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 June 30, 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 July 31, 1999
----- ----------------------------
Common Stock, $.01 par value 18,007,050
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements Page
Consolidated balance sheets as of June 30, 1999 and
December 31, 1998................................................. 3
Consolidated statements of operations for the three months ended
June 30, 1999 and 1998 and for the six months ended
June 30, 1999 and 1998............................................ 4
Consolidated statements of cash flows for the six months ended
June 30, 1999 and 1998............................................ 5
Notes to consolidated financial statements ......................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .............................. 8
PART II. OTHER INFORMATION
Item 3. Qualitative and Quantitative Diclosures About Market Risk...........15
Item 4. Submission of Matters to a Vote of Security Holders.................15
Item 6. Exhibits and Reports on Form 8-K....................................15
Signatures .........................................................16
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
MIRAVANT MEDICAL TECHNOLOGIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
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June 30, December 31,
1999 1998
------------------ -------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents............................................... $ 13,554,000 $ 11,284,000
Investments in short-term marketable securities......................... 7,500,000 --
Accounts receivable..................................................... 8,390,000 3,038,000
Prepaid expenses and other current assets............................... 1,038,000 936,000
------------------ -------------------
Total current assets....................................................... 30,482,000 15,258,000
Property, plant and equipment:
Vehicles................................................................ 28,000 28,000
Furniture and fixtures.................................................. 1,638,000 1,720,000
Equipment............................................................... 5,323,000 5,180,000
Leasehold improvements.................................................. 4,562,000 4,232,000
Capital lease equipment................................................. 184,000 184,000
------------------ -------------------
11,735,000 11,344,000
Accumulated depreciation................................................ (7,017,000) (5,514,000)
------------------ -------------------
4,718,000 5,830,000
Investments in affiliates.................................................. 1,979,000 1,512,000
Loan to affiliate, net of reserve of $2.1 million and $1.8 million at
June 30, 1999 and December 31, 1998, respectively....................... -- --
Patents and other assets................................................... 1,152,000 1,210,000
------------------ -------------------
Total assets............................................................... $ 38,331,000 $ 23,810,000
================== ===================
Liabilities and shareholders' equity
Current liabilities:
Accounts payable........................................................ $ 4,315,000 $ 3,541,000
Accrued payroll and expenses............................................ 650,000 583,000
---------------- ----------------
Total current liabilities.................................................. 4,965,000 4,124,000
Long-term debt............................................................. 7,533,000 --
Shareholders' equity:
Common stock, 50,000,000 shares authorized; 17,998,075 and 16,080,054
shares issued and outstanding at June 30, 1999 and
December 31, 1998, respectively...................................... 150,955,000 135,989,000
Notes receivable from officers.......................................... (448,000) (1,525,000)
Deferred compensation................................................... (2,319,000) (2,896,000)
Accumulated other comprehensive loss.................................... (2,497,000) (2,964,000)
Accumulated deficit..................................................... (119,858,000) (108,918,000)
------------------ -------------------
Total shareholders' equity................................................. 25,833,000 19,686,000
------------------ -------------------
Total liabilities and shareholders' equity................................. $ 38,331,000 $ 23,810,000
================== ===================
</TABLE>
See accompanying notes.
<PAGE>
MIRAVANT MEDICAL TECHNOLOGIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
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Three months ended June 30, Six months ended June 30,
1999 1998 1999 1998
-------------------- ------------------ ------------------ ----------------
Revenues:
Grants, licensing and royalty income........ $ 6,006,000 1,331,000 $ 8,418,000 $ 1,966,000
-------------------- ------------------ ------------------ -----------------
Total revenues................................. 6,006,000 1,331,000 8,418,000 1,966,000
Costs and expenses:
Research and development.................... 9,301,000 8,754,000 15,653,000 15,410,000
Selling, general and administrative......... 1,888,000 2,127,000 3,865,000 4,836,000
Loss in affiliate........................... 40,000 441,000 328,000 895,000
-------------------- ------------------ ------------------ -----------------
Total costs and expenses....................... 11,229,000 11,322,000 19,846,000 21,141,000
Loss from operations........................... (5,223,000) (9,991,000) (11,428,000) (19,175,000)
Interest and other income (expense):
Interest and other income................... 359,000 927,000 525,000 2,195,000
Interest expense............................ (37,000) -- (37,000) (1,000)
-------------------- ------------------ ------------------ -----------------
Total net interest and other income............ 322,000 927,000 488,000 2,194,000
-------------------- ------------------ ------------------ -----------------
Net loss....................................... $ (4,901,000) $ (9,064,000) $ (10,940,000) $ (16,981,000)
==================== ================== ================== =================
Net loss per share - basic and diluted......... $ (0.27) $ (0.64) $ (0.62) $ (1.20)
==================== ================== ================== =================
Shares used in computing net loss per share.... 17,960,740 14,104,004 17,518,426 14,102,940
==================== ================== ================== =================
</TABLE>
See accompanying notes.
<PAGE>
MIRAVANT MEDICAL TECHNOLOGIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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<CAPTION>
<S> <C> <C>
Six months ended June 30,
Operating activities: 1999 1998
------------------- ----------------------
Net loss.......................................................... $ (10,940,000) $ (16,981,000)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization.................................. 1,564,000 1,309,000
Amortization of deferred compensation.......................... 957,000 1,507,000
Loss on sale of property, plant and equipment.................. 25,000 --
Reserve for loan receivable from affiliate..................... 328,000 500,000
Stock awards................................................... 145,000 80,000
Interest on long-term debt..................................... 33,000 --
Changes in operating assets and liabilities:
Accounts receivable......................................... (5,352,000) 1,360,000
Prepaid expenses and other assets........................... (69,000) (489,000)
Accounts payable and accrued payroll and expenses........... 830,000 (705,000)
------------------- ---------------------
Net cash used in operating activities............................. (12,479,000) (13,419,000)
Investing activities:
Purchases of marketable securities ............................... (11,500,000) (8,700,000)
Sales of marketable securities ................................... 4,000,000 9,900,000
Investments in affiliates......................................... -- (2,105,000)
Purchases of property, plant and equipment........................ (452,000) (1,637,000)
------------------- ----------------------
Net cash used in investing activities............................. (7,952,000) (2,542,000)
Financing activities:
Proceeds from issuance of Common Stock, less issuance costs....... 18,645,000 2,850,000
Purchases of Common Stock......................................... -- (13,952,000)
Proceeds from long-term debt...................................... 7,500,000 --
(Payments) adjustments of executive officer notes................. 1,088,000 (1,178,000)
Payments of capital lease obligations............................. -- (16,000)
Payments of loan to affiliate..................................... (328,000) (500,000)
Payments for price protection under the Amended
Securities Agreement...................................... (4,204,000) --
------------------ ---------------------
Net cash provided by (used in) financing activities............... 22,701,000 (12,796,000)
Net increase (decrease) in cash and cash equivalents.............. 2,270,000 (28,757,000)
Cash and cash equivalents at beginning of period.................. 11,284,000 55,666,000
------------------- ---------------------
Cash and cash equivalents at end of period........................ $ 13,554,000 $ 26,909,000
=================== ======================
Supplemental disclosures:
Cash paid for:
State taxes..................................................... $ -- $ 111,000
=================== ======================
Interest ....................................................... $ -- $ 1,000
=================== ======================
Non-cash investing activities:
Investment in affiliate from issuance of Common Stock............ $ -- $ 1,476,000
=================== ======================
</TABLE>
See accompanying notes.
<PAGE>
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 June 30, 1999 and for the three
and six month periods ended June 30, 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 six months ended June 30, 1999 and 1998, comprehensive loss
amounted to approximately $10.5 million and $17.0 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. Shareholders' Equity
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 purchased from the Company
1,136,533 shares of the Company's 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 day average per share closing price of
the Common Stock through January 14, 1999. In February 1999, the Company
and Pharmacia & Upjohn Treasury Services AB entered into 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 Treasury Services AB will receive a total of up
to 360,000 warrants to purchase shares of Miravant Common Stock. 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 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.
6. Long-Term Debt
During the second quarter of 1999, in accordance with the Credit Agreement
entered into with Pharmacia & Upjohn Treasury Services AB in February 1999,
the Company requested and received the first two quarterly loans for a
total of $7.5 million of the $22.5 million it has available under the
Credit Agreement. Under the terms of the Credit Agreement and in connection
with the loan amounts received, the Company issued 120,000 warrants to
purchase Miravant Common Stock at an exercise price of $11.87 per warrant
share. In addition, in accordance with the Credit Agreement, the Company
issued a promissory note to Pharmacia & Upjohn Treasury Services AB for the
loan amounts received and issued an additional promissory note for the
related interest due on the outstanding loan balance as of June 30, 1999.
The promissory notes mature in June 2004, subject to certain limitations
and restrictions as defined by the Credit Agreement, and accrue interest at
the prime rate, which was 7.75% at June 30, 1999.
7. Subsequent Event
In August 1999, the Company extended its guaranty, under similar terms and
conditions, of a $7.6 million loan that a former director has with a bank.
In conjunction with the one year extension to July 31, 2000, the Company
increased its security interest to include substantially all of the
personal assets of the former director, which includes the previously
secured Common Stock owned by the former director.
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
$119.9 million as of June 30, 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 and grants. 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 Investment 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 February 1999, under a separate
Credit Agreement, Pharmacia & Upjohn Treasury Services AB 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 February 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 August 31,
1999. As of June 30, 1999, we had completed approximately 90% 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 10% of the initiatives are in process and are expected
to be completed on or about August 31, 1999. The following table describes the
Year 2000 initiatives as well as our progress and the anticipated completion
dates as of June 30, 1999:
<TABLE>
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Expected Percent
Year 2000 Initiatives Completion Date Complete
----------------- ---------------
Initial IT system identification...................................... 10/98 100%
Initial IT system assessment.......................................... 11/98 100%
Remediation regarding central system issues........................... 6/99 100%
Testing regarding central system issues............................... 8/99 50%
Identification, assessment, remediation and testing regarding desktop
and individual system issues.................................... 6/99 100%
Identification regarding non-IT system issues......................... 10/98 100%
Assessment regarding non-IT system issues............................. 11/98 100%
Remediation regarding non-IT system issues............................ 6/99 100%
Testing regarding non-IT system issues................................ 8/99 50%
</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 will be completed in August 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 June 30, 1999, we had not incurred any significant 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 the Company's revenues for the
three and six months ended June 30, 1999 and 1998:
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Three months ended June 30, Six months ended June 30,
Consolidated Revenues 1999 1998 1999 1998
- --------------------- ------------------ ------------------ ------------------ -----------------
Grants and contracts........... $ 83,000 $ 197,000 $ 205,000 $ 338,000
Royalties...................... 81,000 84,000 143,000 133,000
License........................ 5,842,000 1,050,000 8,070,000 1,495,000
------------------ ------------------ ------------------ -----------------
Total revenue.................. $ 6,006,000 $ 1,331,000 $ 8,418,000 $ 1,966,000
================== ================== ================== =================
</TABLE>
Revenues. For the three months ended June 30, 1999, our revenues increased
to $6.0 million from $1.3 million for the three months ended June 30, 1998. For
the six months ended June 30, 1999, our revenues increased to $8.4 million from
$2.0 million for the same period in 1998.
The increase in revenues for both the three and six month periods ending
June 30, 1999 relate primarily to the increase in specific reimbursement from
Pharmacia & Upjohn of out-of-pocket or direct costs incurred in preclinical
studies and Phase III clinical trials in ophthalmology. For the six months ended
June 30, 1999, we recorded revenues of $8.1 million for the specific
reimbursement of out-of-pocket or direct costs incurred in preclinical studies
and Phase III clinical trials in AMD. These reimbursements were recorded in
accordance with the February 1999 amended and restated ophthalmology development
and license agreement entered into with Pharmacia & Upjohn. For the six months
ended June 30, 1998, we recorded revenues of $1.5 million for the specific
reimbursement of oncology programs and Phase I/II AMD clinical and preclincal
program costs in conjunction with the license agreement and the amendments
thereto, entered into in July 1995 with Pharmacia & Upjohn. The future revenues
recorded for ophthalmology cost reimbursement may fluctuate depending on the
amount of reimbursable costs incurred and Pharmacia & Upjohn's level of
involvement in the Phase III clinical trials, which is expected to increase in
the future.
The level of license and grant 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 development and license agreement with Pharmacia & Upjohn and the
amount of grant income awarded and expended. 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. No further royalty income is expected to be received, as
the Laserscope license agreement, which provided royalties on the sale of our
previously designed device products, terminated in April 1999.
Research and Development. For the three months ended June 30, 1999,
research and development expenses increased to $9.3 million from $8.8 million
for the three months ended June 30, 1998. For the six months ended June 30,
1999, research and development expenses increased to $15.7 million from $15.4
million for the same period in 1998. The increase in research and development
expenses incurred in 1999 related primarily to:
* The costs associated with drug and device manufacturing and the
screening, treatment and monitoring of qualified individuals
participating in Phase III clinical trials for AMD and Phase I
clinical trials for prostate cancer during 1999;
* Costs for the preparation of the documentation and the collecting of
data for the Phase III clinical trials for AMD and regulatory filings;
and
* The preclinical studies and development work associated with the
development of existing and new drug compounds, formulations and
clinical programs.
Research and development expenses incurred in 1998 primarily related to
similar types of costs incurred for Phase I/II AMD and other oncology clinical
trials.
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, 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 expand to commercial levels and the 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. For the three months ended June 30,
1999, selling, general and administrative expenses decreased to $1.9 million
from $2.1 million for the three months ended June 30, 1998. For the six months
ended June 30, 1999, selling, general and administrative expenses decreased to
$3.9 million from $4.8 million for the same period in 1998. The overall decrease
in selling, general and administrative expenses for both the three and six
months ended June 30, 1999 compared to the same periods in 1998 is primarily due
to:
* A decrease in costs associated with professional services received
from financial consultants, attorneys and public and media relations;
and
* A decrease in compensation expense associated with options and
warrants issued to consultants.
Future selling, general and administrative expenses are expected to remain
consistent due to our September 1998 cost restructuring program. Conditions
which may influence these expenses are the level of 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 a reserve
for the entire $2.0 million outstanding credit line balance plus accrued
interest as of June 30, 1999. The $328,000 expense recorded for the six months
ended June 30, 1999 represents a reserve for the final amount of borrowings
under the credit line plus accrued interest. The $895,000 expense recorded for
the six months ended June 30, 1998 represents a reduction, based on 100% of
Ramus' losses for the respective period, of the $2.0 million equity investment
made in 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 June
30, 1999.
Interest and Other Income. Interest and other income decreased to $525,000
for the six months ended June 30, 1999 from $2.2 million for the six months
ended June 30, 1998. The decrease for the six months ended June 30, 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 six
months of 1999 and 1998 was not significant. Interest expense will increase
during 1999 and the level of increase will be subject to the amount of
borrowings under the Pharmacia & Upjohn Treasury Services AB Credit Agreement
and the warrants issued in connection with the borrowings.
We do not believe that inflation has had a material impact on our results
of operations.
Liquidity and Capital Resources
Since inception through June 30, 1999, we have accumulated a deficit of
approximately $119.9 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, a
secondary public offering and credit arrangements. As of June 30, 1999, we have
received proceeds from the sale of equity securities, convertible notes and
credit arrangements of approximately $208.0 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 the related
Securities Purchase 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. 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 450,000 additional 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 six months ended
June 30, 1999 we had no stock repurchases and for the six months ended June 30,
1998 we repurchased 468,000 shares at a cost of $14.0 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 under the June 1998 amended development and
license agreements. Pharmacia & Upjohn Treasury Services AB 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. During the second quarter of 1999, in accordance
with the Credit Agreement entered into with Pharmacia & Upjohn Treasury Services
AB in February 1999, we requested and received the first two quarterly loans for
a total of $7.5 million of the $22.5 million available to us under the Credit
Agreement. In accordance with the Credit Agreement, we issued a promissory note
to Pharmacia & Upjohn Treasury Services AB for the loan amounts received and
issued an additional promissory note for the related interest due on the
outstanding loan balance as of June 30, 1999. The promissory notes mature in
June 2004, subject to certain limitations and restrictions as defined by the
Credit Agreement, and accrue interest at the prime rate, which was 7.75% at June
30, 1999. We will continue to be able to issue promissory notes for the
quarterly interest amounts due, however beginning in the year 2001 the issuance
of promissory notes for the quarterly interest due will be subject to certain
restrictions. In addition, under the terms of the Credit Agreement and in
connection with each draw-down, we are obligated to issue Pharmacia & Upjohn
Treasury Services AB 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 trading days immediately
preceding the borrowing request for the related loan. In connection with the
first two quarterly loan received, we issued warrants to purchase 120,000 shares
of Common Stock 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 June 30, 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 August 1999, we extended our guaranty of a term loan in the amount of
$7.6 million made by a bank to a former director of ours. In conjunction with
the one year extension to July 31, 2000, we increased our security interest to
include substantially all of the personal assets of the former director, which
includes the previously secured Common Stock owned by the former director.
For the six months ended June 30, 1999 and 1998, we required cash for
operations of $12.5 million and $13.4 million, respectively. The decrease for
the six months ended June 30, 1999 compared to the six months ended June 30,
1998 was primarily due to an increase in the amount of costs incurred which are
reimbursed under the Pharmacia & Upjohn Agreements, as well as a reduction of
the amortization of deferred compensation, which was offset by an increase in
accounts payable. For the six months ended June 30, 1999, net cash provided by
our financing activities was $22.7 million as compared to net cash used by our
financing activities of $12.8 million for the six months ended June 30, 1998.
The increase for the six months ended June 30, 1999 is primarily related to
Pharmacia & Upjohn's $19.0 million Equity Investment as well as the $7.5 million
provided under the Pharmacia & Upjohn Treasury Services AB Credit Agreement. The
net cash used in 1998 related primarily to the repurchase of our Common Stock.
We invested a total of $9.0 million in property and equipment from 1996
through June 30, 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 AMD
clinical trial;
* 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.
PART II. OTHER INFORMATION
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 that our borrowings outstanding
are under variable interest rates, we are not subject to significant interest
rate risk.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 23, 1999, the Company held its Annual Meeting of Stockholders. The
following individuals were elected to the Board of Directors:
Votes Votes
For Withheld
--------------- --------------
Larry S. Barels 13,408,001 505,078
William P. Foley II 13,408,001 505,078
Charles T. Foscue 13,408,001 505,078
Gary S. Kledzik, Ph.D. 13,408,001 505,078
David E. Mai 13,408,001 505,078
Jonah Shacknai 13,408,001 505,078
In addition, the shareholders also approved the following proposal:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Votes Votes Broker
For Against Abstained Non-Votes
-------------- -------------- --------------- ----------------
1. Proposal to ratify the selection of
the Company's independent auditors. 13,890,284 17,795 5,000 0
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
See Exhibit Index on page 17.
(b) Reports on Form 8-K.
None.
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: August 13, 1999 By:/s/ John M. Philpott
------------------------
John M. Philpott
Chief Financial Officer and Controller
(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, 1997. [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.
Love.* [G][4.12]
27.1 Financial Data Schedule.
- -------------------------------------------
[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, 1997 (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, 1999 (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).
* 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.
</TABLE>
<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 JUNE
30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-1-1999
<PERIOD-END> Jun-30-1999
<CASH> 13,554
<SECURITIES> 7,500
<RECEIVABLES> 8,390
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 30,482
<PP&E> 11,735
<DEPRECIATION> (7,017)
<TOTAL-ASSETS> 38,331
<CURRENT-LIABILITIES> 4,965
<BONDS> 0
0
0
<COMMON> 150,955
<OTHER-SE> (119,858)
<TOTAL-LIABILITY-AND-EQUITY> 38,331
<SALES> 0
<TOTAL-REVENUES> 8,418
<CGS> 0
<TOTAL-COSTS> 19,846
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37
<INCOME-PRETAX> (10,940)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,940)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,940)
<EPS-BASIC> (0.62)
<EPS-DILUTED> (0.62)
</TABLE>
