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
Commission File Number: 0-25544
Miravant Medical Technologies
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(Exact name of Registrant as specified in its charter)
Delaware 77-0222872
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
336 Bollay Drive, Santa Barbara, California 93117
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(Address of principal executive offices, including zip code)
(805) 685-9880
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
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 May 10, 1999
Common Stock, $.01 par value 17,971,516
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page
Item 1. Consolidated Financial Statements
Consolidated balance sheets as of March 31, 1999 and
December 31, 1998...................................................3
Consolidated statements of operations for the three months ended
March 31, 1999 and 1998.............................................4
Consolidated statements of cash flows for the three months ended
March 31, 1999 and 1998.............................................5
Notes to consolidated financial statements............................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................9
Item 3. Qualitative and Quantitative Disclosures About Market Risk...........15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.....................................15
Signatures ..........................................................16
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
MIRAVANT MEDICAL TECHNOLOGIES
CONSOLIDATED BALANCE SHEETS
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March 31, December 31,
1999 1998
-------------------- ------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents............................................... $ 13,644,000 $ 11,284,000
Investments in short-term marketable securities......................... 7,250,000 --
Accounts receivable..................................................... 2,563,000 3,182,000
Prepaid expenses and other receivables.................................. 2,218,000 792,000
-------------------- ------------------
Total current assets....................................................... 25,675,000 15,258,000
Property, plant & equipment:
Vehicles................................................................ 28,000 28,000
Furniture and fixtures.................................................. 1,638,000 1,720,000
Equipment............................................................... 5,161,000 5,180,000
Leasehold improvements.................................................. 4,550,000 4,232,000
Capital lease equipment................................................. 184,000 184,000
-------------------- ------------------
11,561,000 11,344,000
Accumulated depreciation and amortization............................... (6,232,000) (5,514,000)
-------------------- ------------------
5,329,000 5,830,000
Investments in affiliates.................................................. 2,102,000 1,512,000
Loan to affiliate, net of reserve.......................................... -- --
Patents and other assets................................................... 1,145,000 1,210,000
-------------------- ------------------
Total assets............................................................... $ 34,251,000 $ 23,810,000
==================== ==================
Liabilities and shareholders' equity Current liabilities:
Accounts payable........................................................ $ 3,144,000 $ 3,541,000
Accrued payroll and expenses............................................ 779,000 583,000
------------------ ----------------
Total current liabilities.................................................. 3,923,000 4,124,000
Shareholders' equity:
Common stock, 50,000,000 shares authorized; 17,915,302 and 16,080,054
shares issued and outstanding at March 31, 1999 and
December 31, 1998, respectively....................................... 150,514,000 135,989,000
Notes receivable from officers.......................................... (442,000) (1,525,000)
Deferred compensation................................................... (2,413,000) (2,896,000)
Accumulated other comprehensive loss.................................... (2,374,000) (2,964,000)
Accumulated deficit..................................................... (114,957,000) (108,918,000)
-------------------- ------------------
Total shareholders' equity................................................. 30,328,000 19,686,000
-------------------- ------------------
Total liabilities and shareholders' equity................................. $ 34,251,000 $ 23,810,000
==================== ==================
See accompanying notes.
</TABLE>
MIRAVANT MEDICAL TECHNOLOGIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three months ended March 31,
1999 1998
-------------------- ---------------------
Revenues:
Grants, licensing and royalty revenues............ $ 2,412,000 $ 635,000
-------------------- ---------------------
Total revenues....................................... 2,412,000 635,000
Costs and expenses:
Research and development.......................... 6,352,000 6,318,000
Selling, general and administrative............... 1,977,000 3,047,000
Loss in affiliate................................. 288,000 454,000
-------------------- ---------------------
Total costs and expenses............................. 8,617,000 9,819,000
Loss from operations................................. (6,205,000) (9,184,000)
Interest and other income (expense):
Interest and other income......................... 166,000 1,268,000
Interest expense.................................. -- (1,000)
-------------------- ---------------------
Total net interest and other income.................. 166,000 1,267,000
-------------------- ---------------------
Net loss............................................. $ (6,039,000) $ (7,917,000)
==================== =====================
Net loss per share - basic and diluted............... $ (0.35) $ (0.56)
==================== =====================
Shares used in computing net loss per share.......... 17,071,169 14,103,532
==================== =====================
See accompanying notes.
</TABLE>
MIRAVANT MEDICAL TECHNOLOGIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Three months ended March 31,
Operating activities: 1999 1998
-------------------- ---------------------
Net loss........................................................... $ (6,039,000) $ (7,917,000)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization................................... 767,000 586,000
Amortization of deferred compensation........................... 483,000 646,000
Loss on sale of property, plant and equipment................... 25,000 --
Reserve for loan receivable from affiliate...................... 288,000 --
Stock awards.................................................... 80,000 --
Changes in operating assets and liabilities:
Accounts receivable.......................................... 476,000 (96,000)
Prepaid expenses and other assets............................ (1,230,000) (74,000)
Accounts payable and accrued payroll and expenses............ (201,000) (1,665,000)
-------------------- ---------------------
Net cash used in operating activities.............................. (5,351,000) (8,520,000)
Investing activities:
Purchases of marketable securities................................. (7,250,000) (12,008,000)
Sales of marketable securities..................................... -- 9,921,000
Investments in affiliates.......................................... -- 454,000
Purchases of property, plant and equipment......................... (278,000) (653,000)
-------------------- ---------------------
Net cash used in investing activities.............................. (7,528,000) (2,286,000)
Financing activities:
Proceeds from issuance of Common Stock, less issuance costs........ 18,648,000 2,670,000
Purchases of Common Stock.......................................... -- (8,968,000)
Payments of executive officer notes................................ -- (1,161,000)
Adjustments to executive officer notes............................. 1,083,000 --
Payments of capital lease obligations.............................. -- (12,000)
Payments of loan to affiliate...................................... (288,000) --
Payments for price protection under the Amended Securities
Agreement....................................................... (4,204,000) --
-------------------- ---------------------
Net cash provided by (used in) financing activities................ 15,239,000 (7,471,000)
Net increase (decrease) in cash and cash equivalents............... 2,360,000 (18,277,000)
Cash and cash equivalents at beginning of period................... 11,284,000 55,666,000
-------------------- ---------------------
Cash and cash equivalents at end of period......................... $ 13,644,000 $ 37,389,000
==================== =====================
Supplemental disclosures:
State taxes paid................................................... $ -- $ 59,000
==================== =====================
Interest paid...................................................... $ -- $ 1,000
==================== =====================
See accompanying notes.
</TABLE>
MIRAVANT MEDICAL TECHNOLOGIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The information contained herein has been prepared in accordance with Rule
10-01 of Regulation S-X. The information at March 31, 1999, and for the
three month periods ended March 31, 1999 and 1998, is unaudited. In the
opinion of management, the information reflects all adjustments necessary
to make the results of operations for the interim periods a fair statement
of such operations. All such adjustments are of a normal recurring nature.
Interim results are not necessarily indicative of results for a full year.
For a presentation including all disclosures required by generally accepted
accounting principles, these financial statements should be read in
conjunction with the audited consolidated financial statements for the year
ended December 31, 1998 included in the Miravant Medical Technologies
Annual Report on Form 10-K filed with the Securities and Exchange
Commission.
2. Comprehensive Income (Loss)
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". SFAS No. 130 established new rules for the reporting
and display of comprehensive income and its components; however, the
adoption of SFAS No. 130 had no impact on the Company's net loss or
shareholders' equity. Under SFAS No. 130, the Company has elected to report
other comprehensive income, which includes unrealized gains or losses on
available-for-sale securities, in the statement of shareholders' equity.
For the three months ended March 31, 1999 and 1998, comprehensive loss
amounted to approximately $5.5 million and $7.9 million, respectively. The
difference between net loss and comprehensive loss relates to the change in
the unrealized loss or gain the Company recorded for its available-for-sale
securities on its investment in its affiliate Xillix.
3. Per Share Data
Basic loss per common share is computed by dividing the net loss by the
weighted average shares outstanding during the period. Diluted earnings per
share reflects the potential dilution that would occur if securities or
other contracts to issue common stock were exercised or converted to common
stock. Since the effect of the assumed exercise of common stock options and
other convertible securities was anti-dilutive, basic and diluted loss per
share as presented on the consolidated statements of operations are the
same.
4. Reclassifications
Certain reclassifications have been made to the 1998 consolidated financial
statements to conform to the periods presented.
5. Loan to Affiliate
In April 1998, the Company entered into a revolving credit agreement with
its affiliate, Ramus, pursuant to which the Company, at the request of
Ramus, shall from time to time make loans to Ramus in an aggregate
outstanding principal amount not exceeding at any one time $2.0 million.
The unpaid principal amount of the loans, which are to be used to fund
Ramus' clinical trials and operating costs, accrues interest at a variable
rate (7.25% as of March 31, 1999) based on the Company's bank rate, and
matures in March 2000. The loans are evidenced by a promissory note, the
balance of which is convertible under certain circumstances at the option
of the Company into shares of Ramus stock. As of March 31, 1999, Ramus had
borrowed the entire $2.0 million available under the revolving credit
agreement. The Company has established a reserve for the entire outstanding
balance of the loan receivable at March 31, 1999, which is included in loss
in affiliate in the consolidated statements of operations.
6. Shareholders' Equity
Collaboration with Pharmacia & Upjohn
In January 1999, the Company and Pharmacia & Upjohn, Inc. and Pharmacia &
Upjohn S.p.A., which involve these entities and certain other wholly owned
subsidiaries or Pharmacia & Upjohn, entered into an Equity Investment
Agreement pursuant to which Pharmacia & Upjohn has purchased from the
Company 1,136,533 shares of the Company's Common Stock, or Common Stock,
for an aggregate purchase price of $19.0 million, or $16.71 per share. This
price includes a premium of approximately 20% over the ten (10) day average
per share closing price of the Common Stock through January 14, 1999. The
Company and certain wholly owned subsidiaries of Pharmacia & Upjohn have
also entered into certain other agreements, including a Credit Agreement
which will extend to the Company up to $22.5 million in credit, which is
subject to certain limitations and restrictions, to be used to support the
Company's ophthalmology, oncology and other development programs, as well
as for general corporate purposes. In connection with the extension of this
credit, Pharmacia & Upjohn, or its wholly owned subsidiaries, will receive
a total of up to 360,000 warrants to purchase Common Stock of Miravant. The
exercise price of each warrant will be equal to 140% of the average of the
closing bid prices of the Common Stock for the ten (10) trading days
immediately preceding the borrowing request for the related loan.
Additionally, the Company and Pharmacia & Upjohn have amended their
existing ophthalmology and oncology development and license agreements to
eliminate future cost reimbursements for oncology and urology and any
future milestone payments in age-related macular degeneration or AMD. Under
the Credit Agreement, upon its initial borrowing and until the loan is
fully paid off, the Company will be required to meet certain affirmative,
negative and financial covenants.
Shareholders' Equity
In accordance with the amended Securities Purchase Agreement or the
Amendment Agreement dated June 30, 1998, the Company fulfilled its
obligations related to 112,500 shares subject to the price protection
provisions for the January 1, February 1, and March 1, 1999 measurement
dates. The Company elected to pay the purchasers cash and Common Stock,
with the cash portion amounting to $1.2 million, $1.3 million and $1.7
million, respectively. The remainder of the price protection obligations
for those measurement dates was paid in the form of shares of Common Stock,
which amounted to 199,746 shares, 207,072 shares and 282,178 shares,
respectively. The original 900,000 shares, less the 337,500 shares
repurchased by the Company, and a corresponding number of warrants are now
released from the lock-up provisions under the Amendment Agreement. In
addition, under the Amendment Agreement, in March 1999 the Company issued
an additional 450,000 warrants to the purchasers at an exercise price of
$35.00 per share. The Company has now satisfied all of its price protection
obligations under the Amendment Agreement and, as such, the Company has no
further price protection obligations under this agreement to any of these
parties.
7. Notes Receivable from Officers
In December 1997, the Compensation Committee of the Board of Directors
recommended and subsequently approved equity loans in varying amounts for
the Company's Chief Executive Officer, President and Chief Financial
Officer. The notes, which accrue interest at a fixed rate of 5.8% and are
payable in five years, were awarded specifically for the purpose of
exercising options to acquire the Company's Common Stock and for paying the
related option exercise price and payroll taxes. The notes are
collateralized by the underlying shares acquired upon exercise. In January
1999, the Company adjusted the loan balances to reflect a change in the
amount of payroll taxes due. Payroll taxes of $961,000, originally withheld
and paid related to the option exercises, will be refunded to the Company
by the applicable taxing agencies and has been included in other
receivables. As of March 31, 1999 the executive loan balances have been
reduced accordingly and are classified as a reduction of shareholders'
equity.
8. Short-Term Loan to Officer
In August 1998, the Company made a short-term loan to its Chief Executive
Officer. The note accrues interest at a fixed rate of 5.5% and matures one
year from the date of issuance. Currently, the note has an outstanding
balance of $296,000 plus accrued interest.
9. Subsequent Event
In April 1999, in accordance with the Credit Agreement entered into with
Pharmacia & Upjohn, the Company requested to draw-down the first two
quarterly loans for a total of $7.5 million. In addition, under the terms
of the Credit Agreement and in connection with each draw-down, the Company
is obligated to issue to Pharmacia & Upjohn a certain number of warrants
based on the amount borrowed, which provide for the purchase of one share
of Common Stock per warrant. In connection with the first two quarterly
loan draw-downs, the Company issued 120,000 warrants at an exercise price
of $11.87 per warrant share.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto. This Quarterly Report on
Form 10-Q may be deemed to include forward looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 that involve risk and uncertainty, including financial,
clinical, business environment and trend projections. Although we believe that
our expectations are based on reasonable assumptions, we can give no assurance
that our goals will be achieved. The important factors that could cause actual
results to differ materially from those in the forward looking statements herein
include, without limitation, the current stage of development of both Miravant
and our products, the timing and uncertainty of results of both research and
regulatory processes, the extensive government regulation applicable to our
business, the unproven safety and efficacy of our drug and device products, our
significant additional financing requirements, the volatility of our stock
price, the uncertainty of future capital funding, the highly competitive
environment of the international pharmaceutical and medical device industries
and the presence of a number of competitors with significantly greater
financial, technical and other resources and extensive operating histories, our
potential exposure to product liability or recall, uncertainties relating to
patents and other intellectual property, including whether we will obtain
sufficient protection or competitive advantage therefrom, uncertainties relating
to our ability to successfully complete our Year 2000 initiatives and our
dependence upon a limited number of key personnel and consultants and our
significant reliance upon our collaborative partners for achieving our goals,
and other factors detailed in our Annual Report on Form 10-K for the year ended
December 31, 1998.
General
Since our inception, we have been principally engaged in the research and
development of drugs and medical device products for use in PhotoPoint(TM), our
proprietary technologies for photodynamic therapy. We have been unprofitable
since our founding and have incurred a cumulative net loss of approximately
$115.0 million as of March 31, 1999. We expect to continue to incur substantial,
and possibly increasing, operating losses for the next several years due to
continued and increased spending on research and development programs, the
funding of preclinical studies, clinical trials and regulatory activities and
the costs of manufacturing and administrative activities.
Our revenues primarily reflect income earned from licensing agreements,
grants and royalties from device product sales. To date, we have received no
revenue from the sale of drug products, and we are not permitted to engage in
commercial sales of drugs or devices until such time, if ever, as we receive
requisite regulatory approvals. As a result, we do not expect to record
significant product sales until such approvals are received.
Until we commercialize our product(s), we expect revenues to continue to be
attributable to licensing agreements, grants and royalties from device product
sales. We anticipate that future revenues and results of operations may continue
to fluctuate significantly depending on, among other factors, the timing and
outcome of applications for regulatory approvals, our ability to successfully
manufacture, market and distribute our drug products and device products and/or
the restructuring or establishment of collaborative arrangements for the
manufacturing, marketing and distribution of some of our products. We anticipate
our operating activities will result in substantial net losses for several more
years.
In June 1998, we amended the development and funding provisions of our
previously executed 1995 SnET2 development and license agreements with Pharmacia
& Upjohn, Inc. and some of its subsidiaries, which together are referred to as
Pharmacia & Upjohn in this report. Under the amended ophthalmology agreement, we
were to conduct all preclinical studies and U.S. clinical trials and would be
reimbursed by Pharmacia & Upjohn for all out-of-pocket expenses incurred,
provided that the trials were conducted in accordance with the agreement.
Pharmacia & Upjohn was to conduct all international clinical trials in
ophthalmology. We also amended our oncology, urology and dermatology development
and license agreement to return to us the rights for SnET2 in dermatology and to
provide for the quarterly funding of $2.5 million for eight quarters for use in
our oncology and urology programs. Subsequently, in January 1999, we entered
into an Equity Investment Agreement, which also amended the June 1998
ophthalmology, oncology and urology agreements with Pharmacia & Upjohn. Under
this 1999 equity agreement, Pharmacia & Upjohn purchased 1,136,533 shares of our
Common Stock for an aggregate purchase price of $19.0 million, which represents
the acceleration of the remaining six $2.5 million quarterly payments for
oncology and urology and two future milestone payments for age-related macular
degeneration, or AMD, under the amended June 1998 development and license
agreements. Also in January 1999, under a separate Credit Agreement, Pharmacia &
Upjohn has extended to us up to $22.5 million in credit, which is subject to
certain limitations and requirements, in the form of up to six quarterly loans
of $3.75 million each to be used to support our ophthalmology, oncology and
other development programs, as well as for general corporate purposes.
During the third quarter of 1998 and in connection with the 1998 amendment
of the Pharmacia & Upjohn agreements, we implemented a cost restructuring
program designed to focus our resources on our core development programs, which
emphasize large potential market opportunities and unmet medical needs.
Additionally, the program was designed to utilize the cost reimbursement
components of the 1998 amended Pharmacia & Upjohn agreements as well as
streamline administrative activities, reduce overhead costs and eliminate
positions that were not central to our core development programs. In February
1999, based on the January 1999 amended Pharmacia & Upjohn development and
license agreements, we refined our use of resources to utilize the change in
cost reimbursement from Pharmacia & Upjohn while maintaining our development
programs. We will continue to evaluate the use of our resources as our funding
provisions change and as opportunities present themselves.
We are currently conducting clinical trials in oncology and ophthalmology.
In dermatology, we are investigating the development of topical formulations of
our photoselective drugs. Based upon the outcome of these studies and various
economic and development factors, including cost, reimbursement and the
available alternative therapies, we may or may not elect to further develop
PhotoPoint procedures in oncology, ophthalmology, dermatology or in any other
indications.
Year 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Our computer
equipment and software and devices with embedded technology that are
time-sensitive 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, such as:
* A temporary inability to process accounting, payroll, database,
network and software transactions; Possible disruption of
environmental, lighting, security controls and other corporate
equipment;
* A temporary inability to process clinical and preclincal testing and
data; and
* Loss of telephone and related voicemail and internet messages, in
addition to other similar normal business activities.
We have undertaken various initiatives intended to ensure that our computer
equipment and software will function properly with respect to dates in the Year
2000 and thereafter. The term "computer equipment and software" includes systems
that are commonly thought of as Information Technology or IT systems, including
accounting, data processing and telephone/PBX systems and other miscellaneous
systems. It also includes systems that are not commonly thought of as IT
systems, such as alarm systems, fax machines, air conditioning units, internally
developed software and other miscellaneous systems. Based upon our efforts to
date, we believe that certain of the computer equipment and software we use may
require replacement or modification. Utilizing both internal and external
resources to identify and assess needed Year 2000 remediation, we currently
anticipate that our Year 2000 identification, assessment, remediation and
testing efforts, which began in February 1998, will be completed by June 30,
1999. We estimate that as of March 31, 1999, we had completed approximately 75%
of the initiatives that we believe will be necessary to fully address potential
Year 2000 issues relating to our computer equipment software and non-IT systems.
The projects comprising the remaining 25% of the initiatives are in process and
are expected to be completed on or about June 30, 1999. The following table
describes the Year 2000 initiatives as well as our progress and the anticipated
completion dates as of March 31, 1999:
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Expected
Year 2000 Initiatives Completion Date Percent
Complete
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Initial IT system identification...................................... 10/98 100%
Initial IT system assessment.......................................... 11/98 100%
Remediation regarding central system issues........................... 6/99 75%
Testing regarding central system issues............................... 6/99 15%
Identification, assessment, remediation and testing regarding desktop
and individual system issues.................................... 6/99 75%
Identification regarding non-IT system issues......................... 10/98 100%
Assessment regarding non-IT system issues............................. 11/98 100%
Remediation regarding non-IT system issues............................ 6/99 75%
Testing regarding non-IT system issues................................ 6/99 15%
</TABLE>
We are in the process of communicating with our significant vendors and
service providers and strategic partners to determine the extent to which
interfaces with such entities are vulnerable to Year 2000 issues and whether the
products and services utilized by such entities are Year 2000 compliant. This
process is expected to be completed in June 1999.
We believe that the cost of our Year 2000 efforts, as well as those costs
related to Year 2000 issues of third parties, are expected to approximate
$250,000. As of March 31, 1999, we had not incurred any external costs related
to our Year 2000 efforts. Other non-Year 2000 IT efforts have not been
materially delayed or impacted by Year 2000 initiatives. We presently believe
that the Year 2000 issue will not pose significant operational problems for us.
However, if all Year 2000 issues are not properly identified, the Year 2000
issue may materially adversely impact our results of operations or adversely
affect our relationships with vendors, or others. Additionally, the Year 2000
issues of other entities may have a material adverse impact on our systems or
results of operations.
Results of Operations
The following table provides a summary of our revenues for the three month
periods ended March 31, 1999 and 1998:
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Three months ended March 31,
Consolidated Revenues 1999 1998
------------------------------------------------------------------------------------------
Grants and contracts........................ $ 122,000 $ 141,000
Royalties................................... 62,000 49,000
License..................................... 2,228,000 445,000
------------------------------------------------------------------------------------------
Total revenue............................... $ 2,412,000 $ 635,000
------------------------------------------------------------------------------------------
</TABLE>
Revenues. Our revenues increased from $635,000 for the three months ended
March 31, 1998 to $2.4 million for the three months ended March 31, 1999.
For three months ended March 31, 1999, we recorded revenues of $2.2 million
for the specific reimbursement of out-of-pocket or direct costs incurred in
preclinical studies and Phase III clinical trials in ophthalmology. These
reimbursements were recorded in accordance with the January 1999 amended and
restated ophthalmology and oncology development and license agreement entered
into with Pharmacia & Upjohn. For the three months ended March 31, 1998, we
recorded revenues of $445,000 for the specific reimbursement of oncology and
Phase I/II ophthalmology clinical program costs in conjunction with the license
agreement entered into in July 1995 with Pharmacia & Upjohn. The revenues
recorded for ophthalmology cost reimbursement may fluctuate depending on the
direct costs incurred and Pharmacia & Upjohn's level of involvement in the Phase
III clinical trials.
The level of license, grant and royalty income is likely to fluctuate
materially from period to period and in the future depending on the amount of
preclinical and clinical costs incurred and/or reimbursed, the achievement of
milestones and the extent of development activities under the amended and
restated ophthalmology and oncology development and license agreements with
Pharmacia & Upjohn, the amount of grant income awarded and expended and the
amount of device products sold by Laserscope. Under the 1999 amended Pharmacia &
Upjohn development and license agreements for ophthalmology, oncology and
urology, we will only be reimbursed for the specific costs for preclinical
studies and clinical trials in ophthalmology and we will no longer be reimbursed
for any oncology and urology program costs, as the quarterly reimbursement
payments for these costs were accelerated in connection with the $19.0 million
equity investment made by Pharmacia & Upjohn under the January 1999 Equity
Investment Agreement. The Laserscope license agreement, which provides royalties
on the sale of our previously designed device products, terminated in April 1999
and no further royalties are expected to be received.
Research and Development. Our research and development expenses of $6.4
million for the current period were consistent with the $6.3 million for the
three months ended March 31, 1998. Research and development expenses incurred in
1999 and 1998 related primarily to:
* The costs associated with drug and device manufacturing and the
screening, treatment and monitoring of qualified individuals
participating in clinical trials for AMD and prostate cancer during
1999;
* The costs associated with the screening, treatment and monitoring of
qualified individuals participating in clinical trials in AMD and in
other oncology programs during 1998;
* The preparation of the documentation for clinical trials and
regulatory filings; and
* The preclinical studies and development work associated with the
development of existing and new drug compounds, formulations and
clinical programs.
Future research and development expenses may fluctuate depending on the
impact of our cost restructuring program implemented in September 1998, the
level of Pharmacia & Upjohn's involvement in our Phase III AMD clinical trials,
continued expenses incurred in our preclinical studies and clinical trials in
other ophthalmology and oncology programs, and costs associated with the
purchase of raw materials and supplies for the production of devices and drug
for use in preclinical studies and clinical trials, the pharmaceutical
manufacturing scale-up to expanded commerical levels and expansion of our
research and development programs, which includes the increased hiring of
personnel, the continued expansion of preclinical studies and clinical trials
and the development of new drug compounds and formulations.
Selling, General and Administrative. Our selling, general and
administrative expenses decreased to $2.0 million for the three months ended
March 31, 1999 from $3.0 million for the three months ended March 31, 1998. The
overall decrease in selling, general and administrative expenses for the first
three months of 1999 compared to the same period in 1998 is primarily due to:
* A decrease in costs associated with professional services received
from financial consultants, attorneys and public and media relations;
* A decrease in payroll and overhead costs due to the reduction of
administrative and corporate personnel in conjunction with our
September 1998 cost restructuring program; and
* A decrease in compensation expense associated with options and
warrants issued to consultants and expense recorded for the executive
option loans.
Future selling, general and administrative expenses are expected to remain
constant due to our September 1998 cost restructuring program. Conditions which
may influence these expenses are increased support required for research and
development activities, continuing corporate development and professional
services, compensation expense associated with stock options and warrants and
financial consultants and general corporate matters.
Loss in Investment in Affiliate. In connection with the $2.0 million line
of credit we have provided to our affiliate, Ramus, we have recorded $288,000 as
expense, which represents a reserve on the final $250,000 paid out on the credit
line plus accrued interest. The $454,000 recorded for the three months ended
March 31, 1998 represents a reduction, based on 100% of Ramus' losses for the
respective period, of the $2.0 million equity investment made to Ramus in 1996.
The future losses recorded with respect to Ramus will be limited to reserves for
accrued interest, as the line of credit has been fully utilized and reserved for
and the investment balance reduced to zero as of March 31, 1999.
Interest and Other Income. Interest and other income decreased from $1.3
million for the three months ended March 31, 1998 to $166,000 for the three
months ended March 31, 1999. The decrease for the first three months of 1999
compared to the same period in 1998 is directly related to the decrease in the
levels of cash and marketable securities earning interest. The level of future
interest and other income will primarily be subject to the level of cash
balances we maintain from period to period.
Interest Expense. The level of interest expense incurred for the first
three months of 1999 and 1998 was not material. Interest expense will increase
during 1999 and the level of increase will be subject to the amount of
borrowings under the Pharmacia & Upjohn Credit Agreement.
We do not believe that inflation has had a material impact on our results
of operations.
Liquidity and Capital Resources
Since inception through March 31, 1999, we have accumulated a deficit of
approximately $115.0 million and expect to continue to incur substantial, and
possibly increasing, operating losses for the next several years. We have
financed our operations primarily through private placements of Common Stock and
Preferred Stock, private placements of convertible notes and short-term notes,
our initial public offering, Pharmacia & Upjohn's purchases of Common Stock and
a secondary public offering. As of March 31, 1999, we have received proceeds
from the sale of equity securities and convertible notes of approximately $200.5
million.
In September and October 1997, we entered into a private placement
offering, which was subsequently amended with respect to certain purchasers,
which provided net proceeds to Miravant of approximately $68.2 million. During
1998, under the price protection and repurchase provisions of these agreements,
we issued an additional 2,444,380 shares of Common Stock, repurchased 337,500
shares of Common Stock for $16.9 million and paid $8.6 million. Additionally,
during the first quarter of 1999, we completed our price protection obligations
through the payment of $4.2 million and the issuance of 688,996 shares Common
Stock and the issuance of an additional 450,000 warrants to purchase Common
Stock at an exercise price of $35.00 per share. As such, we have no further
obligation to these purchasers under the price protection or repurchase
provisions of the Securities Purchase Agreements and the amendments thereto.
In December 1997, the Board of Directors authorized a Common Stock
repurchase program allowing for the repurchase of up to 750,000 shares of Common
Stock. This 750,000 share repurchase authorization was in addition to and
superseded the repurchase program authorized in July 1996, which allowed for the
repurchase of up to 600,000 shares of Common Stock. For the three months ended
March 31, 1999 we had no stock repurchases and for the three months ended March
31, 1998 we repurchased 280,000 shares at a cost of $9.0 million. All shares
repurchased were retired.
In January 1999, we entered into an Equity Investment Agreement with
Pharmacia & Upjohn whereby Pharmacia & Upjohn purchased 1,136,533 shares of our
Common Stock for an aggregate purchase price of $19.0 million, which represented
the acceleration of the oncology and urology reimbursement payments and the two
future milestone payments for AMD. Pharmacia & Upjohn will also extend to us up
to $22.5 million in credit over the next two years to be used to support our
ophthalmology, oncology and other development programs, as well as for general
corporate purposes. In April 1999, in accordance with the Credit Agreement
entered into with Pharmacia & Upjohn, the Company requested to draw-down the
first two quarterly loans for a total of $7.5 million. In addition, under the
terms of the Credit Agreement and in connection with each draw-down, the Company
is obligated to issue Pharmacia & Upjohn a certain number of warrants based on
the amount borrowed. The exercise price of each warrant will be equal to 140% of
the average of the closing bid prices of the Common Stock for the ten (10)
trading days immediately preceding the borrowing request for the related loan
and provides for the purchase of one share of our Common Stock. In connection
with the first two quarterly loan draw-downs, we issued 120,000 warrants at an
exercise price of $11.87 per warrant share.
In April 1998, we entered into a revolving credit agreement with our
affiliate, Ramus, which provided Ramus with the ability to borrow up to $2.0
million. As of March 31, 1999, we have provided the entire loan of $2.0 million
to Ramus. In addition, in accordance with the 1996 equity investment in Ramus,
we had an exclusive option to purchase the remaining shares of Ramus for a
specified amount under certain terms and conditions. The option expired March 3,
1999 and we elected not to exercise the option.
In February 1998, we agreed to guaranty a term loan in the amount of $7.6
million from a bank to a director of ours at the time. In June 1998, the
director did not stand for re-election on the Board of Directors. The loan is
due and payable on July 31, 1999, or sooner upon an event of default and is
secured by all of the individual's shares of our Common Stock. We also granted
the bank a security interest in an account maintained at the bank and agreed,
upon an event of default, to purchase the loan from the bank for a price
generally equal to the then outstanding principal, plus accrued interest, fees
and costs. If we purchase the loan, we have the option to acquire all of the
individual's shares at a price equal to 50% of the 20-day average closing price,
net of the loan repayment. The individual also agreed to certain restrictions on
the sale of such shares. Under the loan agreement and the guaranty, the
individual and Miravant are subject to the maintenance of specified financial
and other covenants.
For the three months ended March 31, 1999 and 1998, we required cash for
operations of $5.4 million and $8.5 million, respectively. The decrease for the
three months ended March 31, 1999 compared to the three months ended March 31,
1998 was primarily due to a decrease in operating activities associated with the
our cost restructuring program implemented in September 1998. For the three
months ended March 31, 1999, net cash for financing activities provided us with
$15.2 million as compared to net cash used by our financing activities of $7.5
million for the three months ended March 31, 1998. The increase for the three
months ended March 31, 1999 is primarily related to our $19.0 million Equity
Investment Agreement entered into with Pharmacia & Upjohn in January 1999, which
was offset by the satisfaction of all of our remaining obligations under the
price protection provisions of the Amendment Agreement. For the three months
ended March 31, 1998 the primary use of cash for financing activities related to
our repurchase of Common Stock at a cost of $9.0 million under our Common Stock
repurchase program.
We invested a total of $8.8 million in property and equipment from 1996
through March 31, 1999. During 1998, we entered into a new lease agreement for
an additional facility, for which we have the ability to sublease. We expect to
continue to purchase property and equipment in the future as we continue to
expand our preclinical, clinical and research and development activities as well
as the buildout and expansion of laboratories and office space.
Our future capital requirements will depend on numerous factors including:
* The progress and magnitude of our research and development programs,
including preclinical studies and clinical trials;
* The time involved in obtaining regulatory approvals;
* The cost involved in filing and maintaining patent claims;
* Competitor and market conditions;
* Investment opportunities;
* Our ability to establish and maintain collaborative arrangements;
* The level of Pharmacia & Upjohn's involvement in our Phase III
ophthalmology clinical trials;
* The cost of manufacturing scale-up and the cost and effectiveness of
commercialization activities and arrangements; and
* Our ability to obtain grants to finance research and development
projects.
Our ability to generate substantial funding to continue our research and
development activities, preclinical studies and clinical trials and
manufacturing, scale-up, administrative activities and additional investment
opportunities is subject to a number of risks and uncertainties and will depend
on numerous factors including:
* Our ability to raise funds in the future through public or private
financings, collaborative arrangements or from other sources;
* The potential for equity investments, collaborative arrangements,
license agreements or development or other funding programs with us in
exchange for manufacturing, marketing, distribution or other rights to
products developed by us; and
* Our ability to maintain our existing collaborative arrangements.
We can not guarantee that additional funding will be available to us when
needed. If it is not, we will be required to scale back our research and
development programs, preclinical studies and clinical trials and administrative
activities and our business and financial results and condition would be
materially adversely affected.
ITEM 3.QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about our market risk disclosures involves
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements. We are exposed to market risk
related to changes in interest rates. The risks related to foreign currency
exchange rates are immaterial and we do not use derivative financial
instruments.
From time to time, we maintain a portfolio of highly liquid cash
equivalents maturing in three months or less as of the date of purchase. Given
the short-term nature of these investments, and as of March 31, 1999 we have no
borrowings outstanding, we are not subject to significant interest rate risk.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
See Exhibit Index on page 18.
(b) Reports on Form 8-K.
Form 8-K dated January 15, 1999, Other Events - Item
5: announcing that the Company had entered into an
Equity Investment Agreement and other related
agreements with Pharmacia & Upjohn.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
Miravant Medical Technologies
Date: May 14, 1999 By:/s/ John M. Philpott
- ----- ------------ -----------------------
John M. Philpott
Chief Financial Officer
(on behalf of the Company and as
Principal Financial Officer and
Principal Accounting Officer)
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
<S> <C> <C>
Incorporating
Exhibit Reference
Number Description (if applicable)
3.1 Certificate of Amendment of the Restated Certificate of Incorporation of the Registrant
filed with the Delaware Secretary of State on September 12, 1998. [E][3.1]
3.2 Certificate of Amendment of the Restated Certificate of Incorporation of the Registrant [C][3.11]
filed with the Delaware Secretary of State on July 24, 1995.
3.3 Restated Certificate of Incorporation of the Registrant filed with the Delaware Secretary [B][3.1]
of State on December 14, 1994.
3.4 Certificate of Amendment of the Certificate of Incorporation of the Registrant filed with [A][3.2]
the Delaware Secretary of State on March 17, 1994.
3.5 Certificate of Amendment of the Certificate of Incorporation of the Registrant filed with [A][3.3]
the Delaware Secretary of State on October 7, 1992.
3.6 Certificate of Amendment of the Certificate of Incorporation of the Registrant filed with [A][3.4]
the Delaware Secretary of State on November 21, 1991.
3.7 Certificate of Amendment of the Certificate of Incorporation of the Registrant filed with [A][3.5]
the Delaware Secretary of State on September 27, 1991.
3.8 Certificate of Amendment of the Certificate of Incorporation of the Registrant filed with [A][3.6]
the Delaware Secretary of State on December 20, 1989.
3.9 Certificate of Amendment of the Certificate of Incorporation of the Registrant filed with [A][3.7]
the Delaware Secretary of State on August 11, 1989.
3.10 Certificate of Amendment of the Certificate of Incorporation of the Registrant filed with [A][3.8]
the Delaware Secretary of State on July 13, 1989.
3.11 Certificate of Incorporation of the Registrant filed with the Delaware Secretary of State [A][3.9]
on June 16, 1989.
3.12 Amended and Restated Bylaws of the Registrant. [E][3.12]
4.1 Specimen Certificate of Common Stock. [B][4.1]
4.2 Form of Convertible Promissory Note. [A][4.3]
4.3 Form of Indenture. [A][4.4]
4.4 Special Registration Rights Undertaking. [A][4.5]
4.5 Undertaking Agreement dated August 31, 1994. [A][4.6]
4.6 Letter Agreement dated March 10, 1994. [A][4.7]
4.7 Form of $10,000,000 Common Stock and Warrants Offering Investment Agreement. [A][4.8]
4.8 Form of $55 Common Stock Purchase Warrant. [D][4.1]
4.9 Form of $60 Common Stock Purchase Warrant. [D][4.2]
4.10 Form of $35 Amended and Restated Common Stock Purchase Warrant. [F][4.1]
4.11 Form of Additional $35 Common Stock Purchase Warrant. [F][4.2]
4.12 Warrant to Purchase 10,000 Shares of Common Stock between the Registrant and Charles S. [G][4.12]
Love.*
10.1 Amendment No. 7 dated as of January 1, 1999 to Employment Agreement between the
Registrant and Gary S. Kledzik.*
10.2 Amendment No. 12 dated as of January 1, 1999 to Employment Agreement between the
Registrant and David E. Mai.*
10.3 Amendment No. 4 dated as of January 1, 1999 to Employment Agreement between the
Registrant and John M. Philpott.*
27.1 Financial Data Schedule.
</TABLE>
- -------------------------------------------
[A] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Registration Statement on Form S-1
(File No. 33-87138).
[B] Incorporated by reference from the exhibit referred to in brackets
contained in Amendment No. 2 to the Registrant's Registration
Statement on Form S-1 (File No. 33-87138).
[C] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 10-Q for the quarter ended June
30, 1995, as amended on Form 10-Q/A dated December 6, 1995 (File No.
0-25544).
[D] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Registration Statement on Form S-3
(File No. 333-39905).
[E] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 10-Q for the quarter ended
September 30, 1998 (File No. 0-25544).
[F] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 8-K dated June 30, 1998 (File No.
0-25544).
[G] Incorporated by reference from the exhibit referred to in brackets
contained in the Registrant's Form 10-Q for the quarter ended June
30, 1998 (File No. 0-25544).
[H] Exhibit A-1 to this exhibit is incorporated by reference from the
exhibit referred to in the Registrant's Registration Statement on
Form S-1 (File No. 33-87138)
* Confidential portions of this exhibit have been deleted and filed
separately with the Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934.
===============================================================================
AMENDMENT NO. 7 TO EMPLOYMENT AGREEMENT
===============================================================================
THIS AMENDMENT NO. 7 TO EMPLOYMENT AGREEMENT (the "Amendment") is made and
entered into at Santa Barbara, California, on the date hereinafter set forth by
and between Gary S. Kledzik, Ph.D. (hereinafter referred to as the "Employee")
and MIRAVANT MEDICAL TECHNOLOGIES, a Delaware Corporation (hereinafter referred
to as the "Employer").
WHEREAS:
A. The Employer and the Employee are parties to an Employment Agreement
effective as of December 31, 1989, and Amendments No. 1 through 6 thereto (the
"Employment Agreement").
B. The parties hereto wish to amend the Employment Agreement in certain
respects.
NOW, THEREFORE, in consideration of the premises, promises and
representations hereinafter contained, it is agreed as follows:
1. Effective JANUARY 1, 1999, the section entitled EMPLOYEE COMPENSATION on
Exhibit A to the Employment Agreement is hereby amended to read as follows:
EMPLOYEE COMPENSATION
THREE HUNDRED TWENTY FIVE THOUSAND DOLLARS ($325,000) per annum.
2. In all other respects, the Employment Agreement is hereby ratified,
confirmed and approved in its entirety.
SIGNATURES ON NEXT PAGE
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on this
26th day of January, 1999.
EMPLOYER:
MIRAVANT MEDICAL TECHNOLOGIES
a Delaware Corporation
By: /s/ David E. Mai
----------------
David E. Mai
President
EMPLOYEE:/s/ Gary S. Kledzik, Ph.D.
--------------------------
Gary S. Kledzik, Ph.D.
================================================================================
AMENDMENT NO. 12 TO EMPLOYMENT AGREEMENT
================================================================================
THIS AMENDMENT NO. 12 TO EMPLOYMENT AGREEMENT (the "Amendment") is made and
entered into at Santa Barbara, California, on the date hereinafter set forth by
and between DAVID E. MAI (hereinafter referred to as the "Employee") and
MIRAVANT MEDICAL TECHNOLOGIES, a Delaware Corporation (hereinafter referred to
as the "Employer").
WHEREAS:
A. The Employer and the Employee are parties to an Employment Agreement
effective as of February 1, 1991, and Amendments No. 1 through 11 thereto (the
"Employment Agreement").
B. The parties hereto wish to amend the Employment Agreement in certain
respects.
NOW, THEREFORE, in consideration of the premises, promises and
representations hereinafter contained, it is agreed as follows:
1. Effective JANUARY 1, 1999, the section entitled EMPLOYEE COMPENSATION on
Exhibit A to the Employment Agreement is hereby amended to read as follows:
EMPLOYEE COMPENSATION
TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000) per annum.
2. In all other respects, the Employment Agreement is hereby ratified,
confirmed and approved in its entirety.
SIGNATURES ON NEXT PAGE
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on this
26th day of January, 1999.
EMPLOYER: MIRAVANT MEDICAL TECHNOLOGIES
a Delaware Corporation
By: /s/ Gary S. Kledzik, Ph.D.
--------------------------
Gary S. Kledzik, Ph.D.
C.E.O. and Chairman
EMPLOYEE: /s/ David E. Mai
David E. Mai
================================================================================
AMENDMENT NO. 4 TO EMPLOYMENT AGREEMENT
================================================================================
THIS AMENDMENT NO. 4 TO EMPLOYMENT AGREEMENT (the "Amendment") is made and
entered into at Santa Barbara, California, on the date hereinafter set forth by
and between JOHN M. PHILPOTT (hereinafter referred to as the "Employee") and
MIRAVANT MEDICAL TECHNOLOGIES, a Delaware Corporation (hereinafter referred to
as the "Employer").
WHEREAS:
A. The Employer and the Employee are parties to an Employment Agreement
effective as of March 20, 1995, and Amendments No. 1 through 3 thereto (the
"Employment Agreement").
B. The parties hereto wish to amend the Employment Agreement in certain
respects.
NOW, THEREFORE, in consideration of the premises, promises and
representations hereinafter contained, it is agreed as follows:
1. Effective JANUARY 1, 1999, the section entitled EMPLOYEE COMPENSATION on
Exhibit A to the Employment Agreement is hereby amended to read as follows:
EMPLOYEE COMPENSATION
ONE HUNDRED SEVENTY FIVE THOUSAND DOLLARS ($175,000) per annum.
2. In all other respects, the Employment Agreement is hereby ratified,
confirmed and approved in its entirety.
SIGNATUARES ON NEXT PAGE
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on this
26th day of January, 1999.
EMPLOYER: MIRAVANT MEDICAL TECHNOLOGIES
a Delaware Corporation
By: /s/ Gary S. Kledzik, Ph.D.
Gary S. Kledzik, Ph.D.
C.E.O. and Chairman
EMPLOYEE: /s/ John M. Philpott
John M. Philpott
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF
OPERATIONS FOUND IN THE COMPANY'S FORM 10-Q FOR THE PERIOD ENDED MARCH
31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-1-1999
<PERIOD-END> Mar-31-1999
<CASH> 13,644
<SECURITIES> 7,250
<RECEIVABLES> 2,563
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 25,675
<PP&E> 11,561
<DEPRECIATION> (6,232)
<TOTAL-ASSETS> 34,251
<CURRENT-LIABILITIES> 3,923
<BONDS> 0
0
0
<COMMON> 150,514
<OTHER-SE> (120,186)
<TOTAL-LIABILITY-AND-EQUITY> 34,251
<SALES> 0
<TOTAL-REVENUES> 2,412
<CGS> 0
<TOTAL-COSTS> 8,617
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,039)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,039)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,039)
<EPS-PRIMARY> (0.35)
<EPS-DILUTED> (0.35)
</TABLE>
