20, 2000, the Company entered
into an Underwriting Agreement with CIBC World Markets Corp. and
U.S. Bancorp Piper Jaffray (the "Underwriters") with respect to
an underwritten offering of 3,130,435 shares of its Common Stock.
The Company granted an over-allotment option to the Underwriters
to purchase a maximum of 469,565 additional shares of its Common
Stock. The Company registered a total of 3,600,000 shares of its
Common Stock under a Registration Statement on Form S-3, filed
with the Securities and Exchange Commission on July 13, 2000, as
amended on Form S-3/A filed on September 15, 2000.
(3) On September 27, 2000, the Company filed a current report on Form
8-K reporting that on September 26, 2000, the Company received
approval from the U.S. Food and Drug Administration for TRISENOX
(arsenic trioxide) injection, to treat patients with a severe
form of leukemia whose disease has recurred or who have failed to
respond to standard therapy.
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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: November 14, 2000 By: /s/ James A. Bianco, M.D.
-----------------------------------
James A. Bianco, M.D.
President and Chief Executive
Officer
Dated: November 14, 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
----------- -----------
EXHIBIT 27.1 Financial Data Schedule
16
