UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-K
FOR
ANNUAL AND TRANSITION REPORTS
PURSUANT
TO SECTIONS 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
(Mark
One)
|
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
fiscal year ended December 31, 2006
OR
|
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
transition period from _____________ to _____________
Commission
File Number 000-14879
 |
|
(Exact
Name of Registrant as Specified in Its
Charter)
|
|
Delaware
|
22-2322400
|
|||
|
(State
or Other Jurisdiction of
|
(I.R.S.
Employer Identification No.)
|
|||
|
Incorporation
or Organization)
|
||||
|
650
College Road East, Suite 3100
|
||||
|
Princeton,
New Jersey
|
08540
|
|||
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
Registrant's
telephone number, including area code: (609) 750-8200
Securities
registered pursuant to Section 12(b) of the Act:
|
Title
of Class
|
Name
of Exchange on which
Registered
|
|
|
Common
Stock, $0.01 par value per share
|
The
NASDAQ
|
|
|
|
Stock
Market LLC
|
Securities registered pursuant to Section 12(g) of the
Act: Preferred
Stock Purchase Rights, $0.01 par value per share
Indicate
by check mark whether the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act. Yes ¨ No
x
Indicate
by check mark whether the registrant is not required to file reports pursuant
to
Section 13 or Section 15(d) of the Act. Yes ¨ No
x
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.
Yesx
No¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this
Form 10-K.x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.
|
Large
Accelerated Filer ¨
|
Accelerated
Filer x
|
Non-
Accelerated Filer ¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
¨ No
x
The
aggregate market value of the registrant's voting shares of Common Stock held
by
non-affiliates of the registrant on June 30, 2006, based on $2.50 per share,
the
last reported sale price on the NASDAQ Global Market on that date, was
$56,119,227.
The
number of shares of Common Stock, $.01 par value, of the registrant outstanding
as of March 9, 2007 was 29,605,631 shares.
The
following documents are incorporated by reference into this Annual Report on
Form 10-K: Portions of the registrant's definitive Proxy Statement for its
2007
Annual Meeting of Stockholders are incorporated by reference into Part III
hereof.
|
Item
|
Page
|
||||
|
PART
I
|
1.
|
3
|
|||
|
1.A
|
40
|
||||
|
1.B
|
64
|
||||
|
2.
|
65
|
||||
|
3.
|
65
|
||||
|
4.
|
65
|
||||
|
PART
II
|
5.
|
66
|
|||
|
6.
|
68
|
||||
|
7.
|
69
|
||||
|
7A.
|
91
|
||||
|
8.
|
92
|
||||
|
9.
|
92
|
||||
|
9A.
|
92
|
||||
|
9.B
|
96
|
||||
|
PART
III
|
10.
|
96
|
|||
|
11.
|
96
|
||||
|
12.
|
96
|
||||
|
13.
|
96
|
||||
|
14.
|
97
|
i
|
PART
IV
|
15.
|
97
|
|||
|
111
|
|||||
|
F-1
|
|||||
This
Annual Report contains forward-looking statements, which can be identified
by
the use of forward-looking terminology such as, "believe," "expect," "may,"
"plan," "estimate," "intend," "will," "should," "potential" or "anticipate"
or
the negative thereof, or other variations thereof, or comparable terminology,
or
by discussions of strategy. No assurance can be given that the future
results covered by such forward-looking statements will be
achieved. The matters set forth in Item 1A. Risk Factors
constitute cautionary statements identifying important factors with respect
to
such forward-looking statements, including certain risks and uncertainties
that
could cause actual results, events or developments to differ materially from
those indicated in such forward-looking statements. All information
in this Annual Report on Form 10-K is as of March 16, 2007. We
undertake no obligation to update this information to reflect events after
the
date of this report.
CAPHOSOL®,
QUADRAMET® (samarium
Sm-153 lexidronam injection) and PROSTASCINT® (capromab
pendetide) are registered United States trademarks of Cytogen
Corporation. Other trademarks and trade names used in this Annual
Report are the property of their respective owners.
We
are
sponsoring or supporting certain clinical investigations to explore potential
new indications for the use of QUADRAMET
and PROSTASCINT.
This Annual Report contains discussions that include investigational
clinical applications that differ from those reported in the package inserts
for
QUADRAMET and PROSTASCINT and have not been reviewed or approved by
FDA. QUADRAMET is indicated for the relief of pain in patients with
confirmed osteoblastic metastatic bone lesions that enhance on a radionuclide
bone scan. PROSTASCINT is approved for marketing in the United States in two
clinical settings: (i) as a diagnostic imaging agent in newly diagnosed patients
with biopsy-proven prostate cancer thought to be clinically localized after
standard diagnostic evaluation and who are at high risk for spread of their
disease to pelvic lymph nodes; and (ii) for use in post-prostatectomy patients
with a rising PSA and a negative or equivocal standard metastatic evaluation
in
whom there is a high clinical suspicion of occult metastatic
disease.
SOLTAMOX™
(tamoxifen citrate, oral solution 10mg/5mL) is indicated for the treatment
of
metastatic breast cancer and to reduce the incidence of breast cancer in women
who are at high risk for the disease. As with other versions of
tamoxifen, the product label for SOLTAMOX includes a black box warning with
information on the potential risk of adverse events. The boxed
warning states, in part, that: "Serious and life threatening events associated
with tamoxifen in the risk reduction setting (women at high risk for cancer
and
women with ductal carcinoma in situ) include uterine malignancies, stroke and
pulmonary embolism."
A
copy of
the full prescribing information for CAPHOSOL, QUADRAMET, PROSTASCINT and
SOLTAMOX in the United States may be obtained from us by calling us toll free
at
800-833-3533 or by visiting our website at
www.cytogen.com. Our website is not part of this Annual Report
on Form 10-K.
We
maintain www.cytogen.com to provide information to the general public and our
stockholders on our products, as well as general information on Cytogen and
its
management, strategy, career opportunities, financial results and press
releases. Copies of our most recent Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, and other reports filed with the
Securities
and Exchange Commission, or the SEC, can be obtained, free of charge as soon
as
reasonably practicable after such material is electronically filed with, or
furnished to the SEC, from our Investor Relations Department by calling
609-750-8213, through the Investor Relations page on our website at
www.cytogen.com or directly from the SEC's website at
www.sec.gov. Our website and the information contained therein
or connected thereto are not intended to be incorporated into this Annual Report
on Form 10-K.
We
were
incorporated in Delaware on March 3, 1980 under the name Hybridex, Inc. and
changed our name to Cytogen Corporation on April 1, 1980. Our
executive offices are located at 650 College Road East, Suite 3100, Princeton,
New Jersey, 08540 and our telephone number is 609-750-8200.
PART
I
Overview
Cytogen
is a specialty pharmaceutical company dedicated to advancing the treatment
and
care of cancer patients by building, developing, and commercializing a portfolio
of oncology products for underserved markets where there are unmet
needs. Our product portfolio includes four oncology products approved
by the United States Food and Drug Administration ("FDA"), CAPHOSOL®, QUADRAMET®,
PROSTASCINT®, and SOLTAMOX™,
which are marketed
solely by our specialized sales force to the U.S. oncology
market. We introduced our fourth product, CAPHOSOL, in the first
quarter of 2007. CAPHOSOL is an advanced electrolyte solution for the
treatment of oral mucositis and dry mouth that was approved as a prescription
medical device. QUADRAMET is approved for the treatment of pain in
patients whose cancer has spread to the bone. SOLTAMOX, which
we introduced in the second half of 2006, is the first liquid hormonal
therapy approved in the U.S. for the treatment of breast cancer in adjuvant
and
metastatic settings. PROSTASCINT is a prostate-specific membrane antigen
(PSMA) targeting monoclonal antibody-based agent to image the extent and spread
of prostate cancer. Currently, our clinical development initiatives
are focused on new indications for QUADRAMET and PROSTASCINT, as well our
product candidate, CYT-500, a radiolabeled antibody in Phase 1 development
for
the treatment of prostate cancer.
In
2003,
we realigned our corporate direction to focus on building a successful oncology
franchise with a specialized commercial infrastructure equipped to deliver
sustainable value. To that end, we have established a growing
commercial presence in the U.S., which targets both medical and radiation
oncology. We believe marketing proprietary specialty oncology
products directly, as opposed to receiving royalties on sales by licensees,
will
enable us to build a growth-oriented oncology business. Because there
is a limited number of leading cancer clinics across the U.S., we believe our
highly trained and focused sales team can effectively market a complementary
product offering to a broad market segment. Our sales and marketing
infrastructure has played a critical role in our ability to add new
commercial-stage products to our portfolio. Further, we believe the
commercial arm of our business is highly scalable and can readily support new
product opportunities through modest capital investments.
Strategy
and Approach
Our
strategy focuses on growing our business organically and through in-licensing
initiatives. It revolves around three key priorities:
|
|
·
|
Expanding
our near- and long-term revenues. We have successfully implemented an
active in-licensing program to broaden our revenue base with product
opportunities that are complementary to our commercial presence in
oncology. In April 2006, we acquired the commercial rights to
SOLTAMOX from Savient Pharmaceuticals, Inc. ("Savient") and in October
2006, we acquired the commercial rights to CAPHOSOL from InPharma
A/S
("InPharma"). These two products are new revenue sources
for
|
2007. We
are also pursuing clinical-stage candidates in complementary therapeutic areas
with promising regulatory pathways.
|
|
·
|
Maximizing
the market potential of our approved products through data-driven
initiatives. A robust, data-driven strategy is underway to
enhance the market opportunities for our products within their currently
approved indications. We are supporting numerous post-marketing
studies for QUADRAMET to optimize its potential as a safe, effective,
non-narcotic option for the palliation of pain from cancers that
have
spread to the bone. We are also advancing initiatives to
position PROSTASCINT as an important tool for managing the care of
prostate cancer. Recent progress includes: (i) the
publication of new data in the American Cancer Society's peer-reviewed
journal, Cancer, demonstrating repeated dosing of QUADRAMET to be
a safe and effective treatment option for patients with recurrent
painful
bone metastases; (ii) the expanded inclusion of PROSTASCINT within
the
National Comprehensive Cancer Network's ("NCCN") clinical practice
guidelines to include patients with recurrent disease; and (iii)
the
publication of seven-year survival data in the American Brachytherapy
Society's peer-reviewed journal, Brachytherapy, demonstrating the
potential for PROSTASCINT fusion imaging to help determine
patient-specific treatment regimens for prostate cancer patients
undergoing brachytherapy.
|
|
|
·
|
Building
long-term sustainability. We are focused on maintaining a
balanced specialty portfolio through three key imperatives: (i)
evaluating new indications for our marketed products; (ii) accessing
product candidates complementary to our commercial presence; and
(iii)
monetizing assets that are no longer a strategic fit and realigning
our
investment on projects that are in line with our business
objectives. Our 2006 progress includes the presentation of
promising Phase 1 data for Quadramet in combination with bortezomib
for
relapsed multiple myeloma and the approval of an investigational
new drug
application to evaluate CYT-500 as a therapy for prostate
cancer. In addition, in April 2006, we monetized our interest
in a preclinical-stage joint venture, PSMA Development Company LLC
("PDC")
for a cash payment of $13.2 million and potential future milestone
payments totaling up to $52 million. We are also pursuing
strategic opportunities to optimize the extensive intellectual property
and technology associated with our AxCell BioSciences
subsidiary.
|
Marketed
Products
CAPHOSOL
Overview
CAPHOSOL
is an advanced electrolyte solution indicated in the U.S. as an adjunct to
standard oral care in treating oral mucositis caused by radiation or high dose
chemotherapy. It is also indicated for dryness of the mouth or
dryness of the throat regardless of the cause or whether the conditions are
temporary or permanent. CAPHOSOL is approved in the U.S. as a
prescription medical device.
We
acquired the exclusive commercial rights for CAPHOSOL in North America from
InPharma in October 2006 in exchange for aggregate up-front payments totaling
$6.0 million which includes $1 million payable in 2007, a $400,000 payment
contingent upon certain conditions, future royalties on product sales, and
sales-based milestone payments. We are also obligated to pay a
finder's fee based on a percentage of milestone payments made to
InPharma. We also obtained options to acquire the rights to CAPHOSOL
for the European and Asian markets, which we only intend to exercise in
connection with obtaining a commercial partner for those areas. We
will be required to obtain consents from certain licensors but not InPharma,
if
we sublicense the rights to market CAPHOSOL in Europe and Asia to other
parties. In the event we exercise the options to license marketing
rights for CAPHOSOL for the European and Asian markets, we would be obligated
to
pay additional fees, including sales-based milestone payments for the respective
territories.
Oral
mucositis
Oral
mucositis is commonly described as one of the most significant and debilitating
acute complications associated with radiation therapy and
chemotherapy. It is estimated to affect more than 400,000 cancer
patients each year occurring in about 40% of patients receiving conventional
chemotherapy, 75% to 85% of bone marrow transplant recipients, and nearly all
patients undergoing radiation therapy for head and neck cancers. Oral
mucositis usually begins seven to ten days after initiation of cytotoxic
therapy, and remains present for approximately two weeks after cessation of
that
therapy.
Oral
mucositis is an oral mucosal change that manifests first by thinning of oral
tissues leading to redness or inflammation of the skin or mucous
membranes. As these tissues continue to thin, ulceration eventually
occurs. In severe cases, oral mucositis can complicate the management
of cancer by leading to interruption or stopping of treatment, which can
negatively impact treatment outcomes.
While
there are a number of agents available for oral mucositis, we believe the
current market is significantly underserved thereby presenting us with a
promising opportunity to substantially expand our revenue base.
CAPHOSOL
for oral mucositis
CAPHOSOL
lubricates the mucosa and helps maintain the integrity of the oral cavity
through its mineralizing potential. We believe the distinguishing
feature of CAPHOSOL is its high concentrations of calcium and phosphate ions,
which are hypothesized to exert their beneficial effects by diffusing into
intracellular spaces in the epithelium and permeating the mucosal lesion in
mucositis. Calcium ions may play a crucial role in several aspects of
the inflammatory process, the blood clotting cascade, and tissue
repair. Phosphate ions may be a valuable supplemental source of
phosphates for damaged mucosal surfaces.
In
two
single-arm studies evaluating patients receiving hematopoietic stem cell
transplantation (HSCT) and head and neck radiation therapy, the CAPHOSOL-based
oral health management system was well tolerated and was associated with an
improvement in oral mucositis as compared with previous controlled
studies. These favorable results were the basis for a prospective,
randomized, double-blind, placebo-controlled trial demonstrating
that
CAPHOSOL
is a significant adjunct in the management of mucositis associated with
high-dose chemotherapy and radiation therapy. The trial evaluated 95
patients undergoing HSCT with the duration and severity of mucositis and
requirements for opioid medications prospectively evaluated. Data
demonstrated significant decreases in days of mucositis (3.72 vs. 7.20 days,
P=0.001), maximum (peak) level of mucositis using the National
Institute of Dental and Craniofacial Research (NIDCR) scale (median level of
1.0
vs. 3.0, P=0.004), duration of pain (2.86 vs. 7.67 days, P=0.0001), dose of
morphine (30.46 mg vs. 127.96 mg), and days of morphine (1.26 vs. 4.02 days,
P=0.0001) for patients receiving CAPHOSOL as compared to those administered
a
placebo, respectively. A total of 40% vs. 19% of patients had no
mucositis in the CAPHOSOL and the control arms, respectively. The
lead investigator for the study was Athena Papas, DMD, PhD, Department of Oral
Medicine, Tufts University School of Medicine, Boston MA and results were
published in the April 2003 issue of the peer-reviewed journal Bone Marrow
Transplantation (Papas et al. Bone Marrow Transplant. 2003
April:31(8):705-12).
Dry
mouth
Saliva
is
the principle protective mechanism for oral tissues. Any absence of
saliva or alteration in its composition leaves the mouth susceptible to
infection or deterioration. Xerostomia or dry mouth occurs when the
salivary glands do not produce enough saliva. It is a serious oral
health problem that, when left untreated, leads to disease in the oral cavity
and places patients at risk for oral infections. Common complaints
with dry mouth include difficulty in speaking, chewing, and tasting and
swallowing foods. Dry mouth may be caused by a variety of factors,
including cancer treatment with chemotherapy and/or radiation, Sjögren syndrome
and other autoimmune disorders, diabetes, renal dialysis, solid organ and bone
marrow transplant, psychiatric disorders, and use of more than 400
pharmaceutical products known to adversely affect salivary output.
CAPHOSOL
for dry mouth
Saliva
is
an important part of the mucosal immune system. Caphosol lubricates
the oral cavity and its high concentrations of calcium and phosphate ions can
help to maintain the integrity of the teeth.
Our
products, including CAPHOSOL, are subject to significant regulation by
governmental agencies, including the FDA, as is more fully described below
under
the section entitled "Government Regulation." We cannot assure you
that we will be able to successfully market CAPHOSOL for oral mucositis and/or
dry mouth.
QUADRAMET
Overview
QUADRAMET
is an oncology product that pairs the targeting ability of a small molecule,
bone-seeking phosphonate (ethylenediaminetetramethylenephosphonic acid, or
EDTMP) with the therapeutic potential of radiation (samarium
Sm-153). QUADRAMET is indicated for the relief of pain in patients
with confirmed osteoblastic metastatic bone lesions that enhance on a
radionuclide bone scan. We market QUADRAMET to medical and radiation
oncologists in the U.S.
Bone
metastases
It
is
estimated that each year more than 100,000 patients in the U.S. develop bone
metastases from spread of their primary cancer. Bone is the third
most common site of metastatic disease after liver and lung, and the spread
of
cancer to bone is associated with considerable morbidity. This
includes bone pain and fracture, spinal cord compression, and
hypercalcemia. The incidence of bone metastasis is expected to
increase over the next decade as patient survival improves due to advances
in
anticancer therapy. This will make the treatment of this problem more
important in the overall management of the surviving cancer
patient. The majority of skeletal metastases arise from primary
tumors of the thyroid, kidney, lung, prostate, and breast, with the latter
two
accounting for about 80% of metastatic bone disease. While all bones
can be affected, the most common site of disease spread is the spine with the
subsequent development of spinal cord compression. In advanced breast
cancer, a majority of skeletal events will occur every three to four months
resulting in significant morbidity and impaired quality of life.
QUADRAMET
for painful bone metastases
Skeletal
invasion by prostate, breast, multiple myeloma, and other cancers often create
an imbalance between the normal process of bone destruction and
formation. QUADRAMET selectively targets such sites of imbalance,
thereby delivering radioactivity directly to areas of the skeleton that have
been invaded by metastatic tumor. QUADRAMET has demonstrated a range
of characteristics that may be advantageous for the treatment of pain arising
from metastatic bone disease. In clinical trials, QUADRAMET
demonstrated significant reductions in pain scores accompanied by reductions
in
opioid analgesic use as compared to placebo. Patients who respond to
treatment with QUADRAMET may experience pain relief within the first week
lasting a median of 16 weeks, with maximal relief generally occurring at three
to four weeks after injection. Patients who experience a reduction in
pain may be encouraged to decrease their use of opioid analgesics.
Despite
a
favorable safety and efficacy profile, the routine use of QUADRAMET for the
palliation of disseminated painful bone metastases has commonly been reserved
for those patients with end-stage disease when other treatment options have
been
exhausted. We believe this practice may have evolved as a result of
experiences with earlier generation radiopharmaceuticals, such as strontium-89,
which unlike QUADRAMET are associated with prolonged
myelosuppression. In December 2006, the American Cancer Society's
journal, Cancer, published new data from a multi-center Phase 4 study
evaluating the safety and efficacy of repeated doses of QUADRAMET in patients
with metastatic bone pain. This study is the first prospective
clinical trial specifically evaluating the common clinical scenario of patients
who initially respond to QUADRAMET and subsequently become candidates for
re-treatment upon the recurrence of symptoms. More than 200 patients,
including 55 patients who received repeated dosing of QUADRAMET participated
in
the multi-center study. The results demonstrated that repeated
QUADRAMET dosing is a safe and effective treatment option in patients with
painful bone metastases. The article, "Safety and efficacy of repeat
administration of Samarium Sm-153 lexidoronam to patients with metastatic bone
pain," by A. Oliver Sartor, the lead author and a nationally renowned prostate
cancer specialist with Dana-Farber Cancer Institute's Lank Center for
Genitourinary Oncology, appeared in the February 1, 2007 edition of Cancer
2007; 109: 637-43.
Because
we believe QUADRAMET is underutilized as a pain therapy for patients whose
cancer has spread to the bone, we are advancing numerous clinical and commercial
initiatives to better support QUADRAMET and expand its market potential within
its approved label for pain palliation. In connection with our
reacquisition of the commercial rights to QUADRAMET in 2003, we conducted
detailed market research that formed the foundation of our product growth
strategy. The key components of this strategy are summarized
below.
|
|
·
|
Distinguishing
the physical properties of QUADRAMET from earlier generation agents
within
its class. We believe the limited use of QUADRAMET for the
palliation of disseminated painful bone metastases has evolved due
to the
myelosuppression associated with earlier generation radiopharmaceuticals,
such as strontium-89. While to date, there are no head-to-head
clinical trials comparing QUADRAMET and strontium-89, we believe,
there
are several key differentiating features that distinguish QUADRAMET
from
strontium-89. First, QUADRAMET's physical half life is 1.9
days, as compared to 50.5 days for strontium-89. A shorter half
life results in a much faster time to deliver the total dose of radiation,
as well as a shorter exposure to radioactivity. In addition,
particle emissions from strontium-89 are significantly higher in
energy
compared to QUADRAMET and higher-energy particles are associated
with
larger volumes of marrow exposed to radiation. These key
differences have been highlighted in recent peer-reviewed publications
that our field force can utilize when they present QUADRAMET to health
care providers.
|
|
|
·
|
Empowering
and marketing to key prescribing audiences. We have
broadened our commercial focus and are now introducing QUADRAMET
to both
medical and radiation oncologists, as we believe the effective treatment
of bone metastases requires a cooperative effort between the two
specialties. We have retrained and refocused our sales force
with new resources that highlight QUADRAMET's attributes for treating
painful bone metastases, such as its rapid onset and duration of
relief.
|
|
|
·
|
Broadening
palliative use within label beyond prostate cancer to include breast,
lung, and multiple myeloma. Historically, the vast
majority of QUADRAMET's use has been for bone metastases secondary
to
prostate cancer; however, bone metastases are also a frequent complication
of a number of other cancers, including breast, lung, and multiple
myeloma. We have extended our therapeutic focus beyond prostate
cancer specialists to include other cancers with a high propensity
for
painful bone metastases. In addition, our 2006 acquisitions of
SOLTAMOX for breast cancer and CAPHOSOL for oral mucositis and dry
mouth,
two common side effects of cancer therapy, offer expanded access
to new
therapeutic areas for QUADRAMET.
|
|
|
·
|
Generating
data to support the role of QUADRAMET in contemporary oncology settings
with other commonly used cancer therapeutics. We are
supporting numerous clinical development initiatives evaluating QUADRAMET
in combination with chemotherapies and biologics for prostate cancer,
breast cancer, multiple myeloma, and osteosarcoma. These trials
are designed with two key objectives. First, to broaden
QUADRAMET's market potential within its currently approved treatment
setting for pain palliation by evaluating the safety and tolerability
of
administering
|
QUADRAMET
in combination with other cancer regimens. Second, to support our
longer-term strategy for maximizing the QUADRAMET brand by progressing QUADRAMET
beyond its currently approved treatment setting as a potential therapeutic
for
cancer that has spread to the bone as discussed below.
Market
expansion for QUADRAMET
We
believe that QUADRAMET's targeted delivery of radiotherapy may also have an
important therapeutic effect beyond palliation of pain. Phase 1
clinical data suggest there may be synergistic effects between QUADRAMET and
other cancer therapies for prostate cancer, breast cancer, multiple myeloma,
and
osteosarcoma.
Prostate
cancer
In
February 2007, we reported the presentation of interim data from a Phase 1
study
evaluating QUADRAMET in combination with docetaxel (Taxotere®) for the treatment
of hormone-refractory prostate cancer. Data from 18 patients were
presented at the Prostate Cancer Symposium, a multidisciplinary meeting
co-sponsored by the American Society of Clinical Oncology, the American Society
for Therapeutic Radiology and Oncology, the Prostate Cancer Foundation, and
the
Society of Urologic Oncology. This trial continues to accrue patients
in a Phase 1 extension to explore the optimal dosing schedule for a Phase 2
clinical study to be initiated in 2007.
Breast
cancer
During
2007, we plan on expanding our combination strategy for QUADRAMET to include
breast cancer through the initiation of a Phase 1 trial evaluating QUADRAMET
in
combination with albumin-bound paclitaxel (Abraxane®) and a Phase 2 trial
evaluating QUADRAMET in connection with hormonal therapies.
Multiple
myeloma
In
December 2006, we reported the presentation of interim data from a Phase 1
dose
escalation study evaluating QUADRAMET® in combination
with
bortezomib (Velcade®) in patients with relapsed multiple
myeloma. Data from 20 patients administered a total of 35 treatment
cycles were presented at the Annual Meeting of the American Society of
Hematology. A treatment cycle is 8 weeks in duration and consists of
four administrations of bortezomib (on Days 1, 4, 8 and 11) and a single
administration of QUADRAMET (on Day 3). Results indicated the
combination of QUADRAMET and bortezomib was well-tolerated at the doses studied
and we are preparing for the initiation of a follow-up Phase 2 study in
2007.
Osteosarcoma
Following
the presentation of encouraging data at the Connective Tissue Oncology Society
(CTOS) annual meeting in November 2006, we are currently designing a Phase
2
protocol to evaluate QUADRAMET for the treatment of osteosarcoma. We
expect to initiate this study during 2007.
In
addition to the aforementioned Company-sponsored clinical development
initiatives in prostate cancer, breast cancer, multiple myeloma, and
osteosarcoma, we continue to explore investigator-sponsored studies and studies
with cooperative groups to advance our QUADRAMET combination
strategy.
In
July
2006, we reported that the National Cancer Institutes's (NCI) Radiation
Treatment Oncology Group (RTOG) initiated a randomized phase III trial to
evaluate either QUADRAMET or strontium-89 chloride in conjunction with
zoledronic acid (Zometa®) in the treatment of osteoblastic metastases arising
from lung, breast, and prostate cancer. The study is designed to determine
if the addition of a radiopharmaceutical to bisphosphonates for patients with
asymptomatic or stable symptomatic bone metastasis will delay the time to
development of malignant skeletal related events (SREs), defined as a
pathological bone fracture, spinal cord compression, surgery to bone, or
radiation to bone. The study is expected to involve approximately 350
patients.
In
March
2007, we reported that the NCI, part of the National Institutes of Health (NIH),
initiated a randomized Phase 2 study to evaluate QUADRAMET in combination
with the NIH's targeted therapeutic vaccine, PSA-TRICOM, for patients with
progressive hormone-refractory prostate cancer who have failed
docetaxel-based regimens. The primary objective of the study is to
determine if there is an improvement in four-month progression-free survival
for
the combination regimen versus QUADRAMET therapy alone. The study is
expected to enroll 68 patients. Currently, there is no standard of care
for treating prostate cancer patients who have progressive disease following
docetaxel-based therapy.
Our
products, including QUADRAMET, are subject to significant regulation by
governmental agencies, including the FDA, as is more fully described under
the
section entitled "Government Regulation" herein. We cannot assure you
that we will be able to complete any of our market expansion strategies set
forth above.
PROSTASCINT
Overview
Our
PROSTASCINT molecular imaging agent is the first, and currently the only,
commercial product targeting PSMA. PSMA is abundantly expressed on
the surface of prostate cancer cells. In contrast to other
prostate-related antigens such as PSA, prostatic acid phosphatase, and prostate
secretory protein, PSMA is a type II integral membrane glycoprotein that is
not
secreted. PSMA expression is increased in high-grade cancers,
metastatic disease, and hormone-refractory prostate cancer. PSMA is
also present at high levels on the newly formed blood vessels, or
neovasculature, needed for the growth and survival of many solid
tumors. This unique expression pattern makes PSMA an excellent
antigenic target for monoclonal antibody diagnostic and therapeutic
options.
PROSTASCINT
consists of our proprietary murine monoclonal antibody 7E11-C5.3 ("7E11")
directed against PSMA and the radioisotope indium-111. A radioisotope
is an element which, because of nuclear instability, undergoes radioactive
decay
and emits gamma radiation. Due to the selective expression of PSMA by
prostate cancer cells, PROSTASCINT can image the extent and spread of prostate
cancer using a common gamma camera.
10
PROSTASCINT
is approved for marketing in the United States in two clinical settings: (i)
as
a diagnostic imaging agent in newly diagnosed patients with biopsy-proven
prostate cancer thought to be clinically localized after standard diagnostic
evaluation and who are at high risk for spread of their disease to pelvic lymph
nodes and (ii) for use in post-prostatectomy patients with a rising PSA and
a
negative or equivocal standard metastatic evaluation in whom there is a high
clinical suspicion of occult metastatic disease.
During
the molecular imaging procedure, PROSTASCINT is administered intravenously
into
the patient. The 7E11 antibody in PROSTASCINT travels through the
bloodstream and binds to PSMA. The radioactivity from the isotope
that has been attached to the antibody can be detected from outside the body
by
a gamma camera. Gamma cameras are found in the nuclear medicine
departments of most hospitals. The image captured by the camera
assists in the identification of the location of the radiolabeled pharmaceutical
thus identifying the sites of tumors.
Gamma
cameras used in nuclear medicine have advanced in recent years. Some
manufacturers now sell cameras with wider segmented crystals, providing
advantages in medium and high energy imaging of isotopes (e.g., indium-labeled
agents, such as PROSTASCINT) thus enhancing system
sensitivity. System enhancements allow improved image quality or
reduced scan
time, which reduces the risks associated with patient
motion. Equipment vendors have introduced advanced single photon
emission computed tomography (SPECT) reconstruction algorithms, as well as
three
dimensional iterative reconstruction techniques that potentially increase image
contrast with inherent system gains in image quality. These prominent
new nuclear medicine imaging algorithms enable advances in image quality as
compared to conventional "Filtered Back Projection" techniques. In
addition, PROSTASCINT may now be co-registered with an anatomic image obtained
with either computed tomography (CT) or magnetic resonance (MR) imaging
(PROSTASCINT fusion imaging.) Device manufacturers generally offer
two methods to achieve co-registration between metabolic and anatomical
images. Some manufacturers merge information in a single SPECT/CT
system, while others utilize fusion software, which has become more widely
available in the past few years, as computer workstations have become powerful
enough to achieve co-registration.
Prostate
cancer
Prostate
cancer is the most common type of cancer found in American men, other than
skin
cancer. In 2007, the American Cancer Society estimates that there
will be about 219,000 new cases of prostate cancer diagnosed in the United
States and that about 27,000 men will die from the disease. It is
estimated that there are more than 2 million American men currently living
with
prostate cancer. Prostate-specific antigen (PSA) is a protein
produced by the cells of the prostate gland. Tests to determine the
amount of PSA in the blood, along with a digital rectal exam, is used to help
initially detect prostate cancer and is also used to monitor patients with
a
history of prostate cancer to see if the cancer has come back, or recurred;
however, PSA levels cannot directly identify the extent or location of
disease.
PROSTASCINT
for prostate cancer
When
deciding on a course of therapy for newly diagnosed prostate cancer, physicians
must determine the extent of disease in the patient. When disease has
not spread beyond the
11
prostate
gland, patients are most likely to benefit from local treatment options, such
as
surgical removal of the prostate gland. Patients diagnosed with
distant disease that has spread beyond the prostate gland have a poorer chance
of five-year survival than those
with
disease confined to the gland and are more likely to benefit from systemic
therapy. In addition, in the United States, following initial
therapy, prostate cancer patients are monitored to ascertain changes in the
level of serum PSA. In this setting, a consistent rise in PSA is
evidence of recurrence of the patient's prostate cancer. Knowledge of
the extent and location of disease recurrence is important in choosing the
most
appropriate form of treatment. PROSTASCINT is a non-invasive way to
help determine if the cancer is confined to the prostate or if it has spread
to
other areas of the body.
Prior
to
the availability of PROSTASCINT, determining whether newly diagnosed disease
was
limited to the prostate or had spread beyond the gland, for instance to lymph
nodes, was based upon statistical inference from the biopsy appearance of the
tumor, the patient's level of serum PSA, and the stage of other primary
tumors. Conventional imaging methods such as CT or MR are all
relatively insensitive because they rely on identifying significant changes
to
normal anatomic structure to indicate the presence of
disease. PROSTASCINT images are based upon expression of PSMA and,
therefore, may identify disease not readily detectable with conventional
procedures, such as CT or MR imaging alone.
In
June
2006, data from a series of studies evaluating PROSTASCINT fusion imaging and
advancements in image processing methods were presented at the Society of
Nuclear Medicine's annual meeting. The data demonstrated new
potential for PROSTASCINT fusion imaging to help determine patient-specific
treatment regimens and improve outcomes for prostate cancer
patients.
In
January 2007, we reported that the National Comprehensive Cancer Network (NCCN)
included PROSTASCINT in its updated clinical practice guidelines for recurrent
prostate cancer. We believe the expanded inclusion in the NCCN's
guidelines further reinforces the value of PROSTASCINT for evaluation of
prostate cancer in patients suspected of having locally recurrent
disease. NCCN is a non-profit alliance of 20 of the world's top
cancer centers. The NCCN's Clinical Guidelines in Oncology are a
benchmark for clinical policy in the oncology community. These
guidelines are updated continually and are based upon evaluation of scientific
data integrated with expert judgment by multidisciplinary panels of expert
physicians from NCCN member institutions. We believe the expanded
NCCN guidelines reflect the growing awareness of the advancements in imaging
processing and the value of PROSTASCINT fusion imaging.
In
February 2007, the American Brachytherapy Society's peer-reviewed journal,
Brachytherapy published the results of a seven-year survival study that
suggest PROSTASCINT may help predict which patients are less likely to benefit
from brachytherapy for prostate cancer. The study, "Biochemical
disease free survival rates following definitive low dose rate prostate
brachytherapy with dose escalation to biologic target volumes identified with
SPECT/CT Capromab Pendetide," by Ellis et al. (Brachytherapy
Volume
6, Issue 1, January-March 2007, Pages 16-25) evaluated the use of
PROSTASCINT fusion imaging to define brachytherapy treatment regimens for 239
newly-diagnosed prostate cancer patients. PROSTASCINT fusion imaging
was used to assess local and distant disease and to alter the radiation dose
to
areas of suspected high tumor burden. In a multivariate analysis,
uptake of PROSTASCINT outside of the prostate gland was found to be a
significant and independent predictor of biochemical disease
free
survival (bDFS). Using the American Society for Therapeutic Radiation
and Oncology (ASTRO) standard criteria to monitor PSA response for reporting
disease free survival, the cure rate was 90.6% for patients whose fused
PROSTASCINT scan showed local disease (n=217) versus 66.1% (n=22) for patients
with distant disease (p=0.0005). We believe this publication further
reinforces PROSTASCINT's emerging potential as a valuable tool in managing
the
care of prostate cancer patients.
Validation
of PSMA prognostic value
In
May
2006, Cytogen announced the presentation of clinical data demonstrating that
a
high level of PSMA in prostate tissue is a strong predictor of prostate cancer
recurrence. The data was presented at the 101st American Urological
Association (AUA) Annual Meeting held May 20-25, 2006, in Atlanta,
GA.
In
the
study, independent investigators from Ulm, Germany, and Boston, MA, analyzed
PSMA expression by tissue microarray in 96 patients with either localized or
metastatic prostate cancer who had undergone radical prostatectomy, or surgical
removal of the prostate, as monotherapy. One third of the patients
had disease confined to the prostate gland with no spread to lymph nodes (LN),
33% had only one positive LN, and the remaining third had more than one
positive
LN. Following therapy, patients were monitored for a maximum of 12.6
years with an average follow-up of 2.7 years.
Significant
up-regulation of PSMA expression was noted in patients with metastatic disease
as compared to those with localized prostate cancer and in localized disease
compared to benign prostate tissue (p<0.05). High PSMA levels were
associated with a significant increase in disease recurrence following therapy
(p<0.001) in univariate statistical analyses. Other significant
parameters for predicting disease recurrence included LN positivity,
extraprostatic extension of disease, seminal vesicle invasion by disease, and
Gleason score 8-10. Using multivariate statistical analyses, the best
model to predict disease recurrence included high PSMA expression (p<0.01)
and extraprostatic extension (p=0.02) after adjusting for Gleason score and
seminal vesicle invasion.
This
new
study validates and extends upon data previously published demonstrating that
over-expression of PSMA in primary prostate cancer not only correlates with
other adverse traditional prognostic factors, but can independently predict
both
a higher incidence and shorter time to disease recurrence. There is a
tremendous need for better prognostic markers in prostate cancer to assist
in
the identification of patients with aggressive forms of the disease who can
potentially benefit from earlier and more intensive forms of
treatment. The findings presented at AUA further support our belief
in the importance of PSMA as an independent prostate cancer marker and important
diagnostic and therapeutic target.
Market
Expansion for PROSTASCINT
We
believe the major developments in imaging resolution, emerging clinical data,
and the increasing level of recognition of the value of PROSTASCINT fusion
imaging support an important near- and long-term market opportunity for
PROSTASCINT. We are focused on capitalizing on this opportunity by
generating awareness and expanded usage for
PROSTASCINT
fusion imaging through a number of clinical and commercial
initiatives. Key highlights from our strategy are summarized
below.
|
|
·
|
Positioning
PROSTASCINT fusion imaging as the standard of care for prostate cancer
imaging. PROSTASCINT fusion imaging combines anatomic and
functional information to provide a complete pathology picture in
a single
exam. This can help physicians eliminate guesswork and enable
them to better plan and individualize patient treatment. PROSTASCINT
fusion imaging can be accomplished through software or hardware
solutions. Of the approximately 400 sites able to perform PROSTASCINT
imaging, there are approximately 150 sites currently proficient in
PROSTASCINT fusion imaging. We are focused on growing the
number of these sites by increasing awareness of the significant
advancements that have taken place and the value of PROSTASCINT fusion
imaging to expand the number of
sites.
|
|
|
·
|
Generating
awareness of the prognostic value of the PSMA
antigen. There is a growing body of clinical data
demonstrating that over-expression of PSMA in prostate cancer patients
correlates with other adverse prognostic factors and can independently
predict disease recurrence. We are focused on generating
awareness of PSMA as an important prognostic marker for prostate
cancer
and positioning
|
PROSTASCINT
as an important tool for identifying patients who may benefit from more
intensive treatment regimens.
|
|
·
|
Leveraging
the presentation and publication of outcomes data. In
2006, outcomes data from recent and ongoing clinical trials of PROSTASCINT
were reported at major medical meetings and in the peer-reviewed
publication, Brachytherapy. These data continue to
support the potential of PROSTASCINT fusion imaging as an important
tool
to define patients with local or metastatic disease, help clarify
treatment decisions, and prevent or limit treatment-related side
effects.
|
|
|
·
|
Advancing
image-guided therapy applications. The advances in nuclear
medicine imaging SPECT equipment, computer workstation power, as
well as
software enhancements allow researchers to utilize cutting-edge imaging
technology to explore novel applications of the enhanced PROSTASCINT
image. With fusion of an enhanced SPECT, the PROSTASCINT image
is registered with CT and/or MR anatomic images; the resulting images
have
been applied to clinical research in areas of guided brachytherapy
(or
radioactive seeds), guided external beam radiation therapy (EBRT),
intensity modulated radiation therapy (IMRT), and image-guided
biopsy. The potential of this application is described in the
previously discussed 2007 publication reporting seven-year biochemical
outcomes after image-guided brachytherapy using PROSTASCINT fusion
imaging. The publication, "Biochemical disease free survival
rates following definitive low dose rate prostate brachytherapy with
dose
escalation to biologic target volumes identified with SPECT/CT Capromab
Pendetide," by Ellis et al. appeared in the American Brachytherapy
Society's peer-reviewed journal, Brachytherapy (Brachytherapy
Volume 6, Issue 1, January-March 2007, Pages
16-25.)
|
|
|
·
|
Evaluating
the potential for imaging other PSMA-expressing
cancers. PSMA was originally thought to be strictly
expressed in prostate tissue, but studies
have
|
demonstrated
PSMA protein expression in the newly forming blood vessels associated with
a
variety of nonprostatic tumors. The formation of new blood vessels
(angiogenesis) is essential for the growth and development of both primary
and
metastatic tumors and may represent a unique target for the treatment and
diagnosis of a variety of diverse tumors. PSMA may be a unique
antiangiogenesis target because it is selectively and consistently expressed
in
nonprostatic tumor-associated neovasculature but not in normal vessels in benign
tissue. A renal cell carcinoma discovered through PROSTASCINT imaging
forms the basis upon which we believe PSMA's role as a molecular imaging target
may be expanded. The PROSTASCINT scan revealed suspicious uptake in a
kidney, which subsequent conventional imaging revealed to be a solid renal
mass
with necrosis. This example may demonstrate recognition of
tumor-associated neovasculature by the PROSTASCINT monoclonal
antibody. Detection of other malignancies such as non-Hodgkin's
lymphoma, neurofibromatosis, and meningioma has also been reported with
PROSTASCINT imaging. Accordingly, we are planning additional research
to determine the role of PROSTASCINT imaging in nonprostatic primary and
metastatic malignancies.
Our
products, including PROSTASCINT, are subject to significant regulation by
governmental agencies, including the FDA, as is more fully described below
under
the section entitled "Government Regulation." We cannot assure you that we
will
be able to complete any of our market expansion strategies set forth
above.
SOLTAMOX
Overview
In
the
second half of 2006, we introduced SOLTAMOX in the
U.S. SOLTAMOX, a cytostatic estrogen receptor antagonist, is the
first oral liquid hormonal therapy approved in the U.S. SOLTAMOX is
indicated for the treatment of breast cancer in adjuvant and metastatic settings
and to reduce the risk of breast cancer in women with ductal carcinoma in
situ (DCIS) or with high risk of breast cancer. We market
SOLTAMOX to the U.S. oncology market through our specialty sales and marketing
team.
We
acquired the exclusive U.S. marketing rights for SOLTAMOX in April 2006 from
Savient. We also entered into a supply agreement with Rosemont
Pharmaceuticals Ltd ("Rosemont"), a former subsidiary of Savient, for the
manufacture and supply of SOLTAMOX. Such agreements were subsequently
assigned by Savient to Rosemont. Under the terms of the transaction
we paid Savient an up-front licensing fee of $2.0 million, are obligated to
pay
royalties on net sales and may pay additional contingent sales-based payments
of
up to $4.0 million to Rosemont.
SOLTAMOX,
a liquid formulation of tamoxifen developed by Savient, received U.S. regulatory
approval in October 2005.
Breast
cancer
Breast
cancer is the most common non-skin cancer in women and the second leading cause
of death in women after lung cancer. According to the American Cancer
Society, it is estimated that in 2007 about 178,480 new cases of invasive breast
cancer will be diagnosed
among
women in the United States. At this time there are slightly over 2
million breast cancer survivors in the United States. In addition to
invasive breast cancer, carcinoma in situ (CIS) will account for about 62,030
new cases in 2007. CIS is noninvasive and is the earliest form of
breast cancer. Breast cancer also occurs in men. An
estimated 2,030 cases of invasive breast cancer will be diagnosed in men in
2007. Breast cancer is the second leading cause of cancer death in
women, exceeded only by lung cancer. In 2007, about 40,460 women and
450 men will die from breast cancer in the United States. Estrogen is
known to promote the growth of approximately two-thirds of breast cancers that
contain estrogen or progesterone receptors. Breast cancer treatment
often involves agents designed to block the effect of estrogen or lower estrogen
levels. Tamoxifen, the most commonly used anti-estrogen drug, has
been shown to reduce the risk of cancer recurrence and improve overall survival
in all age groups.
SOLTAMOX
for breast cancer
Tamoxifen
interferes with the activity of the estrogen hormone. Estrogen
promotes the growth of breast cancer cells and tamoxifen works against these
effects. It has been used for more than 20 years to treat patients
with advanced breast cancer. Clinical trials have documented the
benefits of adjuvant tamoxifen in women with early-stage breast cancer.
Adjuvant
tamoxifen therapy reduces the risk of a systemic recurrence and results in
a
significant increase in overall survival for women with
hormone-receptor-positive breast cancer. The standard recommendation
for women with hormone receptor-positive breast cancer is five years of
tamoxifen. Soltamox is bioequivalent in rate and extent of absorption
to tamoxifen citrate tablets and it is the only liquid formulation available
in
the U.S.
Because many
patients prefer different formulations of pharmaceutical products, we believe
that providing patients with a preferred delivery option can drive adherence
to
therapy and improve treatment outcome. While tamoxifen citrate
tablets are a standard of care for certain breast cancer settings, they are
associated with compliance and persistency issues. Recently published
data show that although overall adherence to tamoxifen tablets is better than
that seen with other chronic medications, adherence rates dropped to 50% after
four years of therapy. In 2003, the Journal of Clinical Oncology
published a study evaluating the adherence and predictors of non-adherence
in
women starting tamoxifen as adjuvant breast cancer therapy. The study
"Nonadherence to Adjuvant Tamoxifen Therapy in Women with Primary Breast Cancer"
by Partridge, et al., evaluated 2,378 patients initiating tamoxifen from 1990
to
1996 and concluded that nearly 25% of tamoxifen patients may be at risk for
inadequate clinical response because of poor adherence. While this
level of adherence is high compared with other medications, further efforts
are
necessary to identify and prevent suboptimal adherence.
We
believe that providing an alternative oral liquid dosing form of tamoxifen
is an
important option for patients that may allow more women to benefit from hormonal
treatment for estrogen receptor positive breast cancer.
As
with
other versions of tamoxifen, the SOLTAMOX product label also includes a black
box warning with information on the potential risk of adverse
events. The boxed warning states, in part, that: "Serious and life
threatening events associated with tamoxifen in the risk reduction setting
(women at high risk for cancer and women with ductal carcinoma in situ)
include uterine malignancies, stroke, and pulmonary embolism. The
benefits of SOLTAMOX outweigh its risks in women already diagnosed with breast
cancer."
Our
products, including SOLTAMOX, are subject to significant regulation by
governmental agencies, including the FDA, as is more fully described under
the
section entitled "Government Regulation" herein. We cannot assure you
that we will be able to successfully compete in the taxomifen
market.
Research
and Development
Our
total
research and development expenses, including our investment in PDC, a
preclinical joint venture with Progenics that we sold in April
2006, for the years ended December 31, 2006, 2005, and 2004 were $7.4
million, $9.3 million, and $6.2 million, respectively. These expenses
included $120,000, $3.2 million, and $2.9 million related to our equity in
the
loss of PDC, for the years ended December 31, 2006, 2005, and 2004,
respectively. We are no longer responsible for funding
PDC.
Our
ongoing clinical development initiatives consist of expanding the market
potential for our existing products along with development of new product
candidates. Our research and development strategy is mindful of risk
management and over the past three years we have monetized or discontinued
the
vast majority of our investment in research and preclinical stage
programs. Our current
clinical development strategy is to focus on clinical-stage opportunities that
are complementary to our commercial presence and have an identifiable pathway
to
approval.
Our
proprietary research and development activities in 2006 were primarily focused
on clinical expansion studies for QUADRAMET and PROSTASCINT and preparation
for the Phase 1 study for CYT-500, our radiolabeled monoclonal antibody
that we are developing for the treatment of prostate cancer.
CYT-500
In
February 2007, we announced the initiation of the first human clinical
study of CYT-500, our proprietary radiolabeled monoclonal antibody targeted
to
PSMA. The Phase 1 clinical trial will investigate the safety and
tolerability of CYT-500 and determine the optimal antibody mass and therapeutic
dose for further studies. The clinical trial is being conducted at
Memorial Sloan-Kettering Cancer Center under a Cytogen sponsored Investigational
New Drug ("IND") application, which was approved by the United States Food
and
Drug Administration in May 2006, and is expected to enroll up to 36
patients.
CYT-500
employs the same 7E11 monoclonal antibody as our molecular imaging agent
PROSTASCINT; however, it is linked to lutetium 177 (Lu-177), a particle emitting
therapeutic radionuclide, as opposed to an imaging radionuclide. We
designed this novel product candidate to enable targeted delivery of high doses
of radiation to PSMA-expressing cells.
Preclinical
pharmacokinetic and biodistribution studies of CYT-500 demonstrated that the
compound is stable in serum, accumulates at the tumor site and clears from
normal organs and tissues. Acute and expanded toxicology studies and
safety pharmacology studies with unlabeled doses up to 20 times the anticipated
human dose did not reveal significant adverse reactions. The
preclinical data were presented in November 2005 at the American Association
for
Cancer Research-National Cancer Institute-European Organization for Research
and
Treatment of Cancer International Conference on Molecular Targets and Cancer
Therapeutics.
We
believe there is a strong rationale for development of CYT-500 for several
factors, including:
|
|
·
|
Radiotherapy
has been successfully developed and used to treat hematological
disorders. Prostate cancer mirrors a hematological disorder in
the sense that most of the disease is in the skeleton in the bone
marrow.
|
|
|
·
|
PSMA
is a validated target and our proprietary 7E11 antibody is a confirmed
effective PSMA-targeting agent that has been injected into more than
60,000 patients as a component of
PROSTASCINT.
|
|
|
·
|
The
7E11 antibody is conjugated with a bifunctional chelating agent that
forms
highly stable and kinetically inert complexes, which we believe lends
to
the optimal attachment of a therapeutic
radioisotope.
|
|
|
·
|
In
terms of repetitive dosing, the clinical protocol in the approved
IND
allows for repeated administrations of the
agent.
|
Discontinued
research and development programs
Since
2004, we have been realigning our research and development investment to focus
on clinical-stage opportunities.
In
April
2006, we sold our interest in PDC to Progenics for a cash payment of $13.2
million, potential future regulatory and sales-based milestone payments totaling
up to $52.0 million, and royalties on any future PDC product
sales. PDC was formed in 1999 to develop in vivo
immunotherapeutic products utilizing PSMA.
In
July
2004, we initiated the closure of the facility for our AxCell Biosciences
subsidiary. Currently, our business development initiatives include
an active out-licensing program to capitalize on the proprietary technology
associated with AxCell. These technologies are discussed in further
detail in the Technology section below.
Technology
Our
strategy includes pursuing strategic opportunities to optimize the value of
our
intellectual property and associated proprietary technologies. For
example, in April 2006, we sold our interest in PDC for a cash payment of $13.2
million, and potential future milestone and royalty payments. This
provided us with additional capital to grow our business and enabled us to
substantially reduce our research and development investment in early-stage
projects. In addition, we have several technology platforms that
are available for out-licensing. These platforms are focused within
the areas that are described below.
Prostate-Specific
Membrane Antigen or PSMA
PSMA
is
protein that is highly expressed on the surface of prostate cancer cells and
the
neovasculature of solid tumors. In 1987, Dr. Julius S. Horosziewicz
identified the PSMA protein
using
a
monoclonal antibody. The antibody technology developed by Dr.
Horosziewicz was assigned to Cytogen. Researchers at the
Sloan-Kettering Institute for Cancer Research identified and sequenced the
gene
encoding PSMA. We have the exclusive worldwide license to these
technologies, which are the foundation of our proprietary PSMA-targeting
monoclonal antibody, 7E11.
Our
PSMA-targeting platform has been successfully applied through the
commercialization of our product PROSTASCINT, the first and only commercial
monoclonal antibody-based agent targeting PSMA to image the extent and spread
of
prostate cancer. We are also developing a third-generation
radiolabeled antibody to treat prostate cancer, CYT-500. CYT-500
combines our proprietary PSMA-targeting monoclonal antibody with a high-affinity
chelator and a beta-emitting isotope.
PSMA
has
also been found to be present at high levels in the new blood vessels, or
neovasculature, formed in association with most solid tumors, including breast,
lung and colorectal cancers. Such neovasculature is necessary for the
growth and survival of many types of solid tumors. We believe that
due to the unique characteristics of PSMA, technologies targeting this antigen
may yield novel products for the treatment and diagnosis of
cancer. If PSMA-targeting
therapies can destroy or prevent formation of these new blood vessels, we
believe that such therapies may prove valuable in treating a broad range of
cancers.
In
August
2000, we executed a sublicense agreement with Northwest Biotherapeutics Inc.
(NWBT) pursuant to which we granted NWBT the right to develop and commercialize
ex vivo immunotherapy products for prostate cancer that are produced by
pulsing isolated populations of a patient's antigen presenting cells, such
as
dendritic cells, with PSMA. Following encouraging results from a
Phase 1/2 trial to evaluate the safety and efficacy of using PSMA with NWBT's
proprietary dendritic cell immunotherapy, DCVax®, NWBT advanced DCVax-Prostate
to the initiation of Phase 3 clinical trials. In November 2002, NWBT
suspended all clinical trial activity for its DCVax product candidates and
withdrew its Investigative New Drug Application (IND) for DCVax- Prostate,
which
resulted in a termination of the license agreement with us. As a
result, we regained the rights to ex vivo prostate cancer immunotherapy
using PSMA in December 2002. In January 2005, NWBT announced that it
received clearance from the FDA to begin assessment of DCVax-Prostate in a
Phase
3 clinical trial. We are awaiting clarification from NWBT on the
status of this PSMA-based program following termination of the license agreement
with us.
AxCell
Biosciences Subsidiary
In
1993,
we licensed from the University of North Carolina at Chapel Hill (UNC-CH)
exclusive worldwide rights to novel reagents and technology for identifying
targeting peptides that were developed under sponsored research funded by
Cytogen. This process utilizes random peptide libraries (Genetic
Diversity Library, GDL™) expressing an extensive collection of long peptides
that, unlike conventional drugs or short peptides, can mimic natural proteins
in
terms of their folding and their corresponding molecular recognition
functions. This is similar in many regards to the ability of antibody
molecules to selectively bind to antigens, or enzymes to bind to their
substrates. This proprietary approach facilitated the screening of a
much more diverse family of compounds than was practical with previous methods
and yielded several novel reagents (totally synthetic affinity reagents,
TSAR's). Originally, we expected to utilize these
libraries
to discover specific binding molecules that would represent attractive
alternatives to monoclonal antibodies for diagnostic and therapeutic
products.
In
1996,
Cytogen entered into a research and licensing agreement with Elan Corporation,
plc, which marked the Company's first external collaboration in which
GDL-derived products would be utilized for their ability to target drugs to
specific sites within the body. The research program with Elan was
designed to discover GDL-derived peptides that could be used to target
therapeutic agents to receptors expressed within the lining of the intestinal
tract known to be involved in certain cellular uptake and transport
processes. In contrast to most biotechnology drugs that cannot be
administered orally due to the fact that they break down prior to reaching
the
bloodstream, such peptides could be administered orally. Under the
agreement, Elan had the option for worldwide licensing rights to any products
developed collaboratively and we would receive royalties based on the sale
of
any such products. We subsequently assumed ownership and
responsibility for Elan's pending patent portfolio related to GDL-derived
peptides that could be used to target therapeutic agents to receptors expressed
within the lining of the intestinal tract known to be involved in certain
cellular uptake and transport processes.
In
November 2006, we were issued United States patent number 7,135,457 covering
oral drug delivery agents - random peptide compositions that bind to
gastro-intestinal tract (GIT) transport receptors. The patent
specifically covers compositions of Cytogen's oral delivery agents that are
capable of facilitating transport of an active agent through a human or animal
GIT, and derivatives and analogs thereof, and nucleotide sequences coding for
said proteins and derivatives. The oral delivery agents have use in
facilitating transport of active agents from the lumenal side of the GIT into
the systemic blood system, and/or in targeting active agents to the
GIT.
By
binding (covalently or noncovalently) one of Cytogen's delivery agents to an
orally administered drug or by coating the surface of nanoparticles or liposomes
with the delivery agent, the drug can be targeted to specific receptor sites
or
transport pathways which are known to operate in the human gastrointestinal
tract, thus facilitating its systemic absorption into the
bloodstream.
The
binding of Cytogen's delivery agents to these receptors has been confirmed
in
preclinical models, and successful in vivo delivery of both insulin and
leuprolide in animal models have been demonstrated. Based on these
results, we are seeking partnerships for oral drug delivery.
A
subsidiary of Cytogen, AxCell Biosciences was incorporated in 1996 to further
commercialize the GDL technology in the field of accelerated new target
discovery and validation. Based on the prevalence of modular protein
domains, such as Src homology domain 3 and 2 (SH3 and SH2), among many other
important signaling molecules known to mediate protein-protein interactions,
UNC-CH researchers advanced the use of ligands generated using GDL as probes
to
systematically isolate entire repertoires of modular domain-containing proteins
from cloned DNA expression libraries. This became AxCell's Cloning of
Ligand Targets (CLT™) technology.
As
an
initial 'proof of concept' for the automation and application of GDL and CLT
technologies to rapidly and efficiently identify protein signaling pathways,
AxCell created a
comprehensive network
(ProChart™) of domain and ligand interactions throughout
2001. Because protein signaling pathways play a role in many
diseases, researchers are working to develop drugs that specifically target
these pathways. While some interactions are likely to have positive
clinical results, others can lead to unwanted drug side effects and
toxicity. By referring to a comprehensive network of the body's
protein interactions, researchers may be better able to identify drugs that
target a specific disease related interaction while avoiding those unspecific
interactions associated with unwanted side effects.
AxCell
initially partnered with a leading global provider of bioinformatics software
solutions to make the ProChart database available to subscribing medical and
scientific researchers around the world on a commercial
basis. However, due to the fact that AxCell identified
protein-protein interactions through a high throughput, in vitro
system, prospective customers were reluctant to make a significant subscription
commitment in the absence of in vivo validation for the AxCell
data. The absence of such validation, combined with a reevaluation of
the subscription database business model, resulted in a realignment of the
AxCell business plan in 2002 to focus on applying its extensive protein
interaction data in several major areas of scientific interest by entering
into
academic, governmental, and corporate research collaborations
designed to both provide in vivo validation of novel protein-protein
interactions discovered using its in vitro approach and the discovery
of novel drug targets. In most circumstances, AxCell has an exclusive
option to negotiate an exclusive, worldwide, royalty-bearing license for
inventions that result from the research collaboration.
In
March
2004, the first in vivo validation of a novel interaction discovered
using AxCell's technology was published ("Functional association between Wwox
tumor suppressor protein and p73, a p53 homolog." PNAS March 30,
2004: vol. 101; no. 13 pp. 4401–4406). In November 2004, a second
demonstration of in vivo validation for a novel interaction discovered
using AxCell's technology was published ("Physical and functional interactions
between the Wwox tumor suppressor protein and the AP-2gamma transcription
factor. "Cancer Res. November 2004: vol. 64; no. 22 pp.
8256-61).
We
believe the application of our ProChart database technology may accelerate
research and drug development by:
|
|
·
|
Discovering
novel signal transduction pathways and their relevant protein-protein
interactions, such as rapidly identifying qualified drug targets
and
identifying potential unwanted side
effects.
|
|
|
·
|
Identifying
structure and activity relationship (SAR) information regarding domain
and
ligand interactions that can facilitate small molecule drug
design.
|
|
|
·
|
Providing
high throughput screening reagents (eg, cloned domains and
ligands).
|
In
view
of recent biological validation and progress through both internal data mining
efforts and external research collaborations along with the oral drug delivery
technology, Cytogen is currently exploring strategic transactions for
AxCell.
Strategic
Agreements
We
frequently enter into alliances with other companies to, among other things,
increase our financial resources, manage risk, and retain an appropriate level
of ownership of products currently in development. In addition,
through alliances with other pharmaceutical and biotechnology companies and
other collaborators, we may obtain funding, expand existing programs, learn
of
new technologies and gain additional expertise in developing and marketing
products.
InPharma
AS
In
October 2006, we entered into a license agreement with InPharma granting us
exclusive rights to CAPHOSOL in North America. Under the terms of the
agreement, we are obligated to pay InPharma aggregate up-front fees totaling
$6.0 million, of which $4.6 million was paid in the fourth quarter of 2006,
$400,000 will be paid into an escrow account and $1.0 million is payable in
the
second quarter of 2007. In addition, we are obligated to pay InPharma
royalties on net sales and sales-based milestone payments up to an aggregate
of
$49.0 million, of which payments totaling $35 million are, based upon annual
sales levels first exceeding $30 million. We are also obligated to
pay a finder's fee based on a percentage of milestone payments made to
InPharma.
We
also
obtained options to acquire the rights to CAPHOSOL for the European and Asia
markets that we only intent to exercise in connection with obtaining a
commercial partner for those areas. We will be required to obtain
consents from certain licensors but not InPharma, if we sublicense the rights
to
market CAPHOSOL in Europe and Asia to other parties. In the event we
exercise the options to license the marketing rights for CAPHOSOL for the
European and Asian markets, we would be obligated to pay additional fees,
including sales-based milestone payments for the respective
territories.
Rosemont
Pharmaceuticals Limited
In
April
2006, we entered into a distribution agreement with Savient granting us
exclusive marketing rights for SOLTAMOX in the United States. In
addition, we entered into a supply agreement with Savient and Rosemont for
the
manufacture and supply of SOLTAMOX. Such agreements were subsequently
assigned by Savient to Rosemont. Under the terms of the final
transaction, we paid Savient an up-front licensing fee of $2.0 million and
may
pay additional contingent sales-based payments of up to a total of $4.0 million
to Rosemont. We are also required to pay Rosemont royalties on net
sales of SOLTAMOX. Each of the distribution and supply agreements
terminates upon the later the expiry of the last-to-expire patent covering
SOLTAMOX in the United States or ten years from the date of launch of the
SOLTAMOX in the United States. Thereafter, such agreements will be
automatically renewed for an additional year. The manufacturing
agreement is terminable by Rosemont or us on one year notice prior to the end
of
the then current term. In the event the tamoxifen prescriptions for
an agreed upon period of time are less than the pre-established minimum, the
agreement may be terminated if we are unable to reach an agreement with Rosemont
to amend the terms of the contract to account for such impact.
Bristol-Myers
Squibb Medical Imaging, Inc.
Effective
January 1, 2004, we entered into a manufacturing and supply agreement with
Bristol-Myers Squibb Medical Imaging, Inc. ("BMSMI"), under which BMSMI
manufactures, distributes and provides order processing and customer service
for
us for QUADRAMET. Under the terms of the agreement, we are obligated
to pay at least $4.9 million annually, subject to future annual price
adjustment, through 2008, unless we or BMSMI terminates on two years prior
written notice. This agreement will automatically renew for five
successive one-year periods unless we or BMSMI terminates on two years prior
written notice. We also pay BMSMI a variable amount per month for
each QUADRAMET order placed to cover the costs of customer service which is
included in selling, general and administrative expenses.
Laureate
Pharma, L.P.
In
September 2006, we entered into a non-exclusive manufacturing agreement with
Laureate Pharma, L.P. ("Laureate") under which Laureate manufactures PROSTASCINT
and its primary raw materials for us in Laureate's Princeton, New Jersey
facility. The agreement will terminate, unless terminated earlier
pursuant to its terms, upon Laureate's completion of the specified production
campaign for PROSTASCINT and shipment of the resulting products from Laureate's
facility.
In
September 2005, we entered into a non-exclusive manufacturing agreement with
Laureate for the scale-up for the cGMP manufacturing of CYT-500. Our
agreement with Laureate terminated on December 31, 2006. We believe
that such agreement provided us with a sufficient supply to satisfy our
requirements for Phase 1 clinical trials of CYT-500.
Holopack
Verpackungstechnik GmbH
In
February 2007, we entered into a non-exclusive manufacturing agreement with
Holopack Verpackungstechnik GmbH for the manufacture of CAPHOSOL. The
agreement has a term of two years and automatically renews for an additional
year. The agreement is terminable by Holopack or us on three months
notice prior to the end of each term period.
The
Dow Chemical Company
We
acquired an exclusive license from The Dow Chemical Company ("Dow") for
QUADRAMET for the treatment of osteoblastic bone metastases in certain
territories. The agreement requires us to pay Dow royalties based on
a percentage of net sales of QUADRAMET, or a guaranteed contractual minimum
payment, whichever is greater, and future payments upon achievement of certain
milestones.
In
May
2005, we entered into a license agreement with Dow to create a targeted oncology
product designed to treat prostate and other cancers. The agreement
applies proprietary MeO-DOTA bifunctional chelant technology from Dow to
radiolabel our PSMA antibody with a therapeutic radionuclide. Under
the agreement, proprietary chelation technology and other capabilities, provided
through ChelaMedSM
radiopharmaceutical services from Dow, will be used to attach a therapeutic
radioisotope to the 7E11 monoclonal antibody utilized in our PROSTASCINT
molecular imaging agent. As a result of the agreement, we are
obligated to pay a minimal license fee and aggregate future milestone payments
of $1.9 million for each licensed
product,
if approved, and royalties based on sales of related products, if
any. Unless terminated earlier, the Dow agreement terminates at the
later of (a) the tenth anniversary of the date of first commercial sale for
each
licensed product or (b) the expiration of the last to expire valid claim that
would be infringed by the sale of the licensed product. We may
terminate the license agreement with Dow on 90 days written notice.
Oncology
Therapeutics Network, J.V.
In
June
2006, we entered into a purchase and supply agreement with Oncology Therapeutics
Network, JV. ("OTN") appointing OTN as the exclusive distributor of SOLTAMOX
in
the United States. In August 2006, the agreement was amended to
revise certain terms, including changing the role of OTN to the exclusive
warehousing agent and non-exclusive distributor of SOLTAMOX. Under
the terms of the amended agreement, OTN will purchase SOLTAMOX from us for
its
own wholesaler channels and, along with third-party logistics providers,
distribute SOLTAMOX to our other customers through its warehousing and
distribution facilities. In January 2007, we further amended our
agreement with OTN to also include CAPHOSOL.
Product
Contribution to Revenues
For
the
years ended December 31, 2006, 2005, and 2004, PROSTASCINT and QUADRAMET
accounted for, substantially all of our product revenues. For the
years ended December 31, 2006, 2005 and 2004, revenues related to PROSTASCINT
accounted for approximately 53%, 46% and 49%, respectively, of our total
revenues; and revenues related to QUADRAMET accounted for approximately 47%,
52%
and 50%, respectively, of our total revenues. During the second half
of 2006, we introduced SOLTAMOX in the U.S., and during the first quarter
of 2007, we introduced CAPHOSOL in the U.S. In accordance with
U.S. generally accepted accounting principles (GAAP), we will recognize revenues
for SOLTAMOX and CAPHOSOL in our consolidated statement of operations when
we
have sufficient information to estimate expected product returns for
these introduced products.
Concentration
of Sales
During
the year ended December 31, 2006, we received 64% of our total revenues from
three customers, as follows: 41% from Cardinal Health (formerly Syncor
International Corporation); 14% from Mallinckrodt Inc.; and 9% from GE
Healthcare (formerly Amersham Health).
During
the year ended December 31, 2005, we received 67% of our total revenues from
three customers, as follows: 47% from Cardinal Health
(formerly Syncor International Corporation); 11% from Mallinckrodt Inc., and
9%
from GE Healthcare (formerly Amersham Health).
Competition
The
biotechnology and pharmaceutical industries are subject to intense competition,
including competition from large pharmaceutical companies, biotechnology
companies and other companies, universities and research
institutions. Our existing therapeutic and imaging/diagnostic
products compete with the products of a wide variety of other
firms,
including
firms that provide products used in more traditional therapies or procedures,
such as external beam radiation, chemotherapy agents, narcotic analgesics and
other imaging/diagnostics. In addition, our existing and potential
competitors may be able to develop technologies that are as effective as, or
more effective than those offered by us, which would render our products
noncompetitive or obsolete. Moreover, many of our existing and
potential competitors have substantially greater financial, marketing, sales,
manufacturing, distribution and technological resources than we
do. Our existing and potential competitors may be in the process of
seeking FDA or foreign regulatory approval for their respective products or
may
also enjoy substantial advantages over us in terms of research and development
expertise, experience in conducting clinical trials, experience in regulatory
matters, manufacturing efficiency, name recognition, sales and marketing
expertise and established distribution channels. We believe that
competition for our products is based upon several factors, including product
efficacy, safety, cost-effectiveness, ease of use, availability, price, patent
position and effective product promotion.
We
expect
competition to intensify in the fields in which we are involved, as technical
advances in such fields are made and become more widely known. We
cannot assure you, however,
that we or our collaborative partners will be able to develop our products
successfully or that we will obtain patents to provide protection against
competitors. Moreover, we cannot assure you that our competitors will
not succeed in developing therapeutic or imaging/diagnostic products that
circumvent our products or that these competitors will not succeed in developing
technologies or products that are more effective than those developed by
us. In addition, many of these companies may have more experience in
establishing third-party reimbursement for their
products. Accordingly, we cannot assure you that we will be able to
compete effectively against existing or potential competitors or that
competition will not have a material adverse effect on our business, financial
condition and results of operations.
Competition
Related to CAPHOSOL
Currently,
there is limited consensus standard of care for oral mucositis supported by
clinical data and to date, there has only been one commercially available
prescription pharmaceutical product approved by the FDA for oral mucositis,
the
intravenous growth factor palifermin. Ice chips, local painkillers
and narcotics are also used to reduce the patient's pain and doctors routinely
prescribe mouthwashes containing traditional antibacterial and antifungal drugs
for the treatment of oral mucositis, although most clinical trials have shown
that they have suboptimal efficacy. There are also a number of oral
rinses that have been approved as medical devices by FDA for dry mouth; however,
CAPHOSOL is the only approved calcium phosphate oral rinse that is indicated
for
both oral mucositis and dry mouth that is supported by significant efficacy
data
from a randomized placebo-controlled study.
We
believe there are a number of key differentiating factors that give CAPHOSOL
a
competitive advantage including its high concentrations of calcium and phosphate
ions, its intellectual property, and the efficacy data which support its
beneficial effects for relieving oral mucositis.
Competition
Related to QUADRAMET
Current
competitive treatments for bone cancer pain include narcotic analgesics,
external beam radiation therapy, bisphosphonates, and other skeletal targeting
therapeutic radiopharmaceuticals such as strontium-89 chloride.
QUADRAMET
primarily competes with strontium-89 chloride in the radiopharmaceutical pain
palliation market. Strontium-89 chloride is manufactured and marketed
as a branded product by GE Healthcare and as a generic version by Bio-Nucleonics
Pharma, Inc. GE Healthcare manufactures strontium-89 chloride and sells the
product through its wholly owned network of radiopharmacies, direct to end-users
and through other radiopharmacy distributors. The generic version is
distributed directly by the manufacturer, or is sold through radiopharmacy
distributors such as Cardinal Health and AnazaoHealth (formerly Custom Care
Pharmacy).
To
meet
future competitive challenges to QUADRAMET, we continue to, among other things,
focus our efforts on managing radiopharmacy distributor
relationships. We also plan to continue to focus on research
supporting additional applications and by documenting the safe and effective
use
of QUADRAMET when used in conjunction with metastatic disease therapies such
as
bisphosphonates, chemotherapeutics and hormonal therapy.
Competition
Related to SOLTAMOX
The
current competitive treatments for SOLTAMOX include the tablet form of tamoxifen
citrate, a generic drug, and a class of drugs known as aromatase
inhibitors.
Competition
Related to PROSTASCINT
The
spread of prostate cancer may be evaluated using a number of imaging modalities,
including computed tomography, magnetic resonance imaging, or positron emission
tomography.
Manufacturing
and Supply of Raw Materials
We
do not
manufacture any of our products. We have contracted with third-party
manufacturers to supply the raw materials and finished products to meet our
needs. Our third-party manufacturers meet the FDA's current Good
Manufacturing Practices or cGMP, regulations, and guidelines. cGMP
regulations require that all manufacturers of pharmaceuticals for sale in the
U.S. achieve and maintain compliance with regulations governing the
manufacturing, processing, packaging, storing and testing of drugs intended
for
human use.
Holopack
is the sole manufacturer of CAPHOSOL under a manufacturing supply
agreement. The agreement has a term of two years and automatically
renews for an additional year. Such agreement is terminable by
Holopack or us on three months notice prior to the end of each term
period.
The
two
primary components of QUADRAMET, particularly samarium-153 and EDTMP, are
provided to BMSMI by outside suppliers. BMSMI obtains its supply of
samarium-153 from a sole supplier, and EDTMP from another sole
supplier. Our manufacturing and supply agreement with BMSMI, under
which BMSMI manufactures, distributes and provides order processing and customer
service for us for QUADRAMET, runs through 2008, unless we
or
BMSMI
terminates on two years prior written notice. This agreement will
automatically renew for five successive one-year periods unless we or BMSMI
terminates on two years prior written notice.
Laureate
is the sole manufacturer of PROSTASCINT, the PSMA targeting antibody, 7E11,
which is a component of PROSTASCINT, as well as our clinical compound,
CYT-500. In September 2006, we entered into a non-exclusive
manufacturing agreement with Laureate under which Laureate manufactures
PROSTASCINT and its primary raw materials for us in Laureate's Princeton, New
Jersey facility. The agreement will terminate, unless terminated
earlier pursuant to its terms, upon Laureate's completion of the specified
production campaign for PROSTASCINT and shipment of the resulting products
from
Laureate's facility. In September 2005, we entered into a
non-exclusive manufacturing agreement with Laureate for the scale-up for the
cGMP manufacturing of CYT-500. Our agreement with Laureate terminated
on December 31, 2006. We believe that such agreement provided us with
a sufficient supply to satisfy our requirements for Phase 1 clinical trials
of
CYT-500.
Rosemont
is the sole manufacturer of SOLTAMOX under a supply agreement. The
supply agreement terminates upon the later the expiry of the last-to-expire
patent covering SOLTAMOX in the United States or ten years from the date of
launch of the SOLTAMOX in the United States. Thereafter, such
agreements will be automatically renewed for an additional year. The
manufacturing agreement is terminable by Rosemont or us on one year notice
prior
to the end of the then current term.
Alternative
sources for our manufacturing needs may not be readily available, and any
alternate manufacturers and suppliers would have to be identified and qualified,
subject to all applicable regulatory guidelines. If our manufacturers
cannot obtain and/or manufacture sufficient quantities of the components for
our
products at commercially reasonable terms, or in a timely manner, it could
result in our inability to manufacture our products at a timely and
cost-effective basis.
Intellectual
Property
We
believe that our success depends, in part, on our ability to protect our
products and technology through patents and trade
secrets. Accordingly, our policy is to pursue a vigorous program of
securing and maintaining patent and trade secret protection to preserve our
right to exploit the results of our research and development activities and,
to
the extent it may be necessary or advisable, to exclude others from
appropriating our proprietary technology.
We
aggressively protect our proprietary technology by selectively seeking patent
protection in a worldwide program. In addition to the United States,
we file patent applications in Canada, major European countries, Japan and
additional foreign countries on a selective basis to protect inventions
important to the development of our business. We believe that the
countries in which we have obtained and are seeking patent coverage for our
proprietary technology represent the major focus of the pharmaceutical industry
in which we will market our respective products.
We
also
rely upon, and intend to continue to rely upon, trade secrets, unpatented
proprietary know-how and continuing technological innovation to develop and
maintain our competitive position. It is our policy to require our
employees, consultants, licensees, outside scientific collaborators, sponsored
researchers and other advisors to execute confidentiality agreements upon the
commencement of employment or consulting relationships with us. These
agreements also provide that all confidential information developed or made
known to the individual during the course of the individual's relationship
with
us is to be kept confidential and not disclosed to third parties except in
specific circumstances. In the case of employees, the agreements
provide that all inventions conceived by the individual shall be our exclusive
property. We cannot assure you, however, that these agreements will
provide meaningful protection or adequate remedies for our trade secrets in
the
event of unauthorized use or disclosure of such information.
We
believe that our valuable proprietary information is protected to the fullest
extent commercially reasonable; however, we cannot assure you that:
|
|
·
|
Additional
patents will be issued to us in any or all appropriate
jurisdictions.
|
|
|
·
|
Litigation
will not be commenced seeking to challenge our patent protection
or that
challenges will not be successful.
|
|
|
·
|
Our
processes or products do not or will not infringe upon the patents
of
third parties.
|
|
|
·
|
The
scope of patents issued will successfully prevent third parties from
developing similar and competitive
products.
|
The
technology applicable to our products is developing rapidly. A
substantial number of patents have been issued to other biotechnology companies
relating to PSMA. In addition, competitors have filed applications
for, have been issued, or may otherwise obtain patents and other proprietary
rights relating to products or processes that are competitive with
ours. In addition, others may have filed patent applications and may
have been issued patents relating to products and technologies potentially
useful to us or necessary to commercialize our products or to achieve our
business goals. We cannot assure you that we will be able to obtain
licenses to such patents on commercially reasonable terms if at
all. The failure to obtain licenses to such patents could prevent us
from commercializing products or services covered by such patents.
We
cannot
predict how any patent litigation will affect our efforts to develop,
manufacture or market our products.
Intellectual
Property Position Related to CAPHOSOL
Under
our
agreement with InPharma, we are the licensee of two issued U.S.
patents. The patents licensed to us under this agreement are U.S.
Pat. Nos. 5,993,785 and 6,387,352, each of which expires on September 18,
2017. We have the right to prosecute and maintain the patents
included in our license agreement with InPharma.
Intellectual
Property Position Related to QUADRAMET
In
May
1993, we obtained an exclusive license from Dow to use QUADRAMET, in North
America, as a therapeutic radiopharmaceutical for metabolic bone disease or
tumor regression for cancer caused by metastatic or primary cancer in bone
in
humans, and for the treatment of disease characterized by osteoblastic response
in humans. Our license was expanded to include Latin America in 1995,
and will remain in effect, unless earlier terminated, for a period of 20 years
from May 30, 1993 or until the last to expire of the related
patents. We currently anticipate such termination date to be May 30,
2013.
Under
our
agreement with Dow, we are the licensee of five issued United States patents
and
certain corresponding foreign patents. Dow is responsible, at its own
cost and expense, for prosecuting and maintaining any patents or patent
applications included in our agreement. One of these, U.S. Pat. No.
4,898,724, includes claims directed to the QUADRAMET product and methods for
its
use in the treatment of calcific tumors and bone pain. We have
obtained an extension of the term of this U.S. patent, which will now expire
March 28, 2011. Other patents licensed to us under this agreement
are: (i) U.S. Pat. No. 4,897,254, which expires on January 30, 2007; (ii) U.S.
Pat. No. 4,937,333, which expires August 4, 2009; (iii) U.S. Pat. No. 5,300,279,
which expires on November 19, 2008; and (iv) U.S. Pat. No. 5,066,478 which
expires on November 19, 2008. An additional patent, U.S. Pat. No.
5,714,604, which expires on February 3, 2015, includes claims directed to the
methods for QUADRAMET's preparation and administration. We are the
owner of a registered United States trademark relating to
QUADRAMET.
Upon
execution of our agreement with Dow, we issued warrants to Dow to purchase
shares of our common stock, which have since expired. As of December
31, 2006, we have paid an
aggregate of $5.2 million to Dow in milestone payments. We remain
obligated to pay Dow additional milestone payments as, and if, our sales of
QUADRAMET increase and royalties, which are subject to certain minimum amounts,
based on future sales of QUADRAMET.
Intellectual
Property Position Related to PROSTASCINT
In
1987,
Dr. Julius S. Horosziewicz first identified PSMA in a prostate cancer cell
line,
known as LNCaP, by generating a monoclonal antibody against the
protein. That monoclonal antibody, known as 7E11, is conjugated via a
proprietary linker technology to the radioisotope indium-111 to produce the
PROSTASCINT product. Dr. Horosziewicz's original patent claiming the
7E11 antibody, as well as additional patents relating to the PROSTASCINT product
and commercialization rights thereto, were assigned to us in
1989. Under our agreement, we have made, and may continue to make,
certain payments to Dr. Horosziewicz, which obligation will remain in effect
until the expiration of the last related patent in 2015.
As
of
December 31, 2006, we were the owner of several issued United States patents
and
certain corresponding foreign patents relating to PROSTASCINT. One of
these, U.S. Pat. No. 5,162,504, is the original Horosziewicz patent and includes
claims directed to the monoclonal antibody and the cell line that produces
it. We have obtained an extension of the term for this U.S. patent,
which will now expire October 28, 2010. U.S. Pat. No. 4,671,958 and
U.S. Pat. No. 4,741,900, both of which expired on June 9, 2004, included claims
directed to antibody conjugates such as PROSTASCINT, methods for preparing
such
conjugates, methods for using such conjugates for in vivo imaging,
testing and therapeutic treatment, and methods for delivering radioisotopes
by
linking them to such antibodies. U.S. Pat. No. 4,867,973, which also
expired on June 9, 2004, included claims directed to antibody
conjugates
such as PROSTASCINT, and methods for preparing such conjugates. The
foregoing patents, which will expire in 2010 (or expired in 2004, as noted),
provided or provide the primary patent protection for PROSTASCINT. We
also currently own the trademark PROSTASCINT. We are responsible for
the costs of prosecuting and maintaining this intellectual
property.
In
September 2004, we announced the settlement of a patent infringement suit
against us and C.R. Bard Inc. for an agreed-upon payment, without any admission
of fault or liability. Immunomedics, Inc. filed suit on February 17,
2000 against us and Bard, alleging that use of our PROSTASCINT product infringed
U.S. Pat. No. 4,460,559, which claims a method for detecting and localizing
tumors. Under our agreement with Dr. Horosziewicz, we may offset our
litigation expenses against payments we make to Dr. Horosziewicz.
Intellectual
Property Position Related to SOLTAMOX
Under
our
exclusive license with Rosemont, we are the licensee of an issued United States
patent covering SOLTAMOX. This patent, U.S. Pat. No. 6,127,425 which
includes claims directed to the SOLTAMOX product and manufacturing process,
expires in June 2018.
Intellectual
Property Position Related to PSMA
In
1993,
we entered into an option and license agreement with the Sloan-Kettering
Institute for Cancer Research (SKICR), and began a development program involving
PSMA and our proprietary monoclonal antibody. In November 1996, we
exercised our option and obtained an exclusive worldwide license to this
technology.
Under
our
agreement with SKICR, we received, or subsequently obtained, rights to patents
and patent applications including: U.S. Pat. Nos.
5,538,866 (expiring July 23, 2013), 5,935,818 (expiring August 10, 2016), and
6,569,432 (expiring February 24, 2015), and U.S. Pat. Appln. Nos. 08/403,803
(filed March 17, 1995), 08/466,381 (filed June 6, 1995), 08/470,735 (filed
June
6, 1995), 08/481,916 (filed June 7, 1995), 08/894,583 (filed February 23, 1998),
09/724,026 (filed November 28, 2000), 09/990,595 (November 21, 2001), 10/012,169
(filed October 24, 2001), 10/443,694 (filed May 21, 2003), and 10/614,625 (filed
July 2, 2003). The filing, prosecution and maintenance of licensed
patents, as defined in the agreement, are the responsibility of SKICR, but
are
at our discretion and expense. In the event that we decide not to
file, prosecute or maintain any part of the licensed patents, SKICR may do
so at
its own expense.
The
license shall terminate on the date of expiration of the last to expire of
the
licensed patents unless it is terminated earlier in accordance with the terms
of
the agreement. The license agreement is also terminable by us upon 60
days notice to SKICR. Upon execution of our agreement with SKICR, we
paid to SKICR an option fee, a license fee and a reimbursement for patent
expenses paid by SKICR. We are obligated to make certain royalty
payments, which are subject to certain minimum amounts and other annual payments
to SKICR for the term of the agreement.
Intellectual
Property Position Related to AxCell Biosciences
In
November 2006, we were issued United States patent number 7,135,457 covering
our
oral drug delivery agents – random peptide compositions that bind to
gastro-intestinal tract (GIT) transport receptors. The patent
specifically covers compositions of our oral delivery agents that are capable
of
facilitating transport of an active agent through a human or animal
gastro-intestinal tract (GIT), and derivatives and analogs thereof, and
nucleotide sequences coding for said proteins and derivatives. The
oral delivery agents have use in facilitating transport of active agents from
the lumenal side of the GIT into the systemic blood system, and/or in targeting
active agents to the GIT.
The
patents and patent applications we have licensed from University of North
Carolina at Chapel Hill (UNC) related to novel reagents and technology for
identifying targeting peptides include: U.S. Pat. Nos. 5,498,538 (expiring
March
12, 2013), 5,625,033 (expiring April 29, 2014), 5,747,334 (expiring May 5,
2015), 5,844,076 (expiring December 1, 2015), 5,852,167 (expiring December
22,
2015), 5,935,823 (expiring August 10, 2016), 6,011,137 (expiring April 3, 2016),
6,184,205 (expiring July 22, 2014), 6,303,574 (expiring July 22, 2014),
6,309,820 (expiring April 7, 2015), 6,432,920 (expiring July 22, 2014),
6,703,482 (expiring July 22, 2014), and 6,709,821 (expiring April 7, 2015),
and
U.S. Pat. Appln. Nos. 10/161,791 (filed May 31, 2002), and 10/185,050 (filed
June 28, 2002). We are responsible for the costs of filing,
prosecuting and maintaining domestic and foreign patents and patent applications
under our agreement with UNC.
Government
Regulation
The
development, manufacture and sale of medical products utilizing our technology
are governed by a variety of federal, state and local statutes and regulations
in the United States and by comparable laws and agency regulations in most
foreign countries. Our two actively marketed products consist of a
biologic (PROSTASCINT) and a drug (QUADRAMET). Future applications
for these may include expanded indications and could result in additional drugs,
biologics, devices or combination products. Our product development
pipeline contains various other products, the majority of which will likely
be
classified as new drugs or biologics.
In
the
United States, medical products that we currently market or intend to develop
are regulated by the Food and Drug Administration (FDA) under the Federal Food,
Drug, and Cosmetic Act (FDC Act) and the Public Health Service Act (PHS Act),
and the rules and regulations promulgated thereunder. These laws and
regulations require, among other things, carefully controlled research and
preclinical and clinical testing of products, government notification, review
and/or approval or clearance prior to investigating or marketing the product,
inspection of manufacturing and production facilities, adherence to current
Good
Manufacturing Practices (cGMP), and compliance with product and manufacturer
specifications or standards, and requirements for reporting, advertising,
promotion, export, packaging, and labeling, and other applicable
regulations.
The
FDC
Act requires that our products be manufactured in FDA registered facilities
subject to inspection. The manufacturer must be in compliance with
cGMP, which imposes certain procedural, substantive, and recordkeeping
requirements upon us and our manufacturing partners with respect to
manufacturing and quality control activities, and, for devices, product
design. To
ensure full technical compliance with such regulations, a manufacturer must
spend funds, time and effort in the areas of production and quality
control. These regulations may also apply to us. Any
failure by us or our manufacturing partners to comply with the requirements
of
cGMP could have a material adverse effect on our business, financial condition
and results of operations.
FDA
approval of our proposed products, including a review of the manufacturing
processes, controls and facilities used to produce such products, will be
required before such products may be marketed in the United
States. The process required by the FDA before drug, biological or
medical device products may be approved for marketing in the United States
generally involves:
|
|
·
|
Preclinical
laboratory and animal tests that are conducted consistent with the
FDA's
good laboratory practice
regulations.
|
|
|
·
|
Submission
to the FDA of an Investigational New Drug Application (IND) (for
a drug or
biologic) or Investigational Device Exemption (IDE) (for a device),
which
must become effective before clinical trials may begin; further,
approval
of the investigation by an Institutional Review Board (IRB) must
also be
obtained before the investigational product may be given to human
subjects.
|
|
|
·
|
Human
clinical trial(s) to establish the safety and efficacy of the product
for
its intended indication.
|
|
|
·
|
Submission
to the FDA of a marketing application-New Drug Application (NDA)
for a
drug, Biologics License Application (BLA) for a biologic, and a premarket
approval application (PMA) or premarket notification (510(k)) for
a
device.
|
|
|
·
|
FDA
review and approval or clearance of the marketing
application. Radiopharmaceutical drugs are subject to
additional requirements pertaining to the description and support
of their
indications for use, and the evaluation of product effectiveness
and
safety, including, radiation safety. We cannot assure you that
the FDA review of marketing applications will result in product approval
or clearance on a timely basis, or at
all.
|
Clinical
trials for drugs, devices, and biologics typically are performed in three phases
to evaluate the safety and efficacy of the product. In Phase 1, a
product is tested in a small number of healthy subjects or patients primarily
for safety at one or more dosages. Phase 2 evaluates, in addition to
safety, the efficacy of the product against particular diseases in a patient
population that is generally somewhat larger than Phase 1. Clinical
trials of certain diagnostic and cancer therapeutic agents may combine Phase
1
and Phase 2 into a single Phase 1/2 study. In Phase 3, the product is
evaluated in a larger patient population sufficient to generate data to support
a claim of safety and efficacy within the meaning of the FDC Act or PHS
Act. Permission by the FDA must be obtained before clinical testing
can be initiated within the United States. This permission is
obtained by submission of an IND/IDE application which typically includes,
among
other things, the results of in vitro and non-clinical testing and any
previous human testing done elsewhere. The FDA has 30 days to review
the information submitted and makes a final decision whether to permit clinical
testing with the drug, biologic or device. However, this
process
can take longer if the FDA raises questions or asks for additional information
regarding the IND/IDE application. Unless the FDA notifies the
sponsor that the IND/IDE is subject to a clinical hold during the 30 day review
period, the IND/IDE is considered effective and the trial may
commence.
We
cannot
assure you that submission of an IND or IDE will result in the ability to
commence clinical trials. In addition, after a trial begins, the FDA
may place it on hold or terminate it if, among other reasons, it concludes
that
clinical subjects are being exposed to an unacceptable health
risk. In addition, clinical trials require IRB approval before the
drug may be given to subjects and are subject to continuing IRB
review. An IRB may suspend or terminate approval if the IRB's
requirements are not followed or if unexpected serious harm to subjects is
associated with the trial. The FDA may decide not to consider, in
support of an application for approval or clearance, any data that was collected
in a trial without IRB approval and oversight. After completion of
in vitro, non-clinical and clinical testing, authorization to market a
drug, biologic or device must be granted by the FDA. The FDA grants
permission to market through the review and approval or clearance of either
an
NDA, BLA, PMA, or 510(k). Historically, monoclonal antibodies have
been regulated through the FDA's Center for Biologics Evaluation and Research
(CBER). As of late 2003, monoclonal antibodies, which include
PROSTASCINT, were transferred to the Center for Drug Evaluation and Research
(CDER), for regulation, review and approval.
An
NDA is
an application to the FDA to market a new drug. A BLA is an
application to the FDA to market a biological product. An NDA or BLA,
depending on the submission, must contain, among other things, information
on
chemistry, manufacturing controls and potency and purity; nonclinical
pharmacology and toxicology; human pharmacokinetics and bioavailability; and
clinical data. The new drug or biologic may not be approved for
marketing in the United States until the FDA has determined that the NDA product
is safe and effective or that the BLA product
is safe, pure, and potent and the facility in which it is manufactured,
processed, packed or held meets standards designed to assure its continued
safety, purity, and potency. For both NDAs and BLAs, the application
will not be approved until the FDA conducts a manufacturing inspection and
approves the applicable manufacturing process for the drug or
biologic. A PMA is an application to the FDA to market certain
medical devices, which must be approved in order for the product to be
marketed. It must be supported by valid scientific evidence, which
typically includes extensive data, including pre-clinical data and clinical
data
from well-controlled clinical trials to demonstrate the safety and effectiveness
of the device. Product testing, manufacturing, controls,
specifications and information must also be provided, and a pre-approval
inspection is normally conducted. NDA, BLA, and PMA submissions may
be refused review if they do not meet submission requirements.
Conducting
the studies, preparing these applications and securing approval from the FDA
is
expensive and time consuming, and takes several years to
complete. Difficulties or unanticipated costs may be encountered by
us or our licensees in their respective efforts to secure necessary governmental
approval or licenses, which could delay or preclude us or our licensees from
marketing their products. We cannot assure you that approvals of our
proposed products, processes or facilities will be granted on a timely basis,
or
at all. Limited indications for use or other conditions could also be
placed on any approvals that could restrict the commercial applications of
products. With respect to patented products or technologies, delays
imposed by
the
government approval process may materially reduce the period during which we
will have the exclusive right to exploit them, because patent protection lasts
only for a limited time, beginning on the date the patent is first granted
(in
the case of United States patent applications filed prior to June 6, 1995)
and
when the patent application is first filed (in the case of patent applications
filed in the United States after June 6, 1995, and applications filed in the
European Economic Community). We intend to seek to maximize the
useful lives of our patents under the Patent Term Restoration Act of 1984 in
the
United States and under similar laws if available in other
countries.
Our
new
drug products may be subject to generic competition. Once a NDA is
approved, the product covered thereby becomes a "listed drug" which can, in
turn, be cited by potential competitors in support of approval of an abbreviated
new drug application (ANDA). An ANDA provides for marketing of a drug
product that has the same active ingredients in the same strengths and dosage
form as the listed drug and has been shown through bioequivalence testing to
be
therapeutically equivalent to the listed drug. Federal law provides
for a period of three years of exclusivity following approval of a listed drug
that contains previously approved active ingredients but is approved in a new
dosage, dosage form, route of administration or combination, or for a new use,
the approval of which was required to be supported by new clinical trials
conducted by or for the sponsor. Federal law also provides a period
of five years following approval of a drug containing no previously approved
active ingredients, during which ANDAs for generic versions of those drugs
cannot be submitted unless the submission accompanies a challenge to a listed
patent, in which case the submission may be made four years following the
original product approval. Additionally, in the event that the
sponsor of the listed drug has properly informed the FDA of patents covering
its
listed drug, applicants submitting an ANDA referencing that drug are required
to
make certifications including that it believes one or more listed patents are
invalid or not infringed. If the ANDA applicant certifies that it
does not intend to market its generic product before some or all listed patents
on the listed drug expire, then
the
FDA cannot grant effective approval of the ANDA until those patents
expire. The first of the abbreviated new drug applicant(s) submitting
substantially complete applications certifying that listed patents for a
particular product are invalid or not infringed may qualify for a period of
180
days exclusivity running from when the generic product is first marketed, during
which subsequently submitted ANDAs cannot be granted effective
approval.
Certain
of our future products may be regulated by the FDA as combination
products. Combination products are products comprised of a
combination of two or more different types of components, (e.g.,
drug/device, device/biologic, drug/device/biologic), or are comprised of two
or
more separate different types of products packaged together for use, or two
or
more different types of products packaged separately but labeled for use in
combination with one another. The regulation of a combination product
is determined by the product's primary mode of action. For example, a
combination drug/device that has a primary mode of action as a drug would be
regulated by the Center for Drug Evaluation and Research under an
NDA. In some cases, however, consultative reviews and/or separate
approvals by each agency Center with jurisdiction over a component may be
required. The product designation, approval pathway, and submission
requirements for a combination product may be difficult to predict, and the
approval process may be fraught with unanticipated delays and
difficulties. In addition, post-approval requirements may be more
extensive than for single entity products. Even if products such as
PROSTASCINT or QUADRAMET that we intend to develop for use with other separately
regulated products are
not
regulated as combination products, they may be subject to similar multi-Center
consultative reviews and additional post-market requirements.
Once
the
FDA approves a product, we are required to maintain approval status of the
product by providing certain updated safety and efficacy information at
specified intervals. Most product or labeling changes to drugs or
biologics as well as any change in a manufacturing process or equipment that
has
a substantial potential to adversely affect the safety or effectiveness of
the
product for a drug or biologic, or, for a device, changes that affect safety
and
effectiveness, would necessitate additional FDA review and
approval. Post approval changes in packaging or promotional materials
may also necessitate further FDA review and approval. Additionally,
we are required to meet other requirements specified by the FDC Act, including
but not limited to, cGMPs, enforced by periodic inspections, adverse event
reporting, requirements governing labeling and promotional materials and, for
drugs, biologics and restricted and PMA devices, requirements regarding
advertising, and the maintenance of records. Failure to comply with
these requirements or the occurrence of unanticipated safety effects from the
products during commercial marketing could result in product marketing
restrictions, product withdrawal or recall and/or public notifications, or
other
voluntary or FDA-initiated action, which could delay further marketing until
the
products are brought into compliance. Similar laws and regulations
apply in most foreign countries where these products may be
marketed.
Violations
of the FDC Act, PHS Act, or regulatory requirements at any time during the
product development process, approval process, or after approval may result
in
agency enforcement actions, including voluntary or mandatory recall, license
suspension or revocation, new drug approval suspension or withdrawal, pre-market
approval withdrawal, seizure of products, fines, injunction and/or civil or
criminal penalties. Any agency enforcement action could have a
material adverse effect on our business, financial condition and results of
operations.
Orphan
Drug Act
The
Orphan Drug Act is intended to provide incentives to pharmaceutical companies
to
develop and market drugs and biologics for rare diseases or conditions affecting
fewer than 200,000 persons in the United States at the time of application
for
orphan drug designation. A drug that receives orphan drug designation
and is the first product to receive FDA marketing approval for a particular
indication is entitled to orphan drug status, which confers a seven-year
exclusive marketing period in the United States for that
indication. Clinical testing requirements for orphan drugs are the
same as those for products that have not received orphan drug designation but
pharmaceutical companies may receive grants or tax credits for research, as
well
as protocol assistance. Under the Orphan Drug Act, the FDA cannot
approve any application by another party to market the same drug for treatment
of an identical indication unless the holder consents, the party has a license
from the holder of orphan drug status, or the holder of orphan drug status
is
unable to assure an adequate supply of the drug, or it has been shown to be
clinically superior to the approved orphan drug. However, a drug that
is considered by the FDA to be different from a particular orphan drug is not
barred from sale in the United States during the seven-year exclusive marketing
period even if it receives marketing approval for the same product
claim. In addition, holders of orphan drug status must notify the FDA
of any decision to discontinue active pursuit of drug approval or biologics
license, or, if such approval or license is in effect, notify the FDA at least
one year prior to any discontinuance of product production. If
the
holder of an orphan designation cannot assure the availability of sufficient
quantities of the product to meet the needs of affected patients, the FDA may
withdraw orphan drug status.
Fraud
and Abuse
We
are
subject to various federal and state laws pertaining to health care fraud and
abuse, including anti-kickback laws, false claims laws and physician
self-referral laws. Violations of these laws are punishable by
criminal, civil and/or administrative sanctions, including, in some instances,
imprisonment and exclusion from participation in federal and state health care
programs, including Medicare, Medicaid and veterans' health
programs. Because of the far-reaching nature of these laws, we cannot
assure you that the occurrence of one or more violations of these laws would
not
result in a material adverse effect on our business, financial condition and
results of operations.
Anti-Kickback
Laws
Our
operations are subject to federal and state anti-kickback
laws. Certain provisions of the Social Security Act prohibit entities
such as us from knowingly and willingly offering, paying, soliciting or
receiving any form of remuneration (including any kickbacks, bribes or rebates)
in return for the referral of items or services for which payment may be made
under a federal health care program, or in return for the recommendation,
arrangement, purchase, lease or order of items or services for which payment
may
be made under a federal health care program. Violation of the federal
anti-kickback law is a felony, punishable by criminal fines and imprisonment
for
up to five years or both. In addition, the Department of Health and
Human Services may impose civil penalties and exclude violators from
participation in federal health care programs such as Medicare and
Medicaid. Many states have adopted similar prohibitions against
payments intended to induce referrals of products or services paid by Medicaid
or other third party payors.
Physician
Self-Referral Laws
We
also
may be subject to federal and/or state physician self-referral
laws. Federal physician self-referral legislation (known as the Stark
law) prohibits, subject to certain exceptions, a physician from referring
Medicare or Medicaid patients to an entity to provide designated health
services, including, among other things, certain radiology and radiation therapy
services and clinical laboratory services in which the physician or a member
of
his immediate family has an ownership or investment interest or has entered
into
a compensation arrangement. The Stark law also prohibits the entity
receiving the improper referral from billing any good or service furnished
pursuant to the referral. The penalties for violations include a
prohibition on payment by these government programs and civil penalties of
as
much as $15,000 for each improper referral and $100,000 for participation in
a
circumvention scheme. Various state laws also contain similar
provisions and penalties.
False
Claims
The
federal False Claims Act imposes civil and criminal liability on individuals
or
entities who submit (or cause the submission of) false or fraudulent claims
for
payment to the government. Violations of the federal False Claims Act
may result in penalties equal to three times the damages which the government
sustained, an assessment of between $5,000 and
$10,000
per claim, civil monetary penalties and exclusion from participation in the
Medicare and Medicaid programs.
The
federal False Claims Act also allows a private individual to bring a qui
tam suit on behalf of the government against an individual or entity for
violations of the False Claims Act. In a qui tam suit, the
private plaintiff is responsible for initiating a lawsuit that may eventually
lead to the government recovering money of which it was defrauded. In
return for bringing the suit on the government's behalf, the statute provides
that the private plaintiff is entitled to receive up to 30% of the recovered
amount from the litigation proceeds if the litigation is successful plus
reasonable expenses and attorneys fees. Recently, the number of
qui tam suits brought against entities in the health care industry has
increased dramatically. In addition, a number of states have enacted
laws modeled after the False Claims Act that allow those states to recover
money
which was fraudulently obtained from the state.
Other
Fraud and Abuse Laws
The
Health Insurance Portability and Accountability Act of 1996 created, in part,
two new federal crimes: (i) Health Care Fraud; and (ii) False Statements
Relating to Health Care Matters. The Health Care Fraud statute
prohibits the knowing and willful execution of a scheme or artifice to defraud
any health care benefit program. A violation of the statute is a
felony and may result in fines and/or imprisonment. The False
Statements statute prohibits knowingly and willfully falsifying, concealing
or
covering up a material fact by any trick, scheme or device or making any
materially false, fictitious or fraudulent statement in connection with the
delivery of or payment for health care benefits, items or services. A
violation of this statute is a felony and may result in fines and/or
imprisonment.
We
currently maintain several programs designed to minimize the likelihood that
we
would engage in conduct or enter into contracts in violation of the fraud and
abuse laws. Contracts
of the types subject to these laws are reviewed and approved by legal department
personnel. We also maintain various educational programs designed to
keep our managers updated and informed on developments with respect to the
fraud
and abuse laws and to reinforce to all employees the policy of strict compliance
in this area. While we believe that all of our applicable agreements,
arrangements and contracts comply with the various fraud and abuse laws and
regulations, we cannot provide assurance that further administrative or judicial
interpretations of existing laws or legislative enactment of new laws will
not
have a material adverse impact on our business.
Other
regulations
In
addition to regulations enforced by the FDA, and federal and state laws
pertaining to health care fraud and abuse, we are also subject to regulation
under the state and local authorities and other federal statutes and agencies
including the Occupational Safety and Health Act, the Environmental Protection
Act, the Toxic Substances Control Act, the Resource Conservation and Recovery
Act and the Nuclear Regulatory Commission.
Foreign
regulatory approval
The
regulatory approval process in Europe has changed over the past few
years. There are two regulatory approval processes in Europe for
products developed by us. Beginning in
1995,
the
centralized procedure became mandatory for all biotechnology
products. Under this regulatory scheme, the application is reviewed
by two scientific project leaders referred to as the rapporteur and
co-rapporteur. Their roles are to prepare assessment reports of
safety and efficacy and for recommending the approval for full European Union
marketing.
The
second regulatory scheme, referred to as the Mutual Recognition Procedure,
is a
process whereby a product's national registration in one member state within
the
European Union may be "mutually recognized" by other member states within the
European Union.
Substantial
requirements, comparable in many respects to those imposed under the FDC Act,
will have to be met before commercial sale is permissible in most
countries. We cannot assure you, however, as to whether or when
governmental approvals, other than those already obtained, will be obtained
or
as to the terms or scope of those approvals.
Health
Care Reimbursement
Sales
of
our products depend in part on the coverage status of our products and the
availability of reimbursement by various payers, including federal health care
programs, such as Medicare and Medicaid, as well as private health insurance
plans. Whether a product receives favorable coverage depends upon a
number of factors, including the payer's determination that the product is
medically reasonable and necessary for the diagnosis or treatment of the illness
or injury for which it is administered and not otherwise excluded from coverage
by law or regulation. There may be significant delays in obtaining
coverage for newly-approved products, and coverage may be limited or expanded
outside the purpose(s) for which the product is approved by the
FDA.
Eligibility
for coverage does not imply that any product will be reimbursed in all cases
or
at a rate that allows us or any health care provider to make a profit or even
cover costs, including research,
development, production, sales, and distribution costs. Although new
laws provide for expedited coverage for new technology, interim payments for
new
products, if applicable, may also not be sufficient to cover our costs and
may
not be made permanent. Reimbursement rates may vary according to the
approved and covered use of the product and the place of service in which it
is
used, may be based on payments allowed for lower-cost products that are already
reimbursed, may be incorporated into existing payments for other products or
services, and may reflect budgetary constraints and/or imperfections in Medicare
or Medicaid claims data. Net prices for products may be reduced by
mandatory discounts or rebates required by law under government health care
programs or by any future relaxation of laws that restrict imports of certain
medical products from countries where they may be sold at lower prices than
in
the U.S.
In
December 2003, the Medicare Prescription Drug, Improvement and Modernization
Act
of 2003 were signed into law. This Act includes provisions that
reduced Medicare reimbursement for many drugs and biologicals from a
reimbursement rate of 95% of the average wholesale price to 80% of the average
wholesale price, effective January 1, 2004. As of January 2005, the
general reimbursement methodology for many drugs and biologicals is now based
on
"average sales price", as defined by the Act, plus 6%.
Third
party payers often mirror Medicare coverage policy and payment limitations
in
setting their own reimbursement payment and coverage policy and may have
sufficient market
penetration
to demand significant price reductions. Even if successful, securing
reimbursement coverage at adequate payment levels from government and third
party payers can be a time consuming and costly process that could require
us to
provide additional supporting scientific, clinical and cost-effectiveness data
to permit payment and coverage of our products to payers. Our
inability to promptly obtain product coverage and profitable reimbursement
rates
from government-funded and private payers could have a material adverse effect
on our business, financial condition and our results of operations.
Although
health care funding has and will continue to be closely monitored by the
government, the ability to diagnose patients quickly and more effectively has
been one of the few areas where the government has increased health care
spending. Approval of payment for new technology has been another
area with required spending outlined in the 2004 legislative requirements.
The
Centers for Medicare and Medicaid Services (CMS) continually monitor and update
product descriptors, coverage policies, product and service codes, payment
methodologies, and reimbursement values. Although it is not possible
to predict or identify all of the risks relating to such changes, we believe
that such risks include, but are not limited to: (i) increasing price pressures
(including those imposed by regulations and practices of managed care groups
and
institutional and governmental purchasers); and (ii) judicial decisions and
government laws related to health care reform including radiopharmaceutical,
pharmaceutical and device reimbursement. In addition, an increasing
emphasis on managed care has and will continue to increase the pressure on
pricing of these products and services.
Our
business, financial condition and results of operations will continue to be
affected by the efforts of governmental and third-party payers to contain or
reduce the costs of health care. There have been, and we expect that
there will continue to be, federal and state proposals to constrain expenditures
for medical products and services, which may affect payments for therapeutic
and diagnostic imaging agents. We rely heavily on the ability to
monitor changes in reimbursement and coverage and proactively influence policy
and legislative changes in the areas of health care that directly impact our
products. We have proven our ability to monitor changes that impact
our products and have worked with the government and private payers to take
advantage of the opportunities offered by legislative and policy changes for
our
products. While we cannot predict if legislative or regulatory
proposals will be adopted or the effects managed care may have on our business,
the changes in reimbursement and the adoption of new health care proposals
could
have a material adverse effect on our business, financial condition and results
of operations. Further, to the extent that changes in health care
reimbursement have a material adverse effect on other prospective corporate
partners, our ability to establish strategic alliances may be materially and
adversely affected. In certain foreign markets, the pricing and
profitability of our products are generally subject to governmental
controls.
Employees
As
of
March 1, 2007, we employed 95 persons, 94 of whom are employed
full-time. Of such 95 persons, 59 were employed
in sales and marketing, 8 in medical affairs, 3 in
regulatory, and 25 in administration and management. We believe that
we have been successful in attracting skilled and experienced
employees. None of our employees are covered by a collective
bargaining
agreement. All of our employees have executed confidentiality
agreements. We consider relations with our employees to be
excellent.
|
Item
1A.
|
Investing
in our common stock involves a high degree of risk. You should
carefully consider the risks and uncertainties described below together with
other information included or incorporated by reference in this Annual Report
on
Form 10-K in your decision as to whether or not to invest in our common
stock. If any of the following risks or uncertainties actually occur,
our business, financial condition or results of operations would likely
suffer. In that case, the trading price of our common stock could
fall, and you may lose all or part of the money you paid to buy our common
stock.
We
have a history of operating losses and an accumulated deficit and expect to
incur losses in the future.
Given
the
high level of expenditures associated with our business and our inability to
generate revenues sufficient to cover such expenditures, we have had a history
of operating losses since our inception. We had net losses of $15.1
million, $26.3 million and $20.5 million for the years ended December 31, 2006,
2005 and 2004, respectively. We had an accumulated deficit of $427.7
million as of December 31, 2006.
In
order
to develop and commercialize our technologies, particularly our
prostate-specific membrane antigen technology, and expand our products, we
expect to incur significant increases in our expenses over the next several
years. As a result, we will need to generate significant additional
revenue to become profitable.
To
date,
we have taken affirmative steps to address our trend of operating
losses. Such steps include, among other things:
|
|
Ÿ
|
undergoing
steps to realign and implement our focus as a product-driven
biopharmaceutical company;
|
|
|
Ÿ
|
establishing
and maintaining our in-house specialty sales
force;
|
|
|
Ÿ
|
reacquiring
North American and Latin American marketing rights to QUADRAMET from
Berlex Laboratories in August 2003;
and
|
|
|
Ÿ
|
enhancing
our marketed product portfolio through marketing alliances and strategic
arrangements.
|
Although
we have taken these affirmative steps, we may never be able to successfully
implement them, and our ability to generate and sustain significant additional
revenues or achieve profitability will depend upon the factors discussed
elsewhere in this section entitled, "Risk Factors." As a result, we may never
be
able to generate or sustain significant additional revenue or achieve
profitability.
We
depend on sales of QUADRAMET and PROSTASCINT for substantially all of our
near-term revenues.
We
expect
QUADRAMET and PROSTASCINT to account for substantially all of our product
revenues in the near future. For the year ended December 31, 2006,
revenues from QUADRAMET and PROSTASCINT accounted for approximately 47% and
53%,
respectively, of our product revenues. For the year ended December
31, 2005, revenues from QUADRAMET and PROSTASCINT accounted for approximately
53% and 47%, respectively, of our product revenues. For the year
ended December 31, 2004, revenues from QUADRAMET and PROSTASCINT each accounted
for approximately 50% of our product revenues. If QUADRAMET or
PROSTASCINT does not achieve broader market acceptance, either because we fail
to effectively market such products or our competitors introduce competing
products, we may not be able to generate sufficient revenue to become
profitable.
We
will depend on the market acceptance of SOLTAMOX and CAPHOSOL for future
revenues.
On
April 21, 2006, we and Savient entered into a distribution agreement
granting us exclusive marketing rights for SOLTAMOX in the United
States. We introduced SOLTAMOX to the U.S. oncology market in the
second half of 2006. We have recognized only $30,000 of SOLTAMOX
sales through December 31, 2006.
On
October 11, 2006, we entered into a license agreement with InPharma
granting us exclusive marketing rights for CAPHOSOL in North
America. We introduced CAPHOSOL during the first quarter of
2007.
Our
future growth and success will depend on market acceptance of SOLTAMOX and
CAPHOSOL by healthcare providers, third-party payors and
patients. Market acceptance will depend,
in part, on our ability to demonstrate to these parties the effectiveness of
these products. Sales of these products will also depend on the
availability of favorable coverage and reimbursement by governmental healthcare
programs such as Medicare and Medicaid as well as private health insurance
plans. If SOLTAMOX or CAPHOSOL does not achieve market acceptance,
either because we fail to effectively market such products or our competitors
introduce competing products, we may not be able to generate sufficient revenue
to become profitable.
A
Small Number of Customers Account for the Majority of Our Sales, and the Loss
of
One of Them, or Changes in Their Purchasing Patterns, Could Result in Reduced
Sales, Thereby Adversely Affecting Our Operating Results.
We
sell
our products to a small number of radiopharmacy networks. During the
year ended December 31, 2006, we received 64% of our total revenues from three
customers, as follows: 41% from Cardinal Health (formerly Syncor International
Corporation); 14% from Mallinckrodt Inc.; and 9% from GE Healthcare (formerly
Amersham Health). During the year ended December 31, 2005, we
received 67% of our total revenues from three customers, as follows: 47% from
Cardinal Health (formerly Syncor International Corporation); 11% from
Mallinckrodt Inc.; and 9% from GE Healthcare (formerly Amersham
Health). During the year ended December 31, 2004, we received 68% of
our total revenues from three customers, as
follows:
46% from Cardinal Health (formerly Syncor International Corporation); 12% from
Mallinckrodt Inc.; and 10% from GE Healthcare (formerly Amersham
Health).
The
small
number of radiopharmacies, consolidation in this industry or financial
difficulties of these radiopharmacies could result in the combination or
elimination of customers for our products. We anticipate that our
results of operations in any given period will continue to depend to a
significant extent upon sales to a small number of customers. As a
result of this customer concentration, our revenues from quarter to quarter
and
business, financial condition and results of operations may be subject to
substantial period-to-period fluctuations. In addition, our business,
financial condition and results of operations could be materially adversely
affected by the failure of customer orders to materialize as and when
anticipated. None of our customers have entered into an agreement
requiring on-going minimum purchases from us. We cannot assure you
that our principal customers will continue to purchase products from us at
current levels, if at all. The loss of one or more major customers
could have a material adverse effect on our business, financial condition and
results of operations.
We
depend on acceptance of our products by the medical community for the
continuation of our revenues.
Our
business, financial condition and results of operations depend on the acceptance
of our marketed products as safe, effective and cost-efficient alternatives
to
other available treatment and diagnostic protocols by the medical community,
including:
|
|
Ÿ
|
health
care providers, such as hospitals and physicians;
and
|
|
|
Ÿ
|
third-party
payors, including Medicare, Medicaid, private insurance carriers
and
health maintenance organizations.
|
With
respect to PROSTASCINT, our customers, including technologists and physicians,
must successfully complete our Partners in Excellence, or PIE, Program, a
proprietary training program designed to promote the correct acquisition and
interpretation of PROSTASCINT images. This product is
technique-dependent and requires a learning commitment by technologists and
physicians and their acceptance of this product as part of their treatment
practices. With respect to QUADRAMET, we believe that challenges we
may encounter in generating market acceptance for this product include the
need
to further educate patients and physicians about QUADRAMET's properties,
approved uses and how QUADRAMET may be differentiated from other
radiopharmaceuticals and used in combination with other treatments for the
palliation of pain due to metastatic bone disease, such as analgesics, opioids,
bisphosphonates, and chemotherapeutics. If we are unable to educate
our existing and future customers about PROSTASCINT and QUADRAMET, our revenues
may decrease. If PROSTASCINT or QUADRAMET does not achieve broader
market acceptance, we may not be able to generate sufficient revenue to become
profitable.
Generating
market acceptance and sales of our products has proven difficult. We
introduced ONCOSCINT® CR/OV
in December
1992, PROSTASCINT in October 1996, QUADRAMET in March 1997, BRACHYSEED™ in February
2001
and NMP22
BLADDERCHEK®
in November
2002. Revenues for PROSTASCINT grew from $55,000 in 1996 to $9.1
million in 2006. Royalties and sales of QUADRAMET grew from $3.3
million in 1997 to $8.1 million in 2006. We discontinued selling
ONCOSCINT CR/OV in December 2002, brachytherapy products in January 2003 and
NMP22 BLADDERCHEK in December 2004. Currently, substantially all of
our revenues are derived from sales of PROSTASCINT and QUADRAMET.
We
rely heavily on our collaborative partners.
Our
success depends largely upon the success and financial stability of our
collaborative partners. We have entered into the following agreements
for the development, sale, marketing, distribution and manufacture of our
products, product candidates and technologies:
|
|
Ÿ
|
a
license agreement with Dow relating to the QUADRAMET
technology;
|
|
|
Ÿ
|
a
manufacturing and supply agreement for the manufacture of QUADRAMET
with
Bristol-Myers Squibb Medical Imaging,
Inc.;
|
|
|
Ÿ
|
a
manufacturing agreement for the manufacture of PROSTASCINT with Laureate
Pharma, L.P.;
|
|
|
Ÿ
|
a
distribution services agreement with Cardinal Health 105, Inc. (formerly
Cord Logistics, Inc.) for
PROSTASCINT;
|
|
|
Ÿ
|
a
license agreement with Dow relating to Dow's proprietary MeO-DOTA
bifunctional chelant technology for use with our CYT-500
program;
|
|
|
Ÿ
|
a
distribution agreement and a manufacture and supply agreement with
Rosemont related to the supply and marketing of
SOLTAMOX;
|
|
|
Ÿ
|
a
purchase and supply agreement with OTN for the distribution of
SOLTAMOX;
|
|
|
Ÿ
|
a
license agreement with InPharma AS for the marketing of CAPHOSOL;
and
|
|
|
Ÿ
|
a
manufacturing agreement with Holopack for the manufacturing and supply
of
CAPHOSOL.
|
Because
our collaborative partners are responsible for certain manufacturing and
distribution activities, among others, these activities are outside our direct
control and we rely on our partners to perform their obligations. In
the event that our collaborative partners are entitled to enter into third
party
arrangements that may economically disadvantage us, or do not perform their
obligations as expected under our agreements, our products may not be
commercially successful. As a result, any success may be delayed and
new product development could be inhibited with the result that our business,
financial condition and results of operation could be significantly and
adversely affected.
If
our
collaborative agreements expire or are terminated and we cannot renew or replace
them on commercially reasonable terms, our business and financial results may
suffer. If the agreements described above expire or are terminated,
we may not be able to find suitable alternatives to them on a timely basis
or on
reasonable terms, if at all. The loss of the right to use these
technologies that we have licensed or the loss of any services provided to
us
under these agreements would significantly and adversely affect our business,
financial condition and results of operations.
In
addition to the agreements described above, we currently depend on the following
agreements for our present and future operating results:
Agreement
with Dr. Horosziewicz regarding PROSTASCINT. In 1989, we entered
into an agreement with Dr. Julius S. Horosziewicz. Under this
agreement, we were assigned certain rights to the patent claiming the 7E11
antibody, as well as additional patents relating to the PROSTASCINT product
and
commercialization rights thereto. Under this agreement, we have made,
and may continue to make, certain payments to Dr. Horosziewicz, which obligation
will remain in effect until the expiration of the last related patent in
2015.
Sloan-Kettering
Institute for Cancer Research. In 1993, we began a development
program with SKICR involving PSMA and our proprietary monoclonal
antibody. In November 1996, we exercised an option for, and obtained,
an exclusive worldwide license from the SKICR to its PSMA-related
technology. The license will terminate on the date of expiration of
the last to expire of the licensed patents unless it is terminated
earlier.
Our
business depends upon our patents and proprietary rights and the enforcement
of
these rights. Our failure to obtain and maintain patent protection
may increase competition and reduce demand for our technology.
As
a
result of the substantial length of time and expense associated with developing
products and bringing them to the marketplace in the biotechnology and
agricultural industries, obtaining and maintaining patent and trade secret
protection for technologies, products and processes is of vital
importance. Our success will depend in part on several factors,
including, without limitation:
|
|
Ÿ
|
our
ability to obtain patent protection for our technologies and
processes;
|
|
|
Ÿ
|
our
ability to preserve our trade secrets;
and
|
|
|
Ÿ
|
our
ability to operate without infringing the proprietary rights of other
parties both in the United States and in foreign
countries.
|
Although
we believe that our technology is unique and will not violate or infringe upon
the proprietary rights of any third party, we cannot assure you that these
claims will not be made or if made, could be successfully defended
against. If we do not obtain and maintain patent protection, we may
face increased competition in the United States and internationally, which
would
have a material adverse effect on our business.
Since
patent applications in the United States are maintained in secrecy until patents
are issued, and since publication of discoveries in the scientific and patent
literature tend to lag behind actual discoveries by several months, we cannot
be
certain that we were the first creator of the inventions covered by our pending
patent applications or that we were the first to file patent applications for
these inventions.
In
addition, among other things, we cannot assure you that:
|
|
Ÿ
|
our
patent applications will result in the issuance of
patents;
|
|
|
Ÿ
|
any
patents issued or licensed to us will be free from challenge and
that if
challenged, would be held to be
valid;
|
|
|
Ÿ
|
any
patents issued or licensed to us will provide commercially significant
protection for our technology, products and
processes;
|
|
|
Ÿ
|
other
companies will not independently develop substantially equivalent
proprietary information which is not covered by our patent
rights;
|
|
|
Ÿ
|
other
companies will not obtain access to our
know-how;
|
|
|
Ÿ
|
other
companies will not be granted patents that may prevent the
commercialization of our technology;
or
|
|
|
Ÿ
|
we
will not require licensing and the payment of significant fees or
royalties to third parties for the use of their intellectual property
in
order to enable us to conduct our
business.
|
Our
competitors may allege that we are infringing upon their intellectual property
rights, forcing us to incur substantial costs and expenses in resulting
litigation, the outcome of which would be uncertain.
Patent
law is still evolving relative to the scope and enforceability of claims in
the
fields in which we operate. We are like most biotechnology companies
in that our patent protection is highly uncertain and involves complex legal
and
technical questions for which legal principles are not yet firmly
established. In addition, if issued, our patents may not contain
claims sufficiently broad to protect us against third parties with similar
technologies or products, or provide us with any competitive
advantage.
The
U.S.
Patent and Trademark Office, or PTO, and the courts have not established a
consistent policy regarding the breadth of claims allowed in biotechnology
patents. The allowance of broader claims may increase the incidence
and cost of patent interference proceedings and the risk of infringement
litigation. On the other hand, the allowance of narrower claims may
limit the value of our proprietary rights.
The
laws
of some foreign countries do not protect proprietary rights to the same extent
as the laws of the United States, and many companies have encountered
significant problems and costs in protecting their proprietary rights in these
foreign countries.
We
could
become involved in infringement actions to enforce and/or protect our
patents. Regardless of the outcome, patent litigation is expensive
and time consuming and would distract our management from other
activities. Some of our competitors may be able to sustain the costs
of complex patent litigation more effectively than we could because they have
substantially greater resources. Uncertainties resulting from the
initiation and continuation of any patent litigation could limit our ability
to
continue our operations.
If
our technology infringes the intellectual property of our competitors or other
third parties, we may be required to pay license fees or
damages.
If
any
relevant claims of third-party patents that are adverse to us are upheld as
valid and enforceable, we could be prevented from commercializing our technology
or could be required to obtain licenses from the owners of such
patents. We cannot assure you that such licenses would be available
or, if available, would be on acceptable terms. Some licenses may be
non-exclusive and, therefore, our competitors may have access to the same
technology licensed to us. In addition, if any parties successfully
claim that the creation or use of our technology infringes upon their
intellectual property rights, we may be forced to pay damages, including treble
damages.
There
are risks associated with the manufacture and supply of our
products.
If
we are
to be successful, our products will have to be manufactured by contract
manufacturers in compliance with regulatory requirements and at costs acceptable
to us. If we are unable to successfully arrange for the manufacture
of our products and product candidates, either because potential manufacturers
are not cGMP compliant, are not available or charge excessive amounts, we will
not be able to successfully commercialize our products and our business,
financial condition and results of operations will be significantly and
adversely affected.
PROSTASCINT
is currently manufactured at a current Good Manufacturing Practices, or cGMP,
compliant manufacturing facility operated by Laureate Pharma,
Inc. Although we entered into an agreement with Laureate in September
2006 which provides for Laureate's manufacture of PROSTASCINT for us, our
failure to maintain a long term supply agreement on commercially reasonable
terms will have a material adverse effect on our business, financial condition
and results of operations. In October 2004, Laureate was acquired by
Safeguard Scientifics, Inc. Laureate has continued to operate as a full service
contract manufacturing organization and we have not experienced any disruption
in Laureate's performance of its obligations to produce
PROSTASCINT.
We
have
an agreement with Bristol-Myers Squibb Medical Imaging, Inc., or BMSMI, to
manufacture QUADRAMET for us. Both primary components of QUADRAMET,
particularly samarium-153 and EDTMP, are provided to BMSMI by outside
suppliers. Due to radioactive
decay,
samarium-153 must be produced on a weekly basis. BMSMI obtains its
requirements for samarium-153 from a sole supplier and EDTMP from another
sole
supplier. Alternative sources for these components may not be readily
available, and any alternative supplier would have to be identified and
qualified, subject to all applicable regulatory guidelines. If BMSMI
cannot obtain sufficient quantities of the components on commercially reasonable
terms, or in a timely manner, it would be unable to manufacture QUADRAMET
on a
timely and cost-effective basis, which would have a material adverse effect
on
our business, financial condition and results of operations.
We
have a
supply agreement with Rosemont to manufacture SOLTAMOX for us. The
supply agreement with Rosemont will terminate upon the expiration of the last
to
expire patent covering SOLTAMOX in the United States, which is currently June
2018. Our failure to maintain a long term supply agreement for
SOLTAMOX on commercially reasonable terms will have a material adverse effect
on
our business, financial condition and results of operations.
We
have a
manufacturing agreement with Holopack to manufacture CAPHOSOL for
us. The agreement has a term of two years and automatically renews
for an additional year. Such agreement is terminable by Holopack or
us on three months notice prior to the end of each term period. Our
failure to maintain a long term supply agreement for CAPHOSOL on commercially
reasonable terms will have a material adverse effect on our business, financial
condition and results of operations.
We,
along
with our contract manufacturers and our testing laboratories, are required
to
adhere to FDA regulations setting forth requirements for cGMP, and similar
regulations in other countries,
which include extensive testing, control and documentation
requirements. Ongoing compliance with cGMP, labeling and other
applicable regulatory requirements is monitored through periodic inspections
and
market surveillance by state and federal agencies, including the FDA, and by
comparable agencies in other countries. Failure of our contract
vendors or us to comply with applicable regulations could result in sanctions
being imposed on us, including fines, injunctions, civil penalties, failure
of
the government to grant pre-market clearance or pre-market approval of drugs,
delays, suspension or withdrawal of approvals, seizures or recalls of products,
operating restrictions and criminal prosecutions any of which could
significantly and adversely affect our business, financial condition and results
of operations.
Our
products, generally, are in the early stages of development and
commercialization and we may never achieve the revenue goals set forth in our
business plan.
We
began
operations in 1980 and have since been engaged primarily in research directed
toward the development, commercialization and marketing of products to improve
the diagnosis and treatment of cancer and other diseases. In October
1996, we introduced for commercial use our PROSTASCINT imaging
agent. In March 1997, we introduced for commercial use our QUADRAMET
therapeutic product.
In
April
2006, we entered into a distribution agreement with Savient and Rosemont
granting us exclusive marketing rights for SOLTAMOX in the United
States. We introduced SOLTAMOX in the United States in the
second half of 2006.
In
October 2006, we entered into a license agreement with InPharma granting
us
exclusive rights to CAPHOSOL in North America. We introduced
CAPHOSOL in the United States in the first quarter of 2007.
In
May
2006, the FDA cleared an Investigational New Drug application for CYT-500,
our
lead therapeutic candidate targeting PSMA. In February 2007, we
announced the initiation of the first U.S. Phase 1 clinical trial of CYT-500
in
patients with hormone-refractory prostate cancer. CYT-500 uses the same
monoclonal antibody from our PROSTASCINT molecular imaging agent, but is linked
through a higher affinity linker than is used for PROSTASCINT to a therapeutic
as opposed to an imaging radionuclide. This PSMA technology is still
in the early stages of development. We cannot assure you that we will
be able to commercialize this product in the future.
In
July
2004, as part of our continuing efforts to reduce non-strategic expenses, we
initiated the closure of facilities at our AxCell Biosciences
subsidiary. Research projects through academic, governmental and
corporate collaborators will continue to be supported and additional
applications for the intellectual property and technology at AxCell are being
pursued. We may be unable to further develop or commercialize any of
these products and technologies in the future.
Our
business is therefore subject to the risks inherent in an early-stage
biopharmaceutical business enterprise, such as the need:
|
|
Ÿ
|
to
obtain sufficient capital to support the expenses of developing our
technology and commercializing our
products;
|
|
|
Ÿ
|
to
ensure that our products are safe and
effective;
|
|
|
Ÿ
|
to
obtain regulatory approval for the use and sale of our
products;
|
|
|
Ÿ
|
to
manufacture our products in sufficient quantities and at a reasonable
cost;
|
|
|
Ÿ
|
to
develop a sufficient market for our products;
and
|
|
|
Ÿ
|
to
attract and retain qualified management, sales, technical and scientific
staff.
|
The
problems frequently encountered using new technologies and operating in a
competitive environment also may affect our business, financial condition and
results of operations. If we fail to properly address these risks and
attain our business objectives, our business could be significantly and
adversely affected.
All
of our potential oncology products will be subject to the risks of failure
inherent in the development of diagnostic or therapeutic products based on
new
technologies.
Product
development for cancer treatment involves a high degree of risk. The
product candidates we develop, pursue or offer may not prove to be safe and
effective, may not receive the necessary regulatory approvals, may be precluded
by proprietary rights of third parties or may not ultimately achieve market
acceptance. These product candidates will require substantial
additional investment, laboratory development, clinical testing and regulatory
approvals prior to their commercialization. We may experience
difficulties, such as the inability to agree with our collaborative partners
on
development, initiate clinical trials or receive timely regulatory approvals,
that could delay or prevent the successful development, introduction and
marketing of new products.
Before
we
obtain regulatory approvals for the commercial sale of any of our products
under
development, we must demonstrate through preclinical studies and clinical trials
that the product is safe and effective for use in each target
indication. The results from preclinical studies and early-stage
clinical trials may not be predictive of results that will be obtained in
large-scale, later-stage testing. Our clinical trials may not
demonstrate safety and efficacy of a proposed product, and therefore, may not
result in marketable products. A number of companies in our industry
have suffered significant setbacks in advanced clinical trials, even after
promising results in earlier trials. Clinical trials or marketing of
any potential diagnostic or therapeutic products may expose us to liability
claims for the use of these diagnostic or therapeutic products. We
may not be able to maintain product liability insurance or sufficient coverage
may not be available at a reasonable cost. In addition, internal
development of diagnostic or therapeutic products will require significant
investments in product development, marketing, sales and regulatory compliance
resources. We will also have to establish or contract for the
manufacture of products, including supplies of drugs used in clinical trials,
under the cGMP of the FDA. We cannot assure you that product issues
will not arise following successful clinical trials and FDA approval.
The
rate
of completion of clinical trials also depends on the rate of patient
enrollment. Patient enrollment depends on many factors, including the
size of the patient population, the nature of the protocol, the proximity of
patients to clinical sites and the eligibility criteria for the
study. Delays in planned patient enrollment may result in increased
costs and delays, which could have a harmful effect on our ability to develop
the products in our pipeline. If we are unable to develop and
commercialize products on a timely basis or at all, our business, financial
condition and results of operations could be significantly and adversely
affected.
Competition
in our field is intense and likely to increase.
All
of
our products and product candidates are subject to significant competition
from
organizations that are pursuing technologies and products that are the same
as
or similar to our technology and products. Many of the organizations
competing with us have greater capital resources, research and development
staffs and facilities and marketing capabilities.
We
face,
and will continue to face, intense competition from one or more of the following
entities:
|
|
Ÿ
|
pharmaceutical
companies;
|
|
|
Ÿ
|
biotechnology
companies;
|
|
|
Ÿ
|
diagnostic
companies;
|
|
|
Ÿ
|
medical
device companies;
|
|
|
Ÿ
|
radiopharmaceutical
distributors;
|
|
|
Ÿ
|
academic
and research institutions; and
|
|
|
Ÿ
|
government
agencies.
|
QUADRAMET
primarily competes with strontium-89 chloride in the radiopharmaceutical pain
palliation market. Strontium-89 chloride is manufactured and marketed
either as Metastron, by GE HealthCare, or in a generic form by Bio-Nucleonics
Pharma, Inc. GE HealthCare manufactures Metastron and sells the
product through its wholly-owned network of radiopharmacies, direct to end-users
and through other radiopharmacy distributors. The generic version is
distributed directly by the manufacturer or is sold through radiopharmacy
distributors such as Cardinal Health and AnazaoHealth (formerly Custom Care
Pharmacy).
Competitive
imaging modalities to PROSTASCINT include CT, MR imaging, and position emission
tomography (PET).
Additionally,
we face competition in the development of PSMA-related technology and products
primarily from Millennium Pharmaceuticals, Inc. and Medarex, Inc.
Currently,
there is limited consensus standard of care for oral mucositis supported by
clinical data and to date, there has only been one commercially available
prescription pharmaceutical product approved by the FDA for oral mucositis,
the
intravenous growth factor palifermin. Ice chips, local painkillers
and narcotics are also used to reduce the patient's pain and doctors routinely
prescribe mouthwashes containing traditional antibacterial and antifungal drugs
for the treatment of oral mucositis, although most clinical trials have shown
that they have suboptimal efficacy. There are also a number of oral
rinses that have been approved as medical devices by FDA for dry mouth; however,
CAPHOSOL is the only approved calcium phsophate oral rinse that is indicated
for
both oral mucositis and dry mouth.
The
current competitive treatments for SOLTAMOX include the tablet form of tamoxifen
citrate, a generic drug, and a class of drugs known as aromatase
inhibitors.
Before
we
recover development expenses for our products and technologies, the products
or
technologies may become obsolete as a result of technological developments
by
others or us.
Our
products could also be made obsolete by new technologies, which are less
expensive or more effective. We may not be able to make the
enhancements to our technology necessary to compete successfully with newly
emerging technologies and failure to do so could significantly and adversely
affect our business, financial condition and results of operations.
We
have limited sales, marketing and distribution capabilities for our
products.
We
have
established an internal sales force that is responsible for marketing and
selling CAPHOSOL, QUADRAMET, PROSTASCINT and SOLTAMOX. Although we
are continuing to expand our internal sales force, it still has limited sales,
marketing and distribution capabilities compared to those of many of our
competitors. If our internal sales force is unable to successfully
market CAPHOSOL, QUADRAMET, PROSTASCINT and SOLTAMOX, our business and financial
condition may be adversely affected. If we are unable to establish
and maintain significant sales, marketing and distribution efforts within the
United States, either internally or through arrangements with third parties,
our
business may be significantly and adversely affected. In locations
outside of the United States, we have not established a selling
presence. To the extent that our sales force, from time to time,
markets and sells additional products, we cannot be certain that adequate
resources or sales capacity will be available to effectively accomplish these
tasks.
Failure
of third party payors to provide adequate coverage and reimbursement for our
products could limit market acceptance and affect pricing of our products and
affect our revenues.
Sales
of
our products depend in part on the availability of favorable coverage and
reimbursement by governmental healthcare programs such as Medicare and Medicaid
as well as private health insurance plans. Each payor has its own
process and standards for determining whether and, if so, to what extent it
will
cover and reimburse a particular product or service. Whether and to
what extent a product may be deemed covered by a particular payor depends upon
a
number of factors, including the payor's determination that the product is
reasonable and necessary
for the diagnosis or treatment of the illness or injury for which it is
administered according to accepted standards of medical practice, cost
effective, not experimental or investigational, not found by the FDA to be
less
than effective, and not otherwise excluded from coverage by law, regulation,
or
contract. There may be significant delays in obtaining coverage for
newly-approved products, and coverage may not be available or could be more
limited than the purposes for which the product is approved by the
FDA.
Moreover,
eligibility for coverage does not imply that any product will be reimbursed
in
all cases or at a rate that allows us to make a profit or even cover our costs,
which include, for example, research, development, production, sales, and
distribution costs. Interim payments for new products, if applicable,
also may not be sufficient to cover our costs and may not be made
permanent. Reimbursement rates may vary according to the use of the
product and the clinical setting in which it is used, may be based on payments
allowed for lower-cost products that are already reimbursed, may be incorporated
into existing payments for other products or services, and may reflect budgetary
constraints and/or imperfections in Medicare or Medicaid data. Net
prices for products may be reduced by mandatory discounts or rebates required
by
government healthcare programs, or other payors, or by any future relaxation
of
laws that restrict imports of
certain
medical products from countries where they may be sold at lower prices than
in
the United States.
Third
party payors often follow Medicare coverage policy and payment limitations
in
setting their own coverage policies and reimbursement rates, and may have
sufficient market power to demand significant price reductions. Even
if successful, securing coverage at adequate reimbursement rates from government
and third party payors can be a time consuming and costly process that could
require us to provide supporting scientific, clinical and cost-effectiveness
data for the use of our products among other data and materials to each
payor. Our inability to promptly obtain favorable coverage and
profitable reimbursement rates from government-funded and private payors for
our
products could have a material adverse effect on our business, financial
condition and results of operations, and our ability to raise capital needed
to
commercialize products.
Our
business, financial condition and results of operations will continue to be
affected by the efforts of governmental and third-party payors to contain or
reduce the costs of healthcare. There have been, and we expect that
there will continue to be, a number of federal and state proposals to regulate
expenditures for medical products and services, which may affect payments for
therapeutic and diagnostic imaging agents such as our products. In
addition, an emphasis on managed care increases possible pressure on the pricing
of these products. While we cannot predict whether these legislative
or regulatory proposals will be adopted, or the effects these proposals or
managed care efforts may have on our business, the announcement of these
proposals and the adoption of these proposals or efforts could affect our stock
price or our business. Further, to the extent these proposals or
efforts have an adverse effect on other companies that are our prospective
corporate partners, our ability to establish necessary strategic alliances
may
be harmed.
Our
business is subject to various government regulations and, if we are unable
to
obtain regulatory approval, we may not be able to continue our
operations.
At
present, the U.S. federal government regulation of biotechnology is divided
among three agencies:
|
|
Ÿ
|
the
USDA regulates the import, field testing and interstate movement
of
specific types of genetic engineering that may be used in the creation
of
transgenic plants;
|
|
|
Ÿ
|
the
EPA regulates activity related to the invention of plant pesticides
and
herbicides, which may include certain kinds of transgenic plants;
and
|
|
|
Ÿ
|
the
FDA regulates foods derived from new plant
varieties.
|
The
FDA
requires that transgenic plants meet the same standards for safety that are
required for all other plants and foods in general. Except in the
case of additives that significantly alter a food's structure, the FDA does
not
require any additional standards or specific approval for genetically engineered
foods, but expects transgenic plant developers to consult the FDA before
introducing a new food into the marketplace.
Use
of
our technology, if developed for human health applications, will also be subject
to FDA regulation. The FDA must approve any drug or biologic product
before it can be marketed in the United States. In addition, prior to
being sold outside of the U.S., any products resulting from the application
of
our human health technology must be approved by the regulatory agencies of
foreign governments. Prior to filing a new drug application or
biologics license application with the FDA, we would have to perform extensive
clinical trials, and prior to beginning any clinical trial, we need to perform
extensive preclinical testing which could take several years and may require
substantial expenditures.
We
believe that our current activities, which to date have been confined to
research and development efforts, do not require licensing or approval by any
governmental regulatory agency. However, federal, state and foreign
regulations relating to crop protection products and human health applications
developed through biotechnology are subject to public concerns and political
circumstances, and, as a result, regulations have changed and may change
substantially in the future. Accordingly, we may become subject to
governmental regulations or approvals or become subject to licensing
requirements in connection with our research and development
efforts. We may also be required to obtain such licensing or approval
from the governmental regulatory agencies described above, or from state
agencies, prior to the commercialization of our genetically transformed plants
and human health technology. In addition, our marketing partners who
utilize our technology or sell products grown with our technology may be subject
to government regulations. If unfavorable governmental regulations
are imposed on our technology or if we fail to obtain licenses or approvals
in a
timely manner, we may not be able to continue our operations.
Preclinical
studies and clinical trials of our human health applications may be
unsuccessful, which could delay or prevent regulatory
approval.
Preclinical
studies may reveal that our human health technology is ineffective or harmful,
and/or clinical trials may be unsuccessful in demonstrating efficacy and safety
of our human health technology, which would significantly limit the possibility
of obtaining regulatory approval for any drug or biologic product manufactured
with our technology. The FDA requires submission of extensive
preclinical, clinical and manufacturing data to assess the efficacy and safety
of potential products. Furthermore, the success of preliminary
studies does not ensure commercial success, and later-stage clinical trials
may
fail to confirm the results of the preliminary studies.
Even
if we receive regulatory approval, consumers may not accept products containing
our technology, which will prevent us from being profitable since we have no
other source of revenue.
We
cannot
guarantee that consumers will accept products containing our
technology. Recently, there has been consumer concern and consumer
advocate activism with respect to genetically engineered consumer
products. The adverse consequences from heightened consumer concern
in this regard could affect the markets for products developed with our
technology and could also result in increased government regulation in response
to that concern. If the public or potential customers perceive our
technology to be genetic modification or genetic engineering, agricultural
products grown with our technology may not gain market acceptance.
Increasing
political and social turmoil, such as terrorist and military actions, increase
the difficulty for us and our strategic partners to forecast accurately and
plan
future business activities.
Recent
political and social turmoil, including the conflict in Iraq and the current
crisis in the Middle East, can be expected to put further pressure on economic
conditions in the United States and worldwide. These political,
social and economic conditions may make it difficult for us to plan future
business activities.
We
depend on attracting and retaining key personnel.
We
are
highly dependent on the principal members of our management and scientific
staff. The loss of their services might significantly delay or
prevent the achievement of development or strategic objectives. Our
success depends on our ability to retain key employees and to attract additional
qualified employees. Competition for personnel is intense, and
therefore we may not be able to retain existing personnel or attract and retain
additional highly qualified employees in the future.
We
do not
carry key person life insurance policies and we do not typically enter into
long-term arrangements with our key personnel. If we are unable to
hire and retain personnel in key positions, our business, financial condition
and results of operations could be significantly and adversely affected unless
qualified replacements can be found.
Our
business exposes us to product liability claims that may exceed our financial
resources, including our insurance coverage, and may lead to the curtailment
or
termination of our operations.
Our
business is subject to product liability risks inherent in the testing,
manufacturing and marketing of our products and product liability claims may
be
asserted against us, our collaborators or our licensees. While we
currently maintain product liability insurance in the amount of $10.0 million,
such coverage may not be adequate to protect us against future product liability
claims. In addition, product liability insurance may not be available
to us in the future on commercially reasonable terms, if at
all. Although we have not had a history of claims payments that have
exceeded our insurance coverage or available financial resources, if liability
claims against us exceed our financial resources or coverage amounts, we may
have to curtail or terminate our operations. In addition, while we
currently maintain directors and officers liability insurance in the amount
of
$25.0 million and an additional $5.0 million of personal liability coverage
for
directors and officers, such coverage may not be available on commercially
reasonable terms or be adequate to cover any claims that we may be required
to
satisfy in the future. Our insurance coverage is subject to industry
standard and certain other limitations.
Our
security measures may not adequately protect our unpatented technology and,
if
we are unable to protect the confidentiality of our proprietary information
and
know-how, the value of our technology may be adversely
affected.
Our
success depends upon know-how, unpatentable trade secrets, and the skills,
knowledge and experience of our scientific and technical
personnel. As a result, we require all employees to agree to a
confidentiality provision that prohibits the disclosure of confidential
information to anyone outside of our company, during the term of employment
and
thereafter. We also require all employees to disclose and assign to
us the rights to their ideas, developments, discoveries and
inventions. We also attempt to enter into similar agreements with our
consultants, advisors and research collaborators. We cannot assure
you that adequate protection for our trade secrets, know-how or other
proprietary information against unauthorized use or disclosure will be
available.
We
occasionally provide information to research collaborators in academic
institutions and request the collaborators to conduct certain
tests. We cannot assure you that the academic institutions will not
assert intellectual property rights in the results of the tests conducted by
the
research collaborators, or that the academic institutions will grant licenses
under such intellectual property rights to us on acceptable terms, if at
all. If the assertion of intellectual property rights by an academic
institution is substantiated, and the academic institution does not grant
intellectual property rights to us, these events could limit our ability to
commercialize our technology.
We
expect to raise additional capital, which may not be
available.
Our
cash
and cash equivalents were $32.5 million at December 31, 2006. We
expect that our existing capital resources along with the receipt of the $4.0
million settlement from Advanced
Magnetics, Inc. in the first quarter of 2007 should be adequate to fund our
operations and commitments into 2008.
We
have
incurred negative cash flows from operations since our inception and have
expended, and expect to continue to expend in the future, substantial funds
based upon the:
|
|
Ÿ
|
success
of our product commercialization
efforts;
|
|
|
Ÿ
|
success
of any future acquisitions of complementary products and technologies
we
may make;
|
|
|
Ÿ
|
magnitude,
scope and results of our product development and research and development
efforts;
|
|
|
Ÿ
|
progress
of preclinical studies and clinical
trials;
|
|
|
Ÿ
|
progress
toward regulatory approval for our
products;
|
|
|
Ÿ
|
costs
of filing, prosecuting, defending and enforcing patent claims and
other
intellectual property rights;
|
|
|
Ÿ
|
competing
technological and market developments;
and
|
|
|
Ÿ
|
expansion
of strategic alliances for the sale, marketing and distribution of
our
products.
|
Our
business or operations may change in a manner that would consume available
resources more rapidly than anticipated. We expect that we will have
additional requirements for debt or equity capital, irrespective of whether
and
when we reach profitability, for further product development costs, product
and
technology acquisition costs and working capital. To the extent that
our currently available funds and revenues are insufficient to meet current
or
planned operating requirements, we will be required to obtain additional funds
through equity or debt financing, strategic alliances with corporate partners
and others, or through other sources. These financial sources may not
be available when we need them or they may be available, but on terms that
are
not commercially acceptable to us. If adequate funds are not
available, we may be required to delay, scale back or eliminate certain aspects
of our operations or attempt to obtain funds through arrangements with
collaborative partners or others that may require us to relinquish rights to
certain of our technologies, product candidates, products or potential
markets. If adequate funds are not available, our business, financial
condition and results of operations will be materially and adversely
affected.
Our
capital raising efforts may dilute stockholder interests.
If
we
raise additional capital by issuing equity securities or convertible debentures,
such issuance will result in ownership dilution to our existing stockholders,
and new investors could have rights superior to those of our existing
stockholders. The extent of such dilution will vary based
upon
the amount of capital raised.
We
may need to raise funds other than through the issuance of equity
securities.
If
we
raise additional funds through collaborations and licensing arrangements, we
may
be required to relinquish rights to certain of our technologies or product
candidates or to grant licenses on unfavorable terms. If we
relinquish rights or grant licenses on unfavorable terms, we may not be able
to
develop or market products in a manner that is profitable to us.
Our
stockholders may experience substantial dilution as a result of the exercise
of
outstanding options and warrants to purchase our common stock.
As
of
December 31, 2006, stock options and warrants to purchase 8,893,212 shares
of
our common stock were outstanding. In addition, as of December 31,
2006, we have 343,900 nonvested shares outstanding and have reserved an
additional 1,949,494 shares of our common stock for future issuance of options
granted pursuant to our 2006 Equity Compensation Plan, 2004 Stock Incentive
Plan, 2004 Non-Employee Director Stock Incentive Plan and 2005 Employee Stock
Purchase Plan. The exercise of these options and warrants and vesting
of nonvested shares will result in dilution to our existing stockholders and
could have a material adverse effect on our stock price.
The
following table summarizes information about outstanding warrants to purchase
our common stock at December 31, 2006:
|
Exercise
Price
|
Outstanding
Warrants
|
Aggregate
Exercise Price
|
|||||||||
| $ |
3.32
|
3,546,107
|
$ |
11,773,075
|
|||||||
|
|
$ |
4.25
|
|
1,118,868
|
$ |
4,755,189
|
|||||
|
|
$
|
6.00
|
776,096
|
$ |
4,656,576
|
||||||
|
$
|
6.91
|
315,790
|
$ |
2,182,108
|
|||||||
|
$
|
10.97
|
250,000
|
$ |
2,742,500
|
|||||||
| $ |
12.80
|
1,272,332
|
$ |
16,285,850
|
|||||||
The
warrants exercisable at $10.97 per share and $12.80 per share become
automatically exercised, in full, if our common stock trades for 30 consecutive
trading days at 130% of the respective exercise prices.
A
significant portion of our total outstanding shares of common stock may be
sold
in the market in the near future, which could cause the market price of our
common stock to drop significantly.
As
of
December 31, 2006, we had 29,605,631 shares of our common stock issued and
outstanding, all of which are either eligible to be sold under SEC Rule 144
or
are in the public float. In addition, we have registered shares of
our Common Stock underlying warrants previously issued on numerous Form S-3
registration statements, and we have also registered shares of our common stock
underlying options granted or to be granted under our stock option plans. Consequently,
sales of substantial amounts of our common stock in the public market, or the
perception that such sales could occur, may have a material adverse effect
on
our stock price.
Our
common stock has a limited trading market, which could limit your ability to
resell your shares of common stock at or above your purchase
price.
Our
common stock is quoted on the NASDAQ Global Market and currently has a limited
trading market. The NASDAQ Global Market requires us to meet minimum
financial requirements in order to maintain our listing. Currently,
we believe that we meet the continued listing requirements of the NASDAQ Global
Market. We cannot assure you that an active trading market will
develop or, if developed, will be maintained. As a result, our
stockholders
may
find
it difficult to dispose of shares of our common stock and, as a result, may
suffer a loss of all or a substantial portion of their investment.
Our
common stock may be subject to the "penny stock" regulations which may affect
the ability of our stockholders to sell their shares.
The
NASDAQ Global Market requires us to meet minimum financial requirements in
order
to maintain our listing. Currently, we believe we meet the continued
listing requirements of the NASDAQ Global Market. If we do not
continue to meet the continued listing requirements, we could be
delisted. If we are delisted from the NASDAQ Global Market, our
common stock likely will become a "penny stock." In general, regulations of
the
SEC define a "penny stock" to be an equity security that is not listed on a
national securities exchange or the NASDAQ Stock Market and that has a market
price of less than $5.00 per share or with an exercise price of less than $5.00
per share, subject to certain exceptions. If our common stock becomes
a penny stock, additional sales practice requirements would be imposed on
broker-dealers that sell such securities to persons other than certain qualified
investors. For transactions involving a penny stock, unless exempt, a
broker-dealer must make a special suitability determination for the purchaser
and receive the purchaser's written consent to the transaction prior to the
sale. In addition, the rules on penny stocks require delivery, prior
to and after any penny stock transaction, of disclosures required by the
SEC.
If
our
common stock were subject to the rules on penny stocks, the market liquidity
for
our common stock could be severely and adversely
affected. Accordingly, the ability of holders of our common stock to
sell their shares in the secondary market may also be adversely
affected.
The
liquidity of our common stock could be adversely affected if we are delisted
from the NASDAQ Global Market.
In
the
event that we are unable to maintain compliance with all relevant NASDAQ Listing
Standards, our securities may be subject to delisting from the NASDAQ Global
Market. If such delisting occurs, the market price and market
liquidity of our common stock may be adversely affected. Such listing
standards include, among other things, requirements related to the market value
of our listed securities and publicly-held shares, and the minimum bid price
for
such shares. The minimum bid requirement is $1.00 per
share. On March 14, 2007, the closing sale price of our common stock
as reported by NASDAQ was $2.05.
If
faced
with delisting, we may submit an application to transfer the listing of our
common stock to the NASDAQ Capital Market. Alternatively, if our
common stock is delisted by NASDAQ, our common stock would be eligible to trade
on the OTC Bulletin Board maintained by NASDAQ, another over-the-counter
quotation system, or on the pink sheets where an investor may find it more
difficult to dispose of or obtain accurate quotations as to the market value
of
our common stock. In addition, we would be subject to a rule
promulgated by the Securities and Exchange Commission that, if we fail to meet
criteria set forth in such rule, imposes various practice requirements on
broker-dealers who sell securities governed by the rule to persons other than
established customers and accredited investors. Consequently, such
rule
may
deter
broker-dealers from recommending or selling our common stock, which may further
affect the liquidity of our common stock.
Delisting
from NASDAQ would make trading our common stock more difficult for investors,
potentially leading to further declines in our share price. It would
also make it more difficult for us to raise additional
capital. Further, if we are delisted, we would also incur additional
costs under state blue sky laws in connection with any sales of our
securities. These requirements could severely limit the market
liquidity of our common stock and the ability of our shareholders to sell our
common stock in the secondary market.
Because
we do not intend to pay, and have not paid, any cash dividends on our shares
of
common stock, our stockholders will not be able to receive a return on their
shares unless the value of our common stock appreciates and they sell their
shares.
We
have
never paid or declared any cash dividends on our common stock and we intend
to
retain any future earnings to finance the development and expansion of our
business. We do not anticipate paying any cash dividends on our
common stock in the foreseeable future. Therefore, our stockholders
will not be able to receive a return on their investment unless the value of
our
common stock appreciates and they sell their shares.
We
could be negatively impacted by future interpretation or implementation of
federal and state fraud and abuse laws, including anti-kickback laws, false
claims laws and federal and state anti-referral laws.
We
are
subject to various federal and state laws pertaining to health care fraud and
abuse, including anti-kickback laws, false claims laws and physician
self-referral laws. Violations of these laws are punishable by
criminal and/or civil sanctions, including, in some instances, imprisonment
and
exclusion from participation in federal and state health care programs,
including Medicare, Medicaid, and veterans' health programs. We have
not been challenged by a governmental authority under any of these laws and
believe that our operations are in compliance with such laws.
However,
because of the far-reaching nature of these laws, we may be required to alter
one or more of our practices to be in compliance with these
laws. Health care fraud and abuse regulations are complex, and even
minor, inadvertent irregularities can potentially give rise to claims that
the
law has been violated. Any violations of these laws could result in a
material
adverse
effect on our business, financial condition and results of
operations. If there is a change in law, regulation or administrative
or judicial interpretations, we may have to change our business practices or
our
existing business practices could be challenged as unlawful, which could have
a
material adverse effect on our business, financial condition and results of
operations.
We
could
become subject to false claims litigation under federal or state statutes,
which
can lead to civil money penalties, criminal fines and imprisonment, and/or
exclusion from participation in federal health care programs. These
false claims statutes include the federal False Claims Act, which allows any
person to bring suit alleging the false or fraudulent
submission
of claims for payment under federal programs or other violations of the statute
and to share in any amounts paid by the entity to the government in fines or
settlement. Such suits, known as qui tam actions, have increased
significantly in recent years and have increased the risk that companies like
us
may have to defend a false claim action. We could also become subject
to similar false claims litigation under state statutes. If we are
unsuccessful in defending any such action, such action may have a material
adverse effect on our business, financial condition and results of operations.
The
healthcare fraud and abuse laws to which we are subject include the following,
among others:
Federal
and State Anti-Kickback Laws and Safe Harbor Provisions. The
federal anti-kickback law makes it a felony to knowingly and willfully offer,
or
pay remuneration "to induce" a person to refer an individual or to recommend
or
arrange for the purchase, lease or ordering of any item or service for which
payment may be made under the Medicare or state healthcare
programs. The anti-kickback prohibitions apply regardless of whether
the remuneration is provided directly or indirectly, in cash or in
kind. Interpretations of the law have been very
broad. Under current law, courts and federal regulatory authorities
have stated that this law is violated if even one purpose, as opposed to the
sole or primary purpose, of the arrangement is to induce
referrals. Violations of the anti-kickback law carry potentially
severe penalties including imprisonment of up to five years, criminal fines,
civil money penalties and exclusion from the Medicare and Medicaid
programs.
The
U.S.
Department of Health and Human Services Office of Inspector General, or OIG,
has
published "safe harbors" that exempt some arrangements from enforcement action
under the anti-kickback statute. These statutory and regulatory safe
harbors protect various bona fide employment relationships, personal service
arrangements, certain discount arrangements, among other things, provided that
certain conditions set forth in the statute and regulations are
satisfied. The safe harbor regulations, however, do not
comprehensively describe all lawful arrangements, and the failure of an
arrangement to satisfy all of the requirements of a particular safe harbor
does
not mean that the arrangement is unlawful. Failure to comply with the
safe harbor provisions, however, may mean that the arrangement will be subject
to scrutiny by the OIG.
Many
states have adopted similar prohibitions. Some of these state laws
lack specific "safe harbors" that may be available under federal
law. Sanctions under these state anti-kickback laws
may
include civil money penalties, license suspension or revocation, exclusion
from
Medicare or Medicaid, and criminal fines or imprisonment.
We
believe that our contracts and arrangements are not in violation of applicable
anti-kickback or related laws. We cannot assure you, however, that
these laws will ultimately be interpreted in a manner consistent with our
practices.
False
Claims Acts. We are subject to state and federal laws that
govern the submission of claims for reimbursement. The Federal Civil
False Claims Act imposes civil liability on individuals or entities that submit,
or "cause" to be submitted, false or fraudulent claims for payment to the
government. Violations of the Civil False Claims Act may result in
treble
damages,
civil monetary penalties for each false claim submitted and exclusion from
the
Medicare and Medicaid programs. In addition, we could be subject to
criminal penalties under a variety of federal statutes to the extent that
we
knowingly violate legal requirements under federal health programs or otherwise
present or cause the presentation of false or fraudulent claims or documentation
to the government. In addition, the OIG may impose extensive and costly
corporate integrity requirements upon entities and individuals subject
to a
false claims judgment or settlement. These requirements may include
the creation of a formal compliance program, the appointment of an independent
review organization, and the imposition of annual reporting requirements
and
audits conducted by an independent review organization to monitor compliance
with the terms of the agreement and relevant laws and
regulations.
The
Federal Civil False Claims Act also allows a private individual to bring a
"qui
tam" suit on behalf of the government for violations of the Civil False Claims
Act, and if successful, the "qui tam" relator shares in the government's
recovery. A qui tam suit may be brought by, with only a few
exceptions, any private citizen who has material information of a false claim
that has not yet been previously disclosed. Recently, the number of
qui tam suits brought in the healthcare industry has increased
dramatically. In addition, several states have enacted laws modeled
after the Federal Civil False Claims Act.
Civil
Monetary Penalties. The Civil Monetary Penalties Statute states
that civil penalties ranging between $10,000 and $50,000 per claim or act may
be
imposed on any person or entity that knowingly submits, or causes the submission
of, improperly filed claims for federal health benefits, or makes payments
to
induce a beneficiary or provider to reduce or limit the use of healthcare
services or to use a particular provider or supplier. Civil monetary
penalties may be imposed for violations of the anti-kickback statute and for
the
failure to return known overpayments, among other things.
Prohibition
on Employing or Contracting with Excluded Providers. The Social
Security Act and federal regulations state that individuals or entities that
have been convicted of a criminal offense related to the delivery of an item
or
service under the Medicare or Medicaid programs or that have been convicted,
under state or federal law, of a criminal offense relating to neglect or abuse
of residents in connection with the delivery of a healthcare item or service
cannot participate in any federal healthcare programs, including Medicare and
Medicaid.
Health
Insurance Portability and Accountability Act of 1996. HIPAA
created new healthcare related crimes, and granted authority to the Secretary
of
the Department of Health and Human Services, or HHS, to impose certain civil
penalties. Particularly, the Secretary may now exclude from Medicare
any individual with a direct or indirect ownership interest in an entity
convicted of healthcare fraud or excluded from the program. Under
HIPAA and other healthcare laws, it is a crime to knowingly and willfully commit
a healthcare fraud, and knowingly and willfully falsify, or conceal material
information or make any materially false or fraudulent statements in connection
with claims and payment for healthcare services by a healthcare benefit
plan. HIPAA also created new programs to control fraud and abuse, and
requires new investigations, audits and inspections.
We
believe that our operations materially comply with applicable regulatory
requirements. We cannot assure you of the outcome of any inquiry
audit or investigation undertaken by HHS, OIG or DOJ. If we are ever
found to have engaged in improper practices, we could be subjected to civil,
administrative or criminal fines, penalties or restitutionary relief, and
suspension or exclusion of the entity or individuals from participation in
federal and state healthcare programs.
Patient
Information and Privacy. HIPAA also mandates, among other
things, the establishment of regulatory standards addressing the electronic
exchange of health information, standards for the privacy and security of health
information maintained or exchanged electronically, and standards for assigning
unique health identifiers to healthcare providers. Sanctions for
failure to comply with HIPAA standards include civil and criminal
penalties. The Security Standards require us to implement certain
security measures to protect certain individually identifiable health
information, called protected health information, or PHI, in electronic
format. The Standards for Privacy of Individually Identifiable
Information restrict use and disclosure of PHI unless patient authorization
for
such disclosures are obtained. These Privacy Standards not only
require our compliance with standards restricting the use and disclosure of
PHI,
but also require us to obtain satisfactory assurances that any business
associate of ours who has access to our PHI similarly will safeguard such
PHI.
We
have
evaluated these rules to determine the effects of the rules on our business,
and
we believe that we have taken the appropriate steps to ensure that we will
comply with these standards in all material respects by their respective
compliance deadlines.
Our
business involves environmental risks that may result in
liability.
We
are
subject to a variety of local, state, federal and foreign government regulations
relating to storage, discharge, handling, emission, generation, manufacture
and
disposal of toxic, infectious or other hazardous substances used to manufacture
our products. If we fail to comply with these regulations, we could
be liable for damages, penalties, or other forms of censure and our business
could be significantly and adversely affected. We currently do not
carry insurance for contamination or injury resulting from the use of such
materials.
PROSTASCINT
and QUADRAMET utilize radioactive materials. PROSTASCINT is not
manufactured or shipped as a radioactive material because the radioactive
component is not added
until the product has arrived at its final destination (a
radiopharmacy). Laureate Pharma, our contract manufacturer of
PROSTASCINT, holds a radioactive materials license because such license is
required for certain release and stability tests of the product.
QUADRAMET,
however, is manufactured and shipped as radioactive, and therefore, the
manufacturing and distribution of this product must comply with regulations
promulgated by the U.S. Nuclear Regulatory Commission. BMSMI
manufacturers and distributes QUADRAMET, and is, therefore, subject to these
regulations.
We
have been and, in the future, may be subject to patent
litigation.
On
March
17, 2000, we were served with a complaint filed against us in the United States
District Court for the District of New Jersey by M. David Goldenberg and
Immunomedics, Inc. The litigation claimed that our PROSTASCINT
product infringes a patent purportedly owned by Goldenberg and licensed to
Immunomedics. We believe that PROSTASCINT did not infringe this
patent, and that the patent was invalid and unenforceable. In June
2004, the U.S. Court of Appeals for the Federal Circuit affirmed the district
court's grant of summary judgment of no literal
infringement. Regarding infringement under the doctrine of
equivalents, however, the U.S. Court of Appeals for the Federal Circuit
disagreed with the district court's conclusion that there was no issue of
material fact and reversed the district court's grant of summary judgment on
this point and remanded for further proceedings on the issue. In
September 2004, we settled the patent infringement suit for an undisclosed
payment, without any admission of fault or liability.
We
cannot
give any assurance that we will not become subject to additional patent
litigation in the future, which could result in material expenditures to
us.
Our
stock price has been and may continue to be volatile, and your investment in
our
stock could decline in value or fluctuate significantly.
The
market prices for securities of biotechnology and pharmaceutical companies
have
historically been highly volatile, and the market has from time to time
experienced significant price and volume fluctuations that are unrelated to
the
operating performance of particular companies. The market price of
our common stock has fluctuated over a wide range and may continue to fluctuate
for various reasons, including, but not limited to, announcements concerning
our
competitors or us regarding:
|
|
Ÿ
|
results
of clinical trials;
|
|
|
Ÿ
|
technological
innovations or new commercial
products;
|
|
|
Ÿ
|
changes
in governmental regulation or the status of our regulatory approvals
or
applications;
|
|
|
Ÿ
|
changes
in earnings;
|
|
|
Ÿ
|
changes
in health care policies and
practices;
|
|
|
Ÿ
|
developments
or disputes concerning proprietary
rights;
|
|
|
Ÿ
|
litigation
or public concern as to safety of the our potential products;
and
|
|
|
Ÿ
|
changes
in general market conditions.
|
These
fluctuations may be exaggerated if the trading volume of our common stock is
low. These fluctuations may or may not be based upon any of our
business or operating results. Our common stock may experience
similar or even more dramatic price and volume fluctuations which may continue
indefinitely.
We
have adopted various anti-takeover provisions which may affect the market price
of our common stock and prevent or frustrate attempts by our stockholders to
replace or remove our management team.
Our
Board
of Directors has the authority, without further action by the holders of common
stock, to issue from time to time, up to 5,400,000 shares of preferred stock
in
one or more classes or series, and to fix the rights and preferences of the
preferred stock. We have implemented a stockholder rights plan by
which one preferred stock purchase right is attached to each share of common
stock, as a means to deter coercive takeover tactics and to prevent an acquirer
from gaining control of us without some mechanism to secure a fair price for
all
of our stockholders if an acquisition was completed. These rights
will be exercisable if a person or group acquires beneficial ownership of 20%
or
more of our common stock and can be made exercisable by action of our Board
of
Directors if a person or group commences a tender offer which would result
in
such person or group beneficially owning 20% or more of our common
stock. Each right will entitle the holder to buy one one-thousandth
of a share of a new series of our junior participating preferred stock for
$20. If any person or group becomes the beneficial owner of 20% or
more of our common stock (with certain limited exceptions), then each right
not
owned by the 20% stockholder will entitle its holder to purchase, at the right's
then current exercise price, common shares having a market value of twice the
exercise price. In addition, if after any person has become a 20%
stockholder, we are involved in a merger or other business combination
transaction with another person, each right will entitle its holder (other
than
the 20% stockholder) to purchase, at the right's then current exercise price,
common shares of the acquiring company having a value of twice the right's
then
current exercise price.
We
are
subject to provisions of Delaware corporate law which, subject to certain
exceptions, will prohibit us from engaging in any "business combination" with
a
person who, together with affiliates and associates, owns 15% or more of our
common stock for a period of three years following the date that the person
came
to own 15% or more of our common stock unless the business combination is
approved in a prescribed manner.
These
provisions of the stockholder rights plan, our certificate of incorporation,
and
of Delaware law may have the effect of delaying, deterring or preventing a
change in control of Cytogen, may discourage bids for our common stock at a
premium over market price and may
adversely
affect the market price, and the voting and other rights of the holders, of
our
common stock. In addition, these provisions make it more difficult to
replace or remove our current management team in the event our stockholders
believe this would be in the best interest of the Company and our
stockholders.
|
|
|
Item
1B.
|
Not
applicable.
|
Item
2.
|
In
August
2002, we moved our main offices from 600 College Road East to 650 College Road
East in Princeton, New Jersey. On February 10, 2004, we entered into
an amendment to our existing sublease agreement for these premises to increase
the amount of space we occupy from approximately 11,500 square feet to
approximately 16,100 square feet. This amendment also extended the
expiration date of our sublease to October 2007, with a two year option to
renew
thereafter. In February 2007, we exercised the two year option to
renew our lease and extended the lease term through October 24,
2009. We intend to remain headquartered in Princeton, New Jersey for
the foreseeable future.
We
own
substantially all of the equipment used in our offices and we believe that
our
facilities are adequate for our operations at present.
In
January 2006, we filed a complaint against Advanced Magnetics in the
Massachusetts Superior Court for breach of contract, fraud, unjust enrichment,
and breach of the implied covenant of good faith and fair dealing in connection
with the parties' 2000 license agreement. The complaint sought
damages along with a request for specific performance requiring Advanced
Magnetics to take all reasonable steps to secure FDA approval of COMBIDEX® (ferumoxtran
-
10) in compliance with the terms of the licensing agreement. In
February 2006, Advanced Magnetics filed an answer to our complaint and asserted
various counterclaims, including tortuous interference, defamation, consumer
fraud and abuse of process.
In
February 2007, we settled our lawsuit against Advanced Magnetics, Inc., as
well
as Advanced Magnetics' counterclaims against Cytogen, by mutual
agreement. Under the settlement agreement, Advanced Magnetics paid us
$4 million and will release 50,000 shares of Cytogen common stock currently
being held in escrow. In addition, both parties agreed to early
termination of the 10-year license and marketing agreement and supply agreement
established in August 2000, as amended, for two imaging agents being developed
by Advanced Magnetics, COMBIDEX and ferumoxytol, previously Code
7228. The license and marketing agreement and supply agreement would
have expired in August 2010.
Not
applicable.
PART
II
|
Market
for the Company's Common Equity, Related Stockholder
Matters and Company Purchases of Equity
Securities
|
Our
common stock is traded on the NASDAQ Global Market (formerly the NASDAQ National
Market) under the trading symbol "CYTO."
The
table
below sets forth the high and low bid information for our common stock for
each
of the calendar quarters indicated, as reported on the Nasdaq Global
Market. Such quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual
transactions.
|
2006
|
High
|
Low
|
||||||
|
First
Quarter
|
$ |
3.62
|
$ |
2.75
|
||||
|
Second
Quarter
|
$ |
3.73
|
$ |
2.42
|
||||
|
Third
Quarter
|
$ |
2.58
|
$ |
1.91
|
||||
|
Fourth
Quarter
|
$ |
6.87
|
$ |
2.15
|
||||
|
2005
|
||||||||
|
First
Quarter
|
$ |
15.72
|
$ |
5.44
|
||||
|
Second
Quarter
|
$ |
5.95
|
$ |
3.46
|
||||
|
Third
Quarter
|
$ |
5.47
|
$ |
3.68
|
||||
|
Fourth
Quarter
|
$ |
4.09
|
$ |
2.71
|
||||
As
of
March 7, 2007, there were 2,185 holders of record of our common
stock.
We
have
never paid any cash dividends on our common stock and we do not anticipate
paying any cash dividends on our common stock in the foreseeable
future. We intend to retain any future earnings to fund the
development and growth of our business. Any future determination to
pay dividends will be at the discretion of our board of directors.
Stock
Performance Graph
The
following graph compares the cumulative total stockholder return on our common
stock with the cumulative total return the NASDAQ Composite Index, the NASDAQ
Biotechnology Index and the NASDAQ Pharmaceutical Index for a five-year period
ended December 31, 2006.
|
Company/Index
Name
|
12/01
|
12/02
|
12/03
|
12/04
|
12/05
|
12/06
|
||||||||||||||||||
|
CYTOGEN
Corporation
|
100.00
|
10.80
|
36.15
|
38.27
|
9.10
|
7.74
|
||||||||||||||||||
|
NASDAQ
Composite Index
|
100.00
|
68.85
|
101.86
|
112.16
|
115.32
|
127.52
|
||||||||||||||||||
|
NASDAQ
Biotechnology Index
|
100.00
|
62.08
|
90.27
|
99.08
|
111.81
|
110.06
|
||||||||||||||||||
|
NASDAQ
Pharmaceutical Index
|
100.00
|
64.40
|
92.31
|
100.78
|
113.36
|
115.84
|
The
Perfomance Graph and related information shall not be deemed “soliciting
material” or to be “filed” with the Securities and Exchange Commission, nor
shall such information be incorporated by reference into any future
filing under the Securities Act of 1933 or Securities Exchange Act of 1934,
each as amended, except to the extent that we specifically incorporate it by
reference into such filing.
The
following selected financial information has been derived from our audited
consolidated financial statements for each of the five years in the period
ended
December 31, 2006. The selected financial data set forth below should
be read in conjunction with the consolidated financial statements, including
the
notes thereto, "Management's Discussion and Analysis of Financial Condition
and
Results of Operations" and other information provided elsewhere in this
report.
|
Year
Ended December 31,
|
||||||||||||||||||||
|
2006
|
2005
|
2004
|
2003
|
2002
|
||||||||||||||||
|
Statements
of Operations Data:
|
(All
amounts in thousands, except per share data)
|
|||||||||||||||||||
|
Revenues:
|
||||||||||||||||||||
|
Product
revenues
|
$ |
17,296
|
$ |
15,757
|
$ |
14,480
|
$ |
9,823
|
$ |
10,626
|
||||||||||
|
Royalties
|
—
|
—
|
—
|
1,105
|
1,842
|
|||||||||||||||
|
License
and contract
|
11
|
189
|
139
|
2,914
|
463
|
|||||||||||||||
|
Total
revenues
|
17,307
|
15,946
|
14,619
|
13,842
|
12,931
|
|||||||||||||||
|
Operating
Expenses:
|
||||||||||||||||||||
|
Cost
of product related revenue
|
10,150
|
9,523
|
9,223
|
6,268
|
4,748
|
|||||||||||||||
|
Selling,
general and administrative
|
30,166
|
25,895
|
20,318
|
11,867
|
11,272
|
|||||||||||||||
|
Research
and development
|
7,301
|
6,162
|
3,292
|
2,342
|
7,580
|
|||||||||||||||
|
Equity
in loss of joint venture
|
120
|
3,175
|
2,896
|
3,452
|
2,886
|
|||||||||||||||
|
Impairment
of intangible assets(1)
|
—
|
—
|
—
|
115
|
1,729
|
|||||||||||||||
|
Total
operating expenses
|
47,737
|
44,755
|
35,729
|
24,044
|
28,215
|
|||||||||||||||
|
Operating
loss
|
(30,430 | ) | (28,809 | ) | (21,110 | ) | (10,202 | ) | (15,284 | ) | ||||||||||
|
Loss
on investment
|
—
|
—
|
—
|
—
|
(516 | ) | ||||||||||||||
|
Other
income (expense), net
|
1,415
|
598
|
263
|
(44 | ) |
101
|
||||||||||||||
|
Gain
on sale of equity interest in joint venture
|
12,873
|
—
|
—
|
—
|
—
|
|||||||||||||||
|
Decrease
in value of warrant liabilitites
|
1,039
|
1,666
|
—
|
—
|
—
|
|||||||||||||||
|
Loss
before income taxes
|
(15,103 | ) | (26,545 | ) | (20,847 | ) | (10,246 | ) | (15,699 | ) | ||||||||||
|
Income
tax benefit
|
—
|
(256 | ) | (307 | ) | (888 | ) |
—
|
||||||||||||
|
Net
loss
|
$ | (15,103 | ) | $ | (26,289 | ) | $ | (20,540 | ) | $ | (9,358 | ) | $ | (15,699 | ) | |||||
|
Basic
and diluted net loss per share
|
$ | (0.64 | ) | $ | (1.54 | ) | $ | (1.40 | ) | $ | (0.92 | ) | $ | (1.85 | ) | |||||
|
Weighted-average
common shares outstanding, basic and diluted
|
23,494
|
17,117
|
14,654
|
10,205
|
8,466
|
|||||||||||||||
|
December
31,
|
||||||||||||||||||||
|
Consolidated
Balance Sheet Data:
|
2006
|
2005
|
2004
|
2003
|
2002
|
|||||||||||||||
|
(in
thousands)
|
||||||||||||||||||||
|
Cash,
cash equivalents and short-term investments
|
$ |
32,507
|
$ |
30,337
|
$ |
35,825
|
$ |
30,215
|
$ |
14,725
|
||||||||||
|
Total
assets
|
54,353
|
44,790
|
50,413
|
43,695
|
19,894
|
|||||||||||||||
|
Warrant
liabilities
|
6,464
|
1,869
|
—
|
—
|
—
|
|||||||||||||||
|
Other
long-term
liabilities
|
59
|
46
|
47
|
2,454
|
2,614
|
|||||||||||||||
|
Accumulated
deficit
|
(427,670 | ) | (412,567 | ) | (386,278 | ) | (365,738 | ) | (356,380 | ) | ||||||||||
|
Stockholders'
equity
|
37,662
|
37,578
|
40,030
|
36,040
|
10,588
|
|||||||||||||||
_________
(1)
Reflects a
non-cash charge to write off the carrying value of the licensing fees associated
with NMP22 BLADDERCHEK in 2003 and BRACHYSEED in 2002.
|
|
|
Item
7.
|
Management's
Discussion and Analysis of Financial Condition and
Results of Operations
|
Cautionary
Statement
This
Annual Report on Form 10-K contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 and Section
21E
of the Securities Exchange Act of 1934, as amended. These
forward-looking statements regarding future events and our future results are
based on current expectations, estimates, forecasts, and projections and the
beliefs and assumptions of our management including, without limitation, our
expectations regarding results of operations, selling, general and
administrative expenses, research and development expenses and the sufficiency
of our cash for future operations. Forward-looking statements may be
identified by the use of forward-looking terminology such as "may," "will,"
"expect," "estimate," "anticipate," "continue," or similar terms, variations
of
such terms or the negative of those terms. These forward-looking
statements include statements regarding growth and market penetration for
CAPHOSOL, QUADRAMET, PROSTASCINT and SOLTAMOX, increased expenses resulting
from
our sales force and marketing expansion, including sales and marketing expenses
for CAPHOSOL, PROSTASCINT, QUADRAMET and SOLTAMOX, the sufficiency of our
capital resources and supply of products for sale, the continued cooperation
of
our contractual and collaborative partners, our need for additional capital
and
other statements included in this Annual Report on Form 10-K that are not
historical facts. Such forward-looking statements involve a number of
risks and uncertainties and investors are cautioned not to put any undue
reliance on any forward-looking statement. We cannot guarantee that
we will actually achieve the plans, intentions or expectations disclosed in
any
such forward-looking statements. Factors that could cause actual
results to differ materially, include, our ability to launch a new product,
market acceptance of our products, the results of our clinical trials, our
ability to hire and retain employees, economic and market conditions generally,
our receipt of requisite regulatory approvals for our products and product
candidates, the continued
cooperation
of our marketing and other collaborative and strategic partners, our ability
to
protect our intellectual property, and the other risks identified under Item
1A
"Risk Factors" in this Annual Report on Form 10-K, and those under the caption
"Risk Factors," as included in certain of our other filings, from time to time,
with the Securities and Exchange Commission.
Any
forward-looking statements made by us do not reflect the potential impact of
any
future acquisitions, mergers, dispositions, joint ventures or investments we
may
make. We do not assume, and specifically disclaim, any obligation to
update any forward-looking statements, and these statements represent our
current outlook only as of the date given.
The
following discussion and analysis should be read in conjunction with the
consolidated financial statements and related notes thereto contained elsewhere
herein, as well as from time to time in our other filings with the Securities
and Exchange Commission.
Overview
We
are a
specialty pharmaceutical company dedicated to advancing the treatment and care
of cancer patients by building, developing, and commercializing a portfolio
of
oncology products for underserved markets where there are unmet
needs. Our product portfolio includes four oncology products approved
by the FDA, CAPHOSOL, QUADRAMET, PROSTASCINT, and SOLTAMOX, which are marketed
solely by our specialized sales force to the U.S. oncology
market. We introduced our fourth product, CAPHOSOL, in the first
quarter of 2007. CAPHOSOL is an electrolyte solution for the
treatment of oral mucositis and dry mouth that was approved as a prescription
medical device. QUADRAMET is approved for the treatment of pain in
patients whose cancer has spread to the bone. SOLTAMOX, which
we introduced in the second half of 2006, is the first liquid hormonal
therapy approved in the U.S. for the treatment of breast cancer in adjuvant
and
metastatic settings. PROSTASCINT is a PSMA-targeting monoclonal
antibody-based agent to image the extent and spread of prostate
cancer. Currently, our clinical development initiatives are focused
on new indications for QUADRAMET and PROSTASCINT, as well our product candidate,
CYT-500, a radiolabeled antibody in Phase 1 development for the treatment of
prostate cancer.
Significant
Events in 2006
Cytogen
Announces that FDA Clears IND for CYT-500, a Monoclonal Antibody for the
Treatment of Metastatic Hormone-Refractory Prostate Cancer
On
May 8,
2006, we announced that the U.S. Food and Drug Administration cleared an
Investigational New Drug application for CYT-500, our lead therapeutic candidate
targeting PSMA. We expect to begin the first U.S. Phase 1 clinical
trial of CYT-500 in patients with hormone-refractory prostate cancer, subject
to
Institutional Review Board (IRB) approval at the planned clinical
site. CYT-500 uses the same monoclonal antibody from our PROSTASCINT
molecular imaging agent, but is linked through a higher affinity linker than
is
used for PROSTASCINT to a therapeutic as opposed to an imaging
radionuclide. This novel product candidate is designed to enable
targeted delivery of a cytotoxic agent to PSMA-expressing cells.
We
retain
full and exclusive development rights to CYT-500. In February 2007,
we announced the initiation of the first human clinical study of
CYT-500.
Cytogen
Sells Ownership in PSMA Development Joint Venture to Progenics
On
April
20, 2006, we entered into a Membership Interest Purchase Agreement with
Progenics providing for the sale to Progenics of our 50% ownership interest
in
PDC, our joint venture with Progenics for the development of in vivo
cancer immunotherapies based on PSMA. In addition, we entered into an
Amended and Restated PSMA/PSMP License Agreement with Progenics and PDC pursuant
to which we licensed PDC certain rights in PSMA technology. Under the
terms of such agreements, we sold our 50% interest in PDC for a cash payment
of
$13.2 million, potential future milestone payments totaling up to $52.0 million
payable upon regulatory approval and commercialization of PDC products, and
royalties on future PDC product sales, if any. We are no longer
responsible for funding PDC.
Cytogen
and Rosemont Execute Marketing Agreement for SOLTAMOX
On
April
21, 2006, we entered into a distribution agreement with Savient granting us
exclusive marketing rights for SOLTAMOX in the United
States. SOLTAMOX, a cytostatic estrogen receptor antagonist, is the
first oral liquid hormonal therapy approved in the U.S. It is
indicated for the treatment of breast cancer in adjuvant and metastatic settings
and to reduce the risk of breast cancer in women with ductal carcinoma in situ
(DCIS) or with high risk of breast cancer. In addition, we entered
into a supply agreement with Savient and Rosemont, previously a wholly-owned
subsidiary of Savient, for the manufacture and supply of
SOLTAMOX. Cytogen's agreements with Savient were subsequently
assigned by Savient to Rosemont. Under the terms of the final
transaction, we paid Savient an up-front licensing fee of $2.0 million and
may
pay additional contingent sales-based payments of up to a total of $4.0 million
to Rosemont. We are also required to pay Rosemont royalties on net
sales of SOLTAMOX. We introduced SOLTAMOX to the U.S. oncology market
in the second half of 2006.
Cytogen
Enters into Purchase and Supply Agreement with Oncology Therapeutics
Network
On
June
20, 2006, we entered into a purchase and supply agreement with Oncology
Therapeutics Network appointing OTN as the exclusive distributor of SOLTAMOX
in
the United States. In August 2006, the agreement was amended to
revise certain terms, including changing the role of OTN to the exclusive
warehousing agent and non-exclusive distributor of SOLTAMOX. Under
the terms of the amended agreement, OTN will purchase SOLTAMOX from us for
its
own wholesaler channels and, along with third party logistics providers,
distribute SOLTAMOX to our other customers through its warehousing and
distribution facilities. In January 2007, the agreement was further
amended for OTN to also distribute CAPHOSOL.
Cytogen
and InPharma Execute License Agreement for CAPHOSOL
On
October 11, 2006, we entered into a license agreement with InPharma granting
us
exclusive rights for CAPHOSOL in North America. Approved as a
prescription medical device, CAPHOSOL is a topical oral agent indicated in
the
United States as an adjunct to standard oral
care
in
treating oral mucositis caused by radiation or high dose
chemotherapy. CAPHOSOL is also indicated for dryness of the mouth or
dryness of the throat regardless of the cause or whether the conditions are
temporary or permanent. Under the terms of the agreement, we are
obligated to pay InPharma $6.0 million in aggregate up-front fees, of which
$4.6
million was paid upon the execution of the agreement, $400,000 will be paid
into
an escrow account, and $1.0 million will be paid after six months. In
addition, InPharma is eligible to receive royalties and sales-based milestone
payments. In addition, we are obligated to pay a finder's fee based
on a percentage of milestone payments made to InPharma. The
transaction also provides us with options to acquire the rights to CAPHOSOL
for
the European and Asian markets that we only intend to exercise in connection
with obtaining a commercial partner for those areas. We will be
required to obtain consents from certain licensors but not InPharma, if we
sublicense the rights to market CAPHOSOL in Europe and Asia to other
parties. In the event we exercise the options to license marketing
rights for CAPHOSOL for the European and Asia markets, we would be obligated
to
pay additional fees, including sales-based milestone payments for the respective
territories. We introduced CAPHOSOL in the U.S. in the first
quarter of 2007.
Sale
of Common Stock and Warrants
On
November 10, 2006, we sold to certain institutional investors 7,092,203 shares
of our common stock and 3,546,107 warrants to purchase shares of our common
stock. The warrants have an exercise price of $3.32 per share and are
exercisable beginning six months and ending five years after their
issuance. In exchange for $2.82, the purchasers received one share of
common stock and warrants to purchase .5 shares of common stock. The
offering provided net proceeds of approximately $18.4 million to
us. The placement agents in this transaction received a fee equal to
7% of the aggregate gross proceeds. In connection with this sale, we
entered into a Registration Rights Agreement with the investors pursuant to
which the common stock and shares of common stock underlying the warrants were
registered under the Securities Act of 1933.
RESULTS
OF OPERATIONS
Year
Ended December 31, 2006 as Compared to December 31, 2005
Revenues
|
Increase/(Decrease)
|
||||||||||||||||
|
2006
|
2005
|
$
|
%
|
|||||||||||||
|
(All
amounts in thousands, except percentage data)
|
||||||||||||||||
|
PROSTASCINT
|
$ |
9,125
|
$ |
7,407
|
$ |
1,718
|
23 | % | ||||||||
|
QUADRAMET
|
8,141
|
8,350
|
(209 | ) | (3 | %) | ||||||||||
|
Other
product
revenue
|
30
|
--
|
30
|
n/a
|
||||||||||||
|
License
and
contract
|
11
|
189
|
(178 | ) | (94 | %) | ||||||||||
| $ |
17,307
|
$ |
15,946
|
$ |
1,361
|
9 | % | |||||||||
Total
revenues for the year ended December 31, 2006 were $17.3 million compared to
$15.9 million for the same period in 2005. Product revenues accounted
for substantially all of total revenues in 2006 and 99% of total revenues in
2005. License and contract revenues accounted for the remainder of
revenues. If QUADRAMET or PROSTASCINT does not achieve broader market
acceptance, either because we fail to effectively market such products or our
competitors introduce competing products, and if we fail to successfully market
SOLTAMOX and CAPHOSOL, we may not be able to generate sufficient revenue to
become profitable.
PROSTASCINT. PROSTASCINT
sales were $9.1 million for the year ended December 31, 2006, compared to $7.4
million for the same period of 2005. Sales of PROSTASCINT accounted
for 53% and 47% of product revenues for 2006 and 2005,
respectively. The increase from the prior year period was due to the
implementation of a 9% price increase for PROSTASCINT on September 1, 2006
and
increased demand associated with our focused marketing programs. We
believe recent developments in imaging resolution, emerging clinical data,
and
an increasing level of recognition of the value of PROSTASCINT fusion imaging
support an important near- and long-term market opportunity for
PROSTASCINT. We are focusing on multiple key areas to position
PROSTASCINT for future growth and market penetration, including: (i) positioning
PROSTASCINT fusion imaging as the standard of care for prostate cancer imaging;
(ii) generating awareness of the prognostic value of the PSMA antigen; (iii)
leveraging the publication and presentation of outcomes data; (iv) advancing
image-guided applications including brachytherapy, intensity modulated radiation
therapy, surgery, and cryotherapy; and (v) evaluating the potential for imaging
other PSMA-expressing cancers. We cannot provide any assurance that
we will be able to successfully market PROSTASCINT, or that PROSTASCINT will
achieve greater market penetration on a timely basis or result in significant
revenues for us.
QUADRAMET. We
recorded QUADRAMET sales of $8.1 million for the year ended December 31, 2006,
compared to $8.4 million for the same period of 2005. QUADRAMET sales
accounted for 47% and 53% of product revenues for 2006 and 2005,
respectively. QUADRAMET year-over-year sales were essentially flat
with the exception of a change in the timing of scheduled maintenance shutdowns
for one of our raw material suppliers that negatively impacted product
availability during the fourth quarter of 2006. Currently, we market
QUADRAMET only in the United States and have no rights to market QUADRAMET
in
Europe. We are focusing on multiple key initiatives to position
QUADRAMET for future growth and market penetration, including: (i)
distinguishing the physical properties of QUADRAMET from first-generation agents
within its class; (ii) empowering and marketing to key prescribing audiences;
(iii) broadening palliative use within label beyond prostate cancer to include
breast, lung and multiple myeloma; (iv) evaluating the role of QUADRAMET in
combination with other commonly used oncology agents; and (v) expanding clinical
development to demonstrate the potential tumoricidal versus palliative
attributes of QUADRAMET. We cannot provide any assurance that we will
be able to successfully market QUADRAMET or that QUADRAMET will achieve greater
market penetration on a timely basis or result in significant revenues for
us.
Other
Product Revenue. For the year ended December 31, 2006,
other product revenue was comprised of $30,000 of SOLTAMOX sales. We
introduced SOLTAMOX in the second half of 2006 and began supplying the
distribution channels to support initial patient
demand. In
2006,
approximately $1.1 million of SOLTAMOX supply was shipped to wholesalers;
however, in accordance with U.S. Generally Accepted Accounting Principles,
we
will only recognize revenues for SOLTAMOX in our consolidated statement of
operations when we have sufficient information to estimate expected product
returns or when the product return privilege expires. We cannot
provide any assurance that we will be able to successfully market SOLTAMOX
or
that SOLTAMOX will achieve greater market penetration on a timely basis or
result in significant revenues for us.
License
and Contract Revenue. License and contract revenues
were $11,000 and $189,000 for the years ended December 31, 2006 and 2005,
respectively. The 2005 revenue includes $185,000 of contract revenue
for limited services provided by us to PDC, our former joint venture with
Progenics Pharmaceuticals, Inc. We did not provide any research
services to the joint venture in 2006.
Operating
Expenses
|
Increase/(Decrease)
|
||||||||||||||||
|
2006
|
2005
|
$
|
%
|
|||||||||||||
|
(All
amounts in thousands, except percentage data)
|
||||||||||||||||
|
Cost
of product revenues
|
$ |
10,150
|
$ |
9,523
|
$ |
627
|
7 | % | ||||||||
|
Selling,
general and administrative
|
30,166
|
25,895
|
4,271
|
16 | % | |||||||||||
|
Research
and development
|
7,301
|
6,162
|
1,139
|
18 | % | |||||||||||
|
Equity
in loss of joint venture
|
120
|
3,175
|
(3,055 | ) | (96 | %) | ||||||||||
| $ |
47,737
|
$ |
44,755
|
$ |
2,982
|
7 | % | |||||||||
Total
operating expenses for the year ended December 31, 2006 were $47.7 million
compared to $44.8 million for the same period of 2005.
Cost
of Product Revenues. Cost of product revenues for the
year ended December 31, 2006 was $10.2 million compared to $9.5 million for
the same period of 2005 and primarily reflects manufacturing costs for
PROSTASCINT and QUADRAMET, royalties on our sales of products and amortization
of the up-front payments to acquire the marketing rights to QUADRAMET in 2003,
SOLTAMOX in April 2006 and CAPHOSOL in October 2006. The increase
from the prior year period was due primarily to higher product revenue and
the
amortization expenses for SOLTAMOX and CAPHOSOL in 2006.
Selling,
General and Administrative. Selling, general and
administrative expenses for the year ended December 31, 2006 were $30.2 million
compared to $25.9 million for the same period of 2005. The increase
in selling, general and administrative expenses is primarily attributable to
$2.1 million of launch costs associated with SOLTAMOX, which we introduced
in
the second half of 2006, the pre-launch costs of $752,000 for CAPHOSOL and
the
recognition of $1.6 million of share-based compensation in 2006 for options
and
nonvested shares granted to employees, partially offset by the $750,000 of
pre-launch costs in 2005 for Combidex.
Research
and Development. Research and development expenses for
the year ended December 31, 2006 were $7.3 million compared to $6.2 million
for
the same period of 2005.
The
increase in 2006 from the prior year period is primarily driven by costs
associated with the clinical development initiatives for both QUADRAMET and
PROSTASCINT and the pre-clinical development program for CYT-500. The
2006 expenses also include the recognition of $252,000 of share-based
compensation in 2006 for options and nonvested shares granted to
employees. The 2005 expenses included a charge of $500,000 related to
the issuance of shares of our common stock in August 2005 to the stockholders
and debtholders of Prostagen Inc. made pursuant to the terms of an addendum
to
our Stock Exchange Agreement dated June 15, 1999.
Equity
in Loss of Joint Venture. Our share of the loss of the
PSMA Development Company LLC (PDC), our former joint venture with Progenics,
was
$120,000 for the year ended December 31, 2006 compared to $3.2 million in the
same period of 2005. Such amounts represented 50% of the joint
venture's net losses. We equally shared ownership and costs of the
joint venture with Progenics and accounted for the joint venture using the
equity method of accounting until April 20, 2006 when we sold our ownership
interest in PDC to Progenics. Following the sale of our interest in
the joint venture in April 2006, we have no further obligations to the joint
venture.
Interest
Income/Expense. Interest income for the year ended
December 31, 2006 was $1.5 million compared to $712,000 for the same period
of
2005. The increase from the prior year period was due to higher
average yield on a higher average cash balances in 2006. Interest
expense for the year ended December 31, 2006 was $36,000 compared to $114,000
for the same period of 2005. Interest expense includes finance
charges on insurance premiums which were financed and purchases of various
equipment that are accounted for as capital leases. Interest expense
in 2005 also includes interest on outstanding debt which was paid off in August
2005.
Gain
on Sale of Equity Interest in Joint Venture. On April
20, 2006, we entered into a Membership Interest Purchase Agreement with
Progenics providing for the sale to Progenics of our 50% ownership interest
in
PDC, our joint venture with Progenics for the development of in vivo
cancer immunotherapies based on PSMA. In addition, we entered into an
Amended and Restated PSMA/PSMP License Agreement with Progenics and PDC pursuant
to which we licensed PDC certain rights in PSMA technology. Under the
terms of such agreements, we sold our 50% interest in PDC for a cash payment
of
$13.2 million, potential future milestone payments totaling up to $52.0 million
payable upon regulatory approval and commercialization of PDC products, and
royalties on future PDC product sales, if any. As a result of the
transaction, for the year ended December 31, 2006, we recorded $12.9 million
in
gain on sale of equity interest in the joint venture, which represents the
net
proceeds after transaction costs less the carrying value of our investment
in
the joint venture at the time of sale.
Decrease
in Warrant Liabilities. In connection with the sale of
our common stock and warrants in 2005 and 2006, we recorded the warrants as
a
liability at their fair value at the dates of issuance using the Black-Scholes
option-pricing model and will remeasure them at each reporting date until they
are exercised or expire. Changes in the fair value of the warrants
are reported in the statements of operations as non-operating income or
expense. For the year ended December 31, 2006, we reported a gain of
$1.0 million related to the decrease in fair value of these warrants since
their
issuance dates or December 31, 2005, whichever is later, compared to a $1.7
million gain recorded in the same period of 2005 related to the decrease in
fair
value of
these
warrants since their issuance dates. The market price for our common
stock has been and may continue to be volatile. Consequently, future
fluctuations in the price of our common stock may cause significant increases
or
decreases in the fair value of these warrants.
Income
Tax Benefit. During 2005, we sold a portion of
our New Jersey state net operating loss carryforwards, which resulted in the
recognition of $256,000 in income tax benefits. We did not sell any
New Jersey state net operating loss carryforwards in 2006.
Net
Loss. Net loss for the year ended December 31, 2006 was
$15.1 million compared to $26.3 million for the same period of
2005. The basic and diluted net loss per share for 2006 was
$0.64 based on 23.5 million weighted-average common shares
outstanding, compared to a basic and diluted net loss per share of $1.54 based
on 17.1 million weighted-average common shares outstanding for the same period
in 2005.
RESULTS
OF OPERATIONS
Year
Ended December 31, 2005 as Compared to December 31, 2004
Revenues
|
Increase/(Decrease)
|
||||||||||||||||
|
2005
|
2004
|
$
|
%
|
|||||||||||||
|
(All
amounts in thousands, except percentage data)
|
||||||||||||||||
|
PROSTASCINT
|
$ |
7,407
|
$ |
7,186
|
$ |
221
|
3 | % | ||||||||
|
QUADRAMET
|
8,350
|
7,293
|
1,057
|
14 | % | |||||||||||
|
NMP22
BLADDERCHEK (ceased December 2004)
|
--
|
1
|
(1 | ) | (100 | %) | ||||||||||
|
License
and
contract
|
189
|
139
|
50
|
36 | % | |||||||||||
| $ |
15,946
|
$ |
14,619
|
$ |
1,327
|
9 | % | |||||||||
Total
revenues for the year ended December 31, 2005 were $15.9 million compared to
$14.6 million for the same period in 2004. Product revenues accounted
for 99% of total revenues in each of 2005 and 2004. License and
contract revenues accounted for the remainder of revenues. If
QUADRAMET or PROSTASCINT does not achieve broader market acceptance, either
because we fail to effectively market such products or our competitors introduce
competing products, we may not be able to generate sufficient revenue to become
profitable.
PROSTASCINT. PROSTASCINT
sales were $7.4 million for the year ended December 31, 2005, an increase of
$221,000 from $7.2 million for the same period of 2004. Sales of
PROSTASCINT accounted for 47% and 50% of product revenues for 2005 and 2004,
respectively. PROSTASCINT has historically been a challenging product
for physicians and technologists to use, in part due to inherent limitations in
nuclear medicine imaging. We believe that future growth and market
penetration of PROSTASCINT is dependent upon, among other things: (i) improving
image quality through fusion technology; (ii) validating the antigen targeted
by
PROSTASCINT as an independent prognostic factor; (iii) the publication and
presentation of
outcomes
data; (iv) development of image-guided applications including brachytherapy,
intensity modulated radiation therapy, surgery, and cryotherapy; and (v)
expanding clinical development to demonstrate the potential for PROSTASCINT
to
monitor response to cytotoxic therapies and image other cancers. We
cannot provide any assurance that we will be able to successfully market
PROSTASCINT, or that PROSTASCINT will achieve greater market penetration on
a
timely basis or result in significant revenues for us.
QUADRAMET. We
recorded QUADRAMET sales of $8.4 million for the year ended December 31, 2005,
an increase of $1.1 million from $7.3 million for the same period of
2004. QUADRAMET sales accounted for 53% and 50% of product revenues
for 2005 and 2004, respectively. We believe that such increase in
QUADRAMET sales was due to increased demand associated with our focused
marketing programs. We have the right to market QUADRAMET in North
America and Latin America. Currently, we market QUADRAMET only in the
United States. We believe that the future growth and market
penetration of QUADRAMET is dependent upon, among other things: (i)
distinguishing the physical properties of QUADRAMET from first-generation agents
within its class; (ii) empowering and marketing to key prescribing audiences;
(iii) broadening palliative use within label beyond prostate cancer to include
breast, lung and multiple myeloma; (iv) evaluating the role of QUADRAMET in
combination with other commonly used oncology agents; and (v) expanding clinical
development to demonstrate the potential tumoricidal versus palliative
attributes of QUADRAMET. We cannot provide any assurance that we will
be able to successfully market QUADRAMET or that QUADRAMET will achieve greater
market penetration on a timely basis or result in significant revenues for
us.
NMP22
BLADDERCHEK. There were no NMP22 BLADDERCHEK sales
during 2005 compared to $1,000 in 2004. Effective December 31, 2004,
we stopped selling NMP22 BLADDERCHEK.
License
and Contract Revenues. License and contract revenues
were $189,000 and $139,000 for the years ended December 31, 2005 and 2004,
respectively. We recognized $185,000 of contract revenues in 2005,
compared to $106,000 in 2004, for limited services provided by us to the PSMA
Development Company LLC, our joint venture with Progenics Pharmaceuticals,
Inc.
Operating
Expenses
|
Increase/(Decrease)
|
||||||||||||||||
|
2005
|
2004
|
$
|
%
|
|||||||||||||
|
(All
amounts in thousands, except percentage data)
|
||||||||||||||||
|
Cost
of product
revenues
|
$ |
9,523
|
$ |
9,223
|
$ |
300
|
3 | % | ||||||||
|
Selling,
general and administrative
|
25,895
|
20,318
|
5,577
|
27 | % | |||||||||||
|
Research
and development
|
6,162
|
3,292
|
2,870
|
87 | % | |||||||||||
|
Equity
in loss of joint venture
|
3,175
|
2,896
|
279
|
(10 | %) | |||||||||||
| $ |
44,755
|
$ |
35,729
|
$ |
9,026
|
25 | % | |||||||||
Total
operating expenses for the year ended December 31, 2005 were $44.8 million
compared to $35.7 million for the same period of 2004.
Cost
of Product Revenues. Cost of product revenues for the
year ended December 31, 2005 was $9.5 million compared to $9.2 million for
the same period of 2004 and primarily reflects manufacturing costs for
PROSTASCINT and QUADRAMET, royalties on our sales of products and amortization
of the up-front payment to Berlex Laboratories to reacquire the marketing rights
to QUADRAMET in 2003. The increase from the prior year was due
primarily to contractual increases in 2005 related to our agreement with BMSMI,
and higher royalties to Berlex on our sales of QUADRAMET as a result of
increased product sales.
Selling,
General and Administrative. Selling, general and
administrative expenses for the year ended December 31, 2005 were $25.9 million
compared to $20.3 million for the same period of 2004. The increase
from the prior year was due primarily to the expansion of our sales force and
the implementation of other marketing initiatives for our planned and existing
products. The selling, general and administrative expenses in 2004
also include increased legal and professional fees as well as a payment related
to the settlement, in September 2004, of a patent infringement suit filed by
Immunomedics, Inc. against us and C.R. Bard Inc. in February 2000. As
of March 1, 2006, we employed 50 people in sales and marketing.
Research
and Development. Research and development expenses for
the year ended December 31, 2005 were $6.2 million compared to $3.3 million
for
the same period of 2004. The increase from the prior year period is
primarily driven by new clinical development initiatives for both QUADRAMET
and
PROSTASCINT, and the pre-clinical development costs associated with our
radiolabeled therapeutic program to attach the therapeutic radionuclide
lutetium-177 as a payload to the 7E11 monoclonal antibody utilized in
PROSTASCINT. The increase is partially offset by savings from the
closure of our AxCell BioSciences facility in the fourth quarter of
2004. The 2005 and 2004 expenses also included a charge of $500,000
and $497,000, respectively, related to the issuance of shares of our common
stock in August 2005 and November 2004, respectively, to the stockholders and
debtholders of Prostagen Inc. made pursuant to the terms of an addendum to
our
Stock Exchange Agreement dated June 15, 1999, related to the progress of certain
PSMA development programs.
In
2005
and 2004, we incurred $50,000 and $621,000, respectively, in expenses relating
to AxCell's operations. In September 2002, we significantly reduced
AxCell's workforce to reduce the cash expenditures relating to AxCell in order
to leverage our oncology franchise. Further, in July 2004, as part of
our continuing efforts to reduce non-strategic expenses, we initiated the
closure of AxCell's facilities. Research projects through academic,
governmental and corporate collaborators to be supported and additional
applications for the intellectual property and technology at AxCell are being
pursued.
Equity
in Loss of Joint Venture. Our share of the loss of the
PSMA Development Company LLC, our joint venture with Progenics Pharmaceuticals,
Inc., was $3.2 million in 2005 compared to $2.9 million for the same period
of
2004, and represented 50% of the joint venture's operating
losses. The increase over the prior year period reflects our share of
the $2.0 million up-front fee incurred by the joint venture in the second
quarter of 2005 to license proprietary
antibody-drug
conjugate technology from Seattle Genetics, Inc. for use with the joint
venture's antibodies targeting PSMA. We equally shared ownership and
costs of the joint venture with Progenics and accounted for the joint venture
using the equity method of accounting.
Interest
Income/Expense. Interest income for the year ended
December 31, 2005 was $712,000 compared to $448,000 for the same period of
2004. The increase from the prior year period was due to higher
average yields partially offset by lower average cash balances in
2005. Interest expense for the year ended December 31, 2005 was
$114,000 compared to $185,000 for the same period of 2004. Interest
expense includes interest on outstanding debt which was paid off in August
2005
and finance charges on insurance premiums which were financed and purchases
of
various equipment that are accounted for as capital leases.
Decrease
in Value of Warrant Liability. In connection with the
sale of our common stock and warrants that provided us with net proceeds of
approximately $13.9 million in July and August 2005, we recorded the warrants
as
a liability at their fair value at the dates of issuance using the Black-Scholes
option-pricing model and will remeasure them at each reporting date until they
are exercised or expire. Changes in the fair value of the warrants
are reported in the statements of operations as non-operating income or
expense. For the year ended December 31, 2005, we reported a gain of
$1.7 million related to the decrease in fair value of these warrants from
issuance dates. The market price for our common stock has been and
may continue to be volatile. Consequently, future fluctuations in the
price of our common stock may cause significant increases or decreases in the
fair value of these warrants.
Income
Tax Benefit. During 2005, we sold a portion of
our New Jersey state net operating loss carryforwards, which resulted in the
recognition of $256,000 in income tax benefits. In 2004, we
recognized $307,000 in such income tax benefits.
Net
Loss. Net loss for the year ended December 31, 2005 was
$26.3 million compared to $20.5 million for the same period of
2004. The basic and diluted net loss per share for 2005 was
$1.54 based on 17.1 million weighted-average common shares
outstanding, compared to a basic and diluted net loss per share of $1.40 based
on 14.7 million weighted-average common shares outstanding for the same period
in 2004.
COMMITMENTS
We
have
entered into various contractual and commercial commitments. The
following table summarizes our obligations with respect to these commitments
as
of December 31, 2006:
|
Contractual
Obligation
|
Less
than
1
year
|
1
to 3
years
|
4
to 5
years
|
More
than
5
years
|
Total
|
|||||||||||||||
|
(All
amounts in thousands)
|
||||||||||||||||||||
|
Capital
lease obligations
|
$ |
64
|
$ |
59
|
$ |
—
|
$ |
—
|
$ |
123
|
||||||||||
|
Facility
leases
|
338
|
620
|
—
|
—
|
958
|
|||||||||||||||
|
Research
and development
|
131
|
150
|
150
|
481
|
912
|
|||||||||||||||
|
Marketing
and other obligations
|
2,490
|
33
|
—
|
—
|
2,523
|
|||||||||||||||
|
Manufacturing
contracts(1)
|
5,378
|
4,859
|
—
|
—
|
10,237
|
|||||||||||||||
|
Minimum
royalty payments(2)
|
1,000
|
2,000
|
2,000
|
1,833
|
6,833
|
|||||||||||||||
|
Total
|
$ |
9,401
|
$ |
7,721
|
$ |
2,150
|
$ |
2,314
|
$ |
21,586
|
||||||||||
_________
(1)
Effective January
1, 2004, we entered into a new manufacturing and supply agreement with BMSMI
for
QUADRAMET whereby BMSMI manufactures, distributes and provides order processing
and customer services for us relating to QUADRAMET. Under the terms
of our agreement, we are obligated to pay at least $4.9 million annually,
subject to future annual price adjustment, through 2008, unless terminated
by
BMSMI or us on a two year prior written notice. This agreement will
automatically renew for five successive one-year periods unless terminated
by
BMSMI or us on a two-year prior written notice. Accordingly, we have
not included commitments beyond December 31, 2008.
(2)
We acquired an
exclusive license from Dow for QUADRAMET for the treatment of osteoblastic
bone
metastases in certain territories. The agreement requires us to pay
Dow royalties based on a percentage of net sales of QUADRAMET, or a guaranteed
contractual minimum payment, whichever is greater, and future payments upon
achievement of certain milestones. Future annual minimum royalties
due to Dow are $1.0 million per year in 2007 through 2012 and $833,000 in
2013.
In
addition to the above, we are obligated to make certain royalty payments based
on sales of the related product and certain milestone payments if our
collaborative partners achieve specific development milestones or commercial
milestones. We are also obligated to pay a finder's fee based upon a
percentage of milestone payments made to InPharma in connection with the
licensing of CAPHOSOL. We did not include in the table above any
payments that do
not
represent fixed or minimum payments but are instead payable only upon the
achievement of a milestone, if the achievement of that milestone is uncertain
or
the obligation amount is not determinable.
LIQUIDITY
AND CAPITAL RESOURCES
Condensed
Statement of Cash Flows:
|
2006
|
||||
|
(All
amounts in thousands)
|
||||
|
Net
loss
|
$ | (15,103 | ) | |
|
Adjustments
to reconcile net loss to net cash used in operating
activities
|
(7,750 | ) | ||
|
Net
cash used in operating activities
|
(22,853 | ) | ||
|
Net
cash provided by investing activities
|
6,116
|
|||
|
Net
cash provided by financing activities
|
18,907
|
|||
|
Net
increase in cash and cash equivalents
|
$ |
2,170
|
||
Our
cash
and cash equivalents were $32.5 million as of December 31, 2006, compared to
$30.3 million as of December 31, 2005. The increase in cash and cash
equivalents from the December 31, 2005 balance was primarily due to the sale
of
our 50% interest in PDC for a cash payment of $13.2 million in April 2006 and
the termination of our funding obligations related to the joint venture, and
the
November 2006 sale of common stock and warrants which provided net proceeds
of
$18.4 million, partially offset by net cash paid for the acquisition of the
product rights to SOLTAMOX and CAPHOSOL and increased operating expenditures
in
2006, including costs to launch SOLTAMOX and to promote and support our oncology
products, new clinical development initiatives for both QUADRAMET and
PROSTASCINT and pre-clinical development programs associated with the 7E11
antibody. During 2006 and 2005, net cash used for operating
activities was $22.9 million and $29.5 million,
respectively. The decrease is primarily due to the increase in and
timing of payments for accounts payable and accrued liabilities.
Historically,
our primary sources of cash have been proceeds from the issuance and sale of
our
stock through public offerings and private placements, product revenues,
revenues from contract research services, fees paid under license agreements,
sale of assets, and interest earned on cash and short-term
investments.
Our
long-term financial objectives are to meet our capital and operating
requirements through revenues from existing products and licensing
arrangements. To achieve these objectives, we may enter into research
and development partnerships and acquire, in-license and develop other
technologies, products or services. Certain of these strategies may
require
payments
by us in either cash or stock in addition to the costs associated with
developing and marketing a product or technology. However, we believe
that, if successful, such strategies may increase long-term
revenues. We cannot assure you of the success of such strategies or
that resulting funds will be sufficient to meet cash requirements until product
revenues are sufficient to cover operating expenses, if ever. To fund
these strategic and operating activities, we may sell equity, debt or other
securities as market conditions permit or enter into credit
facilities.
We
have
incurred negative cash flows from operations since our inception, and have
expended, and expect to continue to expend in the future, substantial funds
to
implement our planned product development efforts, including acquisition of
products and complementary technologies, research and development, clinical
studies and regulatory activities, and to further our marketing and sales
programs. We expect that our existing capital resources at December
31, 2006, along with the receipt of the $4.0 million settlement from Advanced
Magnetics, Inc. in the first quarter of 2007 should be adequate to fund our
operations and commitments at least into 2008. We cannot assure you
that our business or operations will not change in a manner that would consume
available resources more rapidly than anticipated. We expect that we
will have additional requirements for debt or equity capital, irrespective
of
whether and when we reach profitability, for further product development costs,
product and technology acquisition costs, and working capital.
Our
future capital requirements and the adequacy of available funds will depend
on
numerous factors, including: (i) the successful commercialization of our
products; (ii) the costs associated with the acquisition of complementary
products and technologies; (iii) progress in our product development efforts
and
the magnitude and scope of such efforts; (iv) progress with clinical trials;
(v)
progress with regulatory affairs activities; (vi) the cost of filing,
prosecuting, defending and enforcing patent claims and other intellectual
property rights; (vii) competing technological and market developments; and
(viii) the expansion of strategic alliances for the sales, marketing,
manufacturing and distribution of our products. To the extent that
the currently available funds and revenues are insufficient to meet current
or
planned operating requirements, we will be required to obtain additional funds
through equity or debt financing, strategic alliances with corporate partners
and others, or through other sources. We cannot assure you that the
financial sources described above will be available when needed or at terms
commercially acceptable to us. If adequate funds are not available,
we may be required to delay, further scale back or eliminate certain aspects
of
our operations or attempt to obtain funds through arrangements with
collaborative partners or others that may require us to relinquish rights to
certain of our technologies, product candidates, products or potential
markets. If adequate funds are not available, our business, financial
condition and results of operations will be materially and adversely
affected.
Other
Liquidity Events
On
April
20, 2006, we entered into a Membership Interest Purchase Agreement with
Progenics providing for the sale to Progenics of our 50% ownership interest
in
PDC. In addition, we entered into an Amended and Restated PSMA/PSMP
License Agreement with Progenics and PDC pursuant to which we licensed PDC
certain rights in PSMA technology. Under the terms of such
agreements, we sold our 50% interest in PDC for a cash payment of $13.2 million,
potential future milestone payments totaling up to $52.0 million payable upon
regulatory approval and
commercialization
of PDC products, and royalties on future PDC product sales, if
any. Following the sale of our interest in the joint venture in April
2006, we have no further obligations to the joint venture.
On
April
21, 2006, we entered into a distribution agreement with Savient granting us
exclusive marketing rights for SOLTAMOX in the United
States. SOLTAMOX, a cytostatic estrogen receptor antagonist, is the
first oral liquid hormonal therapy approved in the U.S. It is
indicated for the treatment of breast cancer in adjuvant and metastatic settings
and to reduce the risk of breast cancer in women with ductal carcinoma in situ
(DCIS) or with high risk of breast cancer. In addition, we entered
into a supply agreement with Savient and Rosemont for the manufacture and supply
of SOLTAMOX. Our agreements with Savient were subsequently assigned
to Rosemont by Savient. Under the terms of the final transaction, we
paid Savient an up-front licensing fee of $2.0 million and may pay additional
contingent sales-based payments of up to a total of $4.0 million to
Rosemont. We introduced SOLTAMOX to the U.S. oncology market in the
second half of 2006. We are also required to pay Rosemont royalties
on net sales of SOLTAMOX. Beginning in 2007, we are obligated to pay
Rosemont quarterly minimum royalties based on an agreed upon percentage of
total
tamoxifen prescriptions in the United States. Unless terminated
earlier, each of the distribution and supply agreements will terminate upon
the
expiration of the last to expire patent covering SOLTAMOX in the United States,
which is currently June 2018. In the event the tamoxifen
prescriptions for an agreed upon period of time are less than the
pre-established minimum, the agreement may be terminated if we are unable to
reach an agreement with Rosemont to amend the terms of the contract to account
for such impact.
On
October 11, 2006, we entered into a license agreement with InPharma granting
us
exclusive rights for CAPHOSOL in North America and options to license the
marketing rights for CAPHOSOL in Europe and Asia. Approved as a
prescription medical device, CAPHOSOL is a topical oral agent indicated in
the
United States as an adjunct to standard oral care in treating oral mucositis
caused by radiation or high dose chemotherapy. CAPHOSOL is also
indicated for dryness of the mouth or dryness of the throat regardless of the
cause or whether the conditions are temporary or permanent. Under the
terms of the Agreement, we are obligated to pay InPharma $6.0 million in
aggregate up-front fees, of which $4.6 million was paid upon the execution
of
the agreement, $400,000 will be paid into an escrow account and $1.0 million
will be paid after six months. In addition, we are obligated to pay
InPharma royalties based on a percentage of net sales and future payments of
up
to an aggregate of $49.0 million based upon the achievement of certain
sales-based milestones of which payments totaling $35 million are based upon
annual sales levels first reaching levels in excess of $30
million. In addition, we are obligated to pay a finder's fee based
upon a percentage of milestone payments made to InPharma.
In
the
event we exercise the options to license marketing rights for CAPHOSOL in Europe
and Asia, we are obligated to pay InPharma additional fees and payments,
including sales-based milestone payments for the respective
territories. We also shall pay InPharma a portion of any up-front
license fees and milestone payments, but not royalties, received by us in
consideration of the grant by us to other parties of the right to market
CAPHOSOL in Europe and Asia, to the extent such up-front license fees and
milestone payments are in excess of the respective amounts paid by us to
InPharma for such rights.
On
November 10, 2006, we sold to certain institutional investors 7,092,203 shares
of our common stock and 3,546,107 warrants to purchase shares of our common
stock. The warrants have an exercise price of $3.32 per share and are
exercisable beginning six months and ending five years after their
issuance. The warrant agreement contains a cash settlement feature,
which is available to the warrant holders at their option, upon an acquisition
in certain circumstances. In exchange for $2.82, the purchasers
received one share of common stock and warrants to purchase .5 shares of common
stock. The offering provided us with net proceeds of approximately
$18.4 million. The placement agents received compensation consisting
of a fee equal to 7% of the aggregate gross proceeds. In connection
with this sale, we entered into a Registration Rights Agreement with the
investors under which, we were obligated to file a registration statement with
the SEC for the resale of Cytogen shares sold to the investors and shares
issuable upon exercise of the warrants within a specified time
period. We are also required to use commercially reasonable efforts
to cause the registration to be declared effective by the SEC and to remain
continuously effective until such time when all of the registered shares are
sold or three years from closing date, whichever is earlier. In the
event we fail to keep the registration statement effective, we are obligated
to
pay the investors liquidation damages equal to 1% of the purchase price paid
by
the investors ($20 million) for each thirty-day period that the registration
statement is not effective, up to 10%. On December 28, 2006, the SEC
declared the registration statement effective. We concluded that the
contingent obligation was not probable, and therefore no contingent liability
was recorded as of December 31, 2006.
In
September 2006, we entered into a non-exclusive manufacturing agreement with
Laureate pursuant to which Laureate shall manufacture PROSTASCINT and its
primary raw materials for Cytogen in Laureate's Princeton, New Jersey
facility. The agreement will terminate, unless terminated earlier
pursuant to its terms, upon Laureate's completion of the specified production
campaign for PROSTASCINT and shipment of the resulting products from Laureate's
facility. Under the terms of the agreement, we anticipate paying at
least an aggregate of $3.9 million through the end of the term of contract,
of
which $500,000 was incurred and paid in 2006.
Effective
January 1, 2004, we entered into a manufacturing and supply agreement with
BMSMI
whereby BMSMI manufactures, distributes and provides order processing and
customer services for us relating to QUADRAMET. Under the terms of
the new agreement, we are obligated to pay at least $4.9 million annually,
subject to future annual price adjustment, through 2008, unless terminated
by
BMSMI or us on two years prior written notice. During the year ended
December 31, 2006, we incurred $4.5 million of manufacturing costs for
QUADRAMET. This agreement will automatically renew for five
successive one-year periods unless terminated by BMSMI or us on a two year
prior
written notice. We also pay BMSMI a variable amount per month for
each QUADRAMET order placed to cover the costs of customer service.
We
acquired an exclusive license from Dow for QUADRAMET for the treatment of
osteoblastic bone metastases in certain territories. The agreement
requires us to pay Dow royalties based on a percentage of net sales of
QUADRAMET, or a guaranteed contractual minimum payment, whichever is greater,
and future payments upon achievement of certain milestones. For the
year ended December 31, 2006, we incurred $1.0 million in royalty
expense.
Future
annual minimum royalties due to Dow are $1.0 million per year in 2007 through
2012 and $833,000 in 2013.
On
May 6,
2005, we entered into a license agreement with Dow to create a targeted oncology
product designed to treat prostate and other cancers. The agreement
applies proprietary MeO-DOTA bifunctional chelant technology from Dow to
radiolabel our PSMA antibody with a therapeutic radionuclide. Under
the agreement, proprietary chelation technology and other capabilities, provided
through ChelaMedSM
radiopharmaceutical services from Dow, will be used to attach a therapeutic
radioisotope to the 7E11 monoclonal antibody utilized in our PROSTASCINT
molecular imaging agent. As a result of the agreement, we are
obligated to pay a minimal license fee and aggregate future milestone payments
of $1.9 million for each licensed product, if approved, and royalties based
on
sales of related products, if any. Unless terminated earlier, the Dow
agreement terminates at the later of (a) the tenth anniversary of the date
of
first commercial sale for each licensed product or (b) the expiration of the
last to expire valid claim that would be infringed by the sale of the licensed
product. We may terminate the license agreement with Dow on 90 days
written notice.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Financial
Reporting Release No. 60 requires all companies to include a discussion of
critical accounting policies or methods used in the preparation of financial
statements. Note 1 to our Consolidated Financial Statements in our
Annual Report on Form 10-K for the year ended December 31, 2006 includes a
summary of our significant accounting policies and methods used in the
preparation of our Consolidated Financial Statements. The following
is a brief discussion of the more significant accounting policies and methods
used by us. The preparation of our Consolidated Financial Statements
requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Our actual results could differ
materially from those estimates.
Revenue
Recognition
We
generate revenue from product sales and license and contract
revenues. We recognize revenue in accordance with the SEC's Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
as
amended by Staff Accounting Bulletin No. 104 (together, "SAB 101"), and FASB
Statement No. 48 "Revenue Recognition When Right of Return Exists" ("SFAS
48"). SAB 101 states that revenue should not be recognized until it
is realized or realizable and earned. Revenue is realized or
realizable and earned when all of the following criteria are met:
(1) persuasive evidence of an arrangement exists; (2) delivery has
occurred or services have been rendered; (3) the seller's price to the
buyer is fixed or determinable; and (4) collectibility is reasonably
assured. SFAS 48 states that revenue from sales transactions where
the buyer has the right to return the product shall be recognized at the time
of
sale only if (1) the seller's price to the buyer is substantially fixed or
determinable at the date of sale, (2) the buyer has paid the seller, or the
buyer is obligated to pay the seller and the obligation is not contingent on
resale of the product, (3) the buyer's obligation to the seller would not
be changed in the event of theft or physical destruction or damage of the
product, (4) the
buyer
acquiring the product for resale has economic substance apart from that provided
by the seller, (5) the seller does not have significant obligations for
future performance to directly bring about resale of the product by the buyer,
and (6) the amount of future returns can be reasonably
estimated.
Product
Sales
We
recognize revenues for product sales at the time title and risk of loss are
transferred to the customer, and the other criteria of SAB 101 and SFAS 48
are
satisfied, which is generally at the time products are shipped to
customers. At the time gross revenue is recognized from product
sales, an adjustment, or decrease, to revenue for estimated rebates, discounts
and returns is also recorded. This revenue reserve is determined on a
product-by-product basis. The rebate or discount reserve is recorded
in accordance with Emerging Issues Task Force (EITF) Issue No. 01-9,
"Accounting for Consideration Given by a Vendor to a Customer" ("EITF
01-9"), which states that cash consideration given by a vendor to a customer
is
presumed to be a reduction of the selling prices of the vendor's products or
services and, therefore, should be characterized as a reduction of revenue
when
recognized in the vendor's income statement. At the time product is
shipped, an adjustment is recorded for estimated rebates and discounts based
on
the contractual terms with customers. Revenue reserves including
return allowances are established by management as its best estimate at the
time
of sale based on each product's historical experience adjusted to reflect known
changes in the factors that impact such reserves.
In
the
case of new product like SOLTAMOX which we introduced in the second half of
2006, product shipments made to wholesalers do not meet the revenue recognition
criteria of SFAS 48 and SAB 101. Since we cannot reliably estimate
expected returns for this new product, we will defer recognition of revenue
until the right of return no longer exists or until we develop sufficient
historical experience to estimate sales returns. In 2006,
approximately $1.1 million of SOLTAMOX was shipped to
wholesalers. For these product shipments, we invoice the wholesalers,
record the payment received as "Customer Liability", and classify the inventory
shipped to wholesalers as "Inventory at Wholesalers" at the Company's cost
of
goods for such inventory. We recognize revenue for SOLTAMOX when such
product is sold through to the end-users, on a first-in first-out (FIFO)
basis. Additionally, royalty amount due based on unit shipments to
wholesalers is deferred and recognized as royalty expense as those units are
sold through and recognized as revenue. We have the right to offset
royalties paid for product that are later returned against subsequent royalty
obligations. Costs related to shipments of SOLTAMOX, for which we do
not have the ability to recover if and when products are returned, are expensed
as incurred.
When
available, we may use the following information to estimate the prescription
based sales for SOLTAMOX and to estimate gross to net sales adjustments: (1)
the
estimated prescription based sales, (2) our analysis of third-party information,
including information obtained from certain wholesalers with respect to their
inventory levels and sell-through to customers and third-party market research
data, and (3) our internal product sales information. Our estimates
will be subject to the inherent limitations of estimates that rely on
third-party data, as certain third-party information is itself in the form
of
estimates, and has other limitations. Our
sales
and
revenue recognition for SOLTAMOX will reflect our estimates of actual product
sold through to the end user.
Provisions
for Estimated Reductions to Gross Sales
At
the
time product sales are made, we reduce gross sales through accruals for product
returns, rebates and volume discounts. We account for these
reductions in accordance with EITF 01-9 and SFAS 48, as applicable.
Returns
Quadramet
is a radioactive product that is indicated for the relief of pain due to
metastatic bone disease arising from various types of cancer. Due to
its rapid rate of radioactive decay, QUADRAMET has a shelf life of only about
72
hours. For this reason, QUADRAMET is ordered for a specific patient
on a pre-scheduled visit, and, as such, our customers are unable to maintain
stock inventories of this product. In addition, because the product
is ordered for pre-scheduled visits for specific patients, product returns
are
very low. Our methodology to estimate sales returns is based on
historical experience that demonstrates that the vast majority of the returns
occur within one month of when product was shipped. At the time of
sale, we estimate the quantity and value of QUADRAMET that may ultimately be
returned. We generally have the exact number of returns related to
prior month sales in the current month, so the provision for returns is trued
up
to actual quickly.
We
do not
allow product returns for PROSTASCINT.
Returns
from new product, like SOLTAMOX, are more difficult to assess. Since
we have no historical return experience with SOLTAMOX, we cannot reliably
estimate expected returns of this new product. Therefore, we will
defer recognition of revenue until the right of return no longer exists or
until
we have developed sufficient historical experience to estimate sales
returns. We may use information from external sources to estimate our
return provisions.
Volume
Discounts
We
provide volume discounts to certain customers based on
sales levels of given products during each calendar month. We
recognize revenue net of these volume discounts at the end of each
month. There are no volume discounts based on cumulative sales over
more than a one month period. Accordingly, there is no current need
to estimate volume discounts.
Rebates
From
time
to time, we may offer rebates to our customers. We establish a rebate
accrual based on the specific terms in each agreement, in an amount equal to
our
reasonable estimate of the expected rebate claims attributable to the sales
in
the current period and adjust the accrual each reporting period to reflect
the
actual experience. If the amount of future rebates cannot be
reasonably estimated, a liability will be recognized for the maximum potential
amount of the rebates.
License
and contract revenues include milestone payments and fees under collaborative
agreements with third parties, revenues from research services, and revenues
from other miscellaneous sources. We defer non-refundable up-front
license fees and recognize them over the estimated performance period of the
related agreement, when we have continuing involvement. Since the
term of the performance periods is subject to management's estimates, future
revenues to be recognized could be affected by changes in such
estimates.
Accounts
Receivable
Our
accounts receivable balances are net of an estimated allowance for uncollectible
accounts. We continuously monitor collections and payments from our
customers and maintain an allowance for uncollectible accounts based upon our
historical experience and any specific customer collection issues that we have
identified. While we believe our reserve estimate to be appropriate,
we may find it necessary to adjust our allowance for uncollectible accounts
if
the future bad debt expense exceeds our estimated reserve. We are
subject to concentration risks as a limited number of our customers provide
a
high percent of total revenues, and corresponding receivables.
Inventories
Inventories
are stated at the lower of cost or market, as determined using the first-in,
first-out method, which most closely reflects the physical flow of our
inventories. Our products and raw materials are subject to expiration
dating. We regularly review quantities on hand to determine the need
to write down inventory for excess and obsolete inventories based primarily
on
our estimated forecast of product sales. Our estimate of future
product demand may prove to be inaccurate, in which case we may have understated
or overstated our reserve for excess and obsolete inventories.
Carrying
Value of Fixed and Intangible Assets
Our
fixed
assets and certain of our acquired rights to market our products have been
recorded at cost and are being amortized on a straight-line basis over the
estimated useful life of those assets. We also acquired an option to
purchase marketing rights to CAPHOSOL in Europe which was recorded as other
assets and will transfer the costs to the appropriate asset account if
exercised. If indicators of impairment exist, we assess the recoverability
of
the affected long-lived assets by determining whether the carrying value of
such
assets can be recovered through undiscounted future operating cash
flows. Regarding the option to purchase marketing rights to CAPHOSOL
in Europe, we also assess our intent and ability to exercise the option, the
option expiry date and market and product competitiveness. If impairment
is indicated, we measure the amount of such impairment by comparing the carrying
value of the assets to the present value of the expected future cash flows
associated with the use of the asset. Adverse changes regarding
future cash flows to be received from long-lived assets could indicate that
an
impairment exists, and would require the write down of the carrying value of
the
impaired asset at that time.
We
follow
Emerging Issues Task Force (EITF) No. 00-19, "Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company's Own
Stock" which provides guidance for distinguishing between permanent equity,
temporary equity and assets and liabilities. Under EITF 00-19, to
qualify as permanent equity, the equity derivative must permit us
to
settle in unregistered shares. We do not have that ability under the
securities purchase agreement for the warrants issued in July and August 2005
and, as EITF 00-19 considers the ability to keep a registration statement
effective as beyond our control, the warrants cannot be classified as permanent
equity and are instead classified as a liability in the accompanying
consolidated balance sheets. Our warrants issued in November 2006
which permit net cash settlement at the option of the warrant holders also
require classification as a liability in accordance with EITF
00-19.
We
record
the warrant liability at its fair value using the Black-Scholes option-pricing
model and remeasure it at each reporting date until the warrants are exercised
or expire. Changes in the fair value of the warrants are reported in
the consolidated statements of operations as non-operating income or
expense. The fair value of the warrants is subject to significant
fluctuation based on changes in our stock price, expected volatility, expected
life, the risk-free interest rate and dividend yield. The market
price for our common stock has been and may continue to be
volatile. Consequently, future fluctuations in the price of our
common stock may cause significant increases or decreases in the fair value
of
the warrants issued.
We
follow
EITF No. 00-19-2 "Accounting for Registration Payment Arrangement" which
specifies that registration payment arrangements should play no part in
determining the initial classification and subsequent accounting for the
securities they related to. The Staff position requires the
contingent obligation in a registration payment arrangement to be separately
analyzed under FASB Statement No. 5, "Accounting for Contingencies" and FASB
Interpretation No. 14, "Reasonable Estimation of the Amount of a
Loss". Consequently, if payment in a registration payment arrangement
in connection with the warrants issued in November 2006 is probable and can
be
reasonably estimated, a liability will be recorded.
Share-Based
Compensation
We
account for share-based compensation in accordance with SFAS No. 123(R),
"Share-Based Payment." Under the fair value recognition provision of
this statement, the share-based compensation, which is generally based on the
fair value of the awards calculated using the Black-Scholes option pricing
model
on the date of grant, is recognized on a straight-line basis over the requisite
service period, generally the vesting period, for grants on or after January
1,
2006. For nonvested shares, we use the fair value of the underlying
common stock on the date of grant. Determining the fair value of
share-based awards at the grant date requires judgment, including estimating
expected dividend yield, expected forfeiture rates, expected volatility, the
expected term and expected risk-free interest rates. If we were to
use different estimates or a different valuation model, our share-based
compensation expense and our results of operations could be materially
impacted.
New
Accounting Pronouncements
Accounting
for Registration Payment Arrangements
On
December 21, 2006, the FASB issued FASB Staff Position No. EITF 00-19-2,
"Accounting for Registration Payment Arrangements" ("EITF 00-19-2"), which
addresses an issuer's
accounting for registration payment arrangements. EITF 00-19-2
specifies that the contingent obligation to make future payments or otherwise
transfer consideration under a registration payment arrangement, whether issued
as a separate agreement or included as a provision of a financial instrument
or
other agreement, should be separately recognized and measured in accordance
with
FASB Statement No. 5, Accounting for Contingencies. EITF 00-19-2
further clarifies that a financial instrument subject to a registration payment
arrangement should be accounted for in accordance with other applicable
accounting literature without regard to the contingent obligation to transfer
consideration pursuant to the registration arrangement. EITF 00-19-2
is effective immediately for new and modified registration payment
arrangements. Early adoption of EITF 00-19-2 for the interim or
annual period for which the financials statements have not been issued is
permitted. We adopted EITF 00-19-2 at the beginning of the
fourth quarter 2006. The adoption of EITF 00-19-2 did not have
any impact on our consolidated financial statements in the year ended December
31, 2006.
Evaluation
of Misstatements
On
September 13, 2006, the staff of the SEC issued Staff Accounting Bulletin No.
108, "Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements" ("SAB 108"), which provides
interpretive guidance on how the effects of prior year misstatements should
be
considered in evaluating a current year misstatement. The cumulative
effect from the initial adoption of SAB 108 may be reported as a cumulative
effect adjustment to the beginning of year retained earnings with disclosure
of
the nature and amount of each individual error. We applied the
provisions of SAB 108 in the fourth quarter of 2006. The adoption of
SAB 108 did not have a material impact on our consolidated financial
statements.
Fair
Value Measurements
On
September 15, 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
("SFAS 157"). SFAS 157 defines fair value, establishes a framework
for measuring fair value and expands disclosures about fair value
measurements. SFAS 157 is effective as of the beginning of the first
fiscal year beginning after November 15, 2007. We are required to
adopt this statement in the first quarter of 2008. Management is
currently evaluating the requirements of SFAS 157 and has not yet determined
the
impact this standard will have on its consolidated financial
statements.
Income
Taxes
In
June
2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty
in
Income Taxes" ("FIN 48"). FIN 48 is applicable for fiscal years
beginning after December 15,
2006. This Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FASB Statement No. 109, "Accounting for Income Taxes." This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We are currently evaluating the impact of the adoption of FIN 48 upon our financial statements and related disclosures. We do not expect that the adoption will have a material effect on our results of operations or financial condition.
Sales
Tax
In
March
2006, the FASB's Emerging Issues Task Force released Issue 06-3, "How Sales
Taxes Collected From Customers and Remitted to Governmental Authorities Should
Be Presented in the Income Statement" ("EITF 06-3"). A consensus was
reached that entities may adopt a policy of presenting sales taxes in the income
statement on either a gross or net basis. If taxes are significant,
an entity should disclose its policy of presenting taxes and the amount of
taxes
if reflected on a gross basis in the income statement. The guidance
is effective for periods beginning after December 15, 2006. We
present sales net of sales taxes in our consolidated statements of operations
and do not anticipate changing our policy as a result of EITF 06-3.
Abnormal
Inventory Costs
In
November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an amendment
of
ARB No. 43, Chapter 4" ("SFAS No. 151"), to clarify that abnormal amounts of
idle facility expense, freight, handling costs, and wasted material (spoilage)
should be recognized as current period charges, and that fixed production
overheads should be allocated to inventory based on the normal capacity of
production facilities This statement is effective for inventory costs
incurred during fiscal years beginning after June 15,
2005. Accordingly, we adopted SFAS No. 151 in our fiscal year
beginning January 1, 2006. The adoption of this standard did not have
any impact on our consolidated statement of operations in the year ended
December 31, 2006.
|
Quantitative
and
Qualitative Disclosures About Market
Risk
|
We
do not
have operations subject to risks of foreign currency fluctuations, nor do we
use
derivative financial instruments in our operations. Our exposure to
market risk is principally confined to interest rate sensitivity. Our
cash equivalents and short-term investments are conservative in nature, with
a
focus on preservation of capital. Due to the short-term nature of our
investments and our investment policies and procedures, we have determined
that
the risks associated with interest rate fluctuations related to these financial
instruments are not material to our business.
We
are
exposed to certain risks arising from changes in the price of our common stock,
primarily due to the potential effect of changes in fair value of the warrant
liability related to the warrants issued in 2005 and 2006. The
warrant liability is measured at fair value using the Black-Scholes
option-pricing model at each reporting date and is subject to significant
increases
or
decreases in value and a corresponding loss or gain in the statement of
operations due to the effects of changes in the price of common stock at period
end and the related calculation of volatility.
The
financial statements required to be disclosed under this Item are submitted
as a
separate section of this Annual Report on Form 10-K.
Not
applicable.
|
Item
9A.
|
|
|
(a)
|
Disclosure
Controls and Procedures
|
Our
management, with the participation of our chief executive officer and chief
financial officer, evaluated the effectiveness of our disclosure controls and
procedures as of December 31, 2006. The term "disclosure controls and
procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, means controls and other procedures of a company that
are
designed to ensure that information required to be disclosed by the Company
in
the reports that it files or submits under the Securities Exchange Act of 1934
is recorded, processed, summarized and reported, within the time periods
specified in the SEC's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by a company in the reports
that it files or submits under the Securities Exchange Act of 1934 is
accumulated and communicated to the company's management, including its
principal executive and principal financial officers, as appropriate to allow
timely decisions regarding required disclosure. Management recognized
that any controls and procedures, no matter how well designed and operated,
can
provide only reasonable assurance of achieving their objectives and management
necessarily applied its judgment in evaluating the cost-benefit relationship
of
possible controls and procedures. Based on this evaluation, our chief
executive officer and chief financial officer concluded that, as of December
31,
2006, our disclosure controls and procedures were effective.
|
(b)
|
Internal
Controls Over Financial Reporting
|
(1) Management's
Annual Report on Internal Control Over Financial Reporting Our management is responsible
for
establishing and maintaining adequate internal control over financial reporting,
as such term is defined in Rule 13a-15(f) of the Exchange Act. Under
the supervision and with the participation of our management, including our
Chief Executive Officer and Chief Financial Officer, we conducted an evaluation
of the effectiveness of our internal control over financial reporting based
upon
the framework in Internal Control – Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway
Commission. Based
on that
evaluation, our management concluded that our internal control over financial
reporting was effective as of December 31, 2006.
(2)
Attestation
Report of the Independent Registered Public Accounting Firm
KPMG
LLP,
the Company's independent registered public accounting firm has issued its
report on our assessment
and effectiveness of the Company's internal control over financial
reporting. This report appears on page 94 of this Annual Report on
Form 10-K.
|
|
(3)
|
Changes
in Internal Control Over Financial
Reporting
|
No
change
in our internal control over financial reporting (as defined in Rules 13a-15(f)
under the Exchange Act) occurred during the fiscal quarter ended as of December
31, 2006 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
Report
of Independent Registered Public Accounting Firm
The
Board
of Directors and Stockholders
Cytogen
Corporation:
We
have
audited management's assessment, included in the accompanying Management's
Annual Report on Internal Control over Financial Reporting, that Cytogen
Corporation maintained effective internal control over financial reporting
as of
December 31, 2006, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Cytogen Corporation's management is responsible
for maintaining effective internal control over financial reporting and for
its
assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on
management's assessment and an opinion on the effectiveness of the Company's
internal control over financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating management's assessment,
testing and evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we considered necessary in
the
circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that
(1)
pertain to the maintenance of records that, in reasonable detail, accurately
and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary
to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors
of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In
our
opinion, management's assessment that Cytogen Corporation maintained effective
internal control over financial reporting as of December 31, 2006, is fairly
stated, in all material respects, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). Also, in our
opinion,
Cytogen Corporation maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2006, based on the criteria
established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Cytogen
Corporation and subsidiaries as of December 31, 2006 and 2005, and the related
consolidated statements of operations, stockholders' equity and comprehensive
loss, and cash flows for each of the years in the three-year period ended
December 31, 2006, and our report dated March 15, 2007 expressed an unqualified
opinion on those consolidated financial statements.
|
/s/
KPMG LLP
|
Princeton,
New Jersey
March
15,
2007
|
Item
9B.
|
Not
applicable.
PART
III
The
information relating to our directors, nominees for election as directors and
executive officers under the headings "Election of Directors", "Executive
Officers and Key Employees" and "Section 16(a) Beneficial Ownership Reporting
Compliance" in our definitive proxy statement for the 2007 Annual Meeting of
Stockholders is incorporated herein by reference to such proxy
statement.
We
have
adopted a written code of business conduct and ethics that applies to our
directors, officers and employees, including our principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions. We have made our code of
business conduct and ethics available free of charge through our website which
is located at www.cytogen.com, which is not part of this Annual Report on Form
10-K. We intend to disclose any amendments to, or waivers from, our
code of business conduct and ethics that are required to be publicly disclosed
pursuant to rules of the Securities and Exchange Commission and Nasdaq by filing
such amendment or waiver with the Securities and Exchange Commission and by
posting it on our website.
The
discussion under the heading "Executive Compensation" in our definitive proxy
statement for the 2007 Annual Meeting of Stockholders is incorporated herein
by
reference to such proxy statement.
The
discussion under the heading "Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters" in our definitive proxy
statement for the 2007 Annual Meeting of Stockholders is incorporated herein
by
reference to such proxy statement.
The
discussion under the heading "Certain Relationships and Related Transactions
and
Director Independence" in our definitive proxy statement for the 2007 Annual
Meeting of Stockholders is incorporated herein by reference to such proxy
statement.
The
discussion under the heading "Independent Auditors' Fees and Services" in our
definitive proxy statement for the 2007 Annual Meeting of Stockholders is
incorporated herein by reference to such proxy statement.
PART
IV
(a)
Documents filed as a part of the Report:
(1)
and
(2) The response to this portion of Item 15 is submitted as a separate section
of this Annual Report on Form 10-K, beginning on page F-1.
(3)
Exhibits –
|
3.1.1
|
Restated
Certificate of Incorporation of Cytogen Corporation, as
amended. Filed as an exhibit to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1996, filed with the
Commission on August 2, 1996, and incorporated herein by
reference.
|
|
|
3.1.2
|
Certificate
of Amendment to the Restated Certificate of Incorporation of Cytogen
Corporation, as amended. Filed as an exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2000,
filed
with the Commission on August 11, 2000, and incorporated herein by
reference.
|
|
|
3.1.3
|
Certificate
of Amendment to the Restated Certificate of Incorporation, as amended,
as
filed with the Secretary of State of the State of Delaware on October
25,
2002. Filed as an exhibit to the Company's Current Report on
Form 8-K, dated October 25, 2002, filed with the Commission on October
25,
2002, and incorporated herein by reference.
|
|
|
3.1.4
|
Certificate
of Designations of Series C Junior Participating Preferred Stock
of
Cytogen Corporation. Filed as an exhibit to the Company's
Registration Statement on Form S-8 (Reg. No. 333-59718), filed with
the
Commission on April 27, 2001, and incorporated herein by
reference.
|
|
|
3.1.5
|
Certificate
of Amendment to the Restated Certificate of Incorporation dated June
15,
2005. Filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2005, filed with the Commission
on August 9, 2005, and incorporated herein by
reference.
|
|
Exhibit
No.
|
||
|
3.2
|
By-Laws
of Cytogen Corporation, as amended and restated. Filed as an
exhibit to the Company's Current Report on Form 8-K, filed with the
Commission on October 19, 2006, and incorporated herein by
reference.
|
|
|
4.1.1
|
Amended
and Restated Rights Agreement, dated as of October 19, 1998 between
Cytogen Corporation and Chase Mellon Shareholder Services, L.L.C.,
as
rights agent. The Amended and Restated Rights Agreement
includes the Form of Certificate of Designations of Series C Junior
Participating Preferred Stock as Exhibit A, the form of Right Certificate
as Exhibit B and the Summary of Rights as Exhibit C. Filed as
an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter
ended September 30, 1998, filed with the Commission on November 13,
1998,
and incorporated herein by reference.
|
|
|
4.1.2
|
Agreement
for Substitution and Amendment of Rights Agreement by and between
Cytogen
Corporation and American Stock Transfer & Trust Company dated
September 1, 2004. Filed as an exhibit to the Company's Current
Report on Form 8-K, dated September 1, 2004, filed with the Commission
on
September 2, 2004, and incorporated herein by
reference.
|
|
|
10.1.1
|
Lease
Agreement, dated as of March 16, 1987, by and between Peregrine Investment
Partners I, as lessor, and Cytogen Corporation, as
lessee. Filed as an exhibit to the Company's Annual Report on
Form 10-K for the year ended January 2, 1988, filed with the Commission
on
April 1, 1988, and incorporated herein by reference.
|
|
|
10.1.2
|
Amendment,
dated as of October 16, 1987, to Lease Agreement between Peregrine
Investment Partners I and Cytogen Corporation. Filed as an
exhibit to the Company's Registration Statement on Form S-8 (Reg.
No.
33-30595), filed with the Commission on August 18, 1989, and incorporated
herein by reference.
|
|
|
10.2
|
1989
Employee Stock Option Plan. Filed as an exhibit to Company's
Registration Statement on Form S-8 (Reg. No. 33-30595), filed with
the
Commission on August 18, 1989, and incorporated herein by reference.
+
|
|
|
10.3.1
|
1988
Stock Option Plan for Non-Employee Directors. Filed as an
exhibit to the Company's Registration Statement on Form S-8 (Reg.
No.
33-30595), filed with the Commission on August 18, 1989, and incorporated
herein by reference. +
|
|
|
10.3.2
|
Amendment
No. 2 to the Cytogen Corporation 1988 Stock Option Plan for Non-Employee
Directors dated May 22, 1996. Filed as an exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30,
1996, filed with the Commission on August 2, 1996, and incorporated
herein
by reference. +
|
|
Exhibit
No.
|
||
|
10.4
|
1989
Stock Option Policy for Outside Consultants. Filed as an
exhibit to Amendment No. 1 to the Company's Registration Statement
on Form
S-1 (Reg. No. 33-31280), and incorporated herein by reference.
+
|
|
|
10.5.1
|
License
Agreement dated March 31, 1993 between Cytogen Corporation and The
Dow
Chemical Company. Filed as an exhibit to Amendment No. 1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended July
3,
1993, filed with the Commission on October 13, 1993, and incorporated
herein by reference.*
|
|
|
10.5.2
|
Amendment
of the License Agreement between Cytogen Corporation and The Dow
Chemical
Company dated September 5, 1995. Filed as an exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended March
31,
1996, filed with the Commission on May 9, 1996, and incorporated
herein by
reference.*
|
|
|
10.5.3
|
Second
Amendment to the License Agreement between Cytogen Corporation and
The Dow
Chemical Company dated May 20, 1996. Filed as an exhibit to
Amendment No. 1 to the Company's Quarterly Report on Form 10-Q for
the
quarter ended June 30, 1996, filed with the Commission on August
2, 1996,
and incorporated herein by reference.*
|
|
|
10.6
|
1992
Cytogen Corporation Employee Stock Option Plan II, as
amended. Filed as an exhibit to the Company's Registration
Statement on Form S-4 (Reg. No. 33-88612), filed with the Commission
on
January 19, 1995, and incorporated herein by reference.
+
|
|
|
10.7
|
License
Agreement, dated March 10, 1993, between Cytogen Corporation and
The
University of North Carolina at Chapel Hill, as amended. Filed
as an exhibit to the Company's Annual Report on Form 10-K for the
year
ended December 31, 1994, filed with the Commission on March 17, 1995,
and
incorporated herein by reference.*
|
|
|
10.8
|
Option
and License Agreement, dated July 1, 1993, between Cytogen Corporation
and
Sloan-Kettering Institute for Cancer Research. Filed as an
exhibit to the Company's Annual Report on Form 10-K for the year
ended
December 31, 1994, filed with the Commission on March 17, 1995, and
incorporated herein by reference.*
|
|
|
10.9
|
Horosziewicz-Cytogen
Agreement, dated April 20, 1989, between Cytogen Corporation and
Julius S.
Horosziewicz, M.D., DMSe. Filed as an exhibit to the Company' s
Annual Report on Form 10-K for the year ended December 31, 1995,
filed
with the Commission on March 28, 1996, and incorporated herein by
reference.*
|
|
Exhibit
No.
|
||
|
10.10
|
Severance
Agreement effective as of March 26, 1996 between Cytogen Corporation
and
John D. Rodwell, Ph.D. Filed as an exhibit to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996,
filed
with the Commission on March 24, 1997, and incorporated herein by
reference. +
|
|
|
10.11
|
License
Agreement between Targon Corporation and Elan Corporation, plc dated
July
21, 1997. Filed as an exhibit to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1997, filed with the
Commission on August 6, 1997, and incorporated herein by
reference.*
|
|
|
10.12
|
Convertible
Promissory Note dated as of August 12, 1998 between Cytogen Corporation
and Elan International Services, Ltd. Filed as an exhibit to
the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30,
1998, filed with the Commission on August 14, 1998, and incorporated
herein by reference.
|
|
|
10.13
|
Employment
agreement effective as of August 20, 1998 between Cytogen Corporation
and
H. Joseph Reiser. Filed as an exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1998,
filed with the Commission on November 13, 1998, and incorporated
herein by
reference. +
|
|
|
10.14
|
License
Agreement by and between Berlex Laboratories, Inc. and Cytogen Corporation
dated as of October 28, 1998. Filed as an exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1998, filed with the Commission on November 13, 1998, and incorporated
herein by reference.
|
|
|
10.15
|
Manufacturing
Space Agreement between Bard BioPharma L.P. and Cytogen Corporation
dated
as of January 7, 1999. Filed as an exhibit to Amendment No. 1
to the Company's Registration Statement on form S-1 (Reg. No. 333-67947),
filed with the Commission on January 27, 1999, and incorporated herein
by
reference.
|
|
|
10.16.1
|
Limited
Liability Company Agreement of PSMA Development Company LLC by and
among
Cytogen Corporation, Progenics Pharmaceuticals, Inc. and the PSMA
Development Company LLC dated June 15, 1999. Filed as an
exhibit to the Company's Registration Statement on Form S-3 (Reg.
No.
333-83215), filed with the Commission on July 20, 1999, and incorporated
herein by reference.
|
|
Exhibit
No.
|
||
|
10.16.2
|
Amendment
No. 1 to Limited Liability Company Agreement of PSMA Development
Company
LLC by and among Cytogen Corporation, Progenics Pharmaceuticals,
Inc. and
PSMA Development Company LLC dated as of March 22, 2002. Filed
as an exhibit to the Company's Quarterly Report on Form 10-Q for
the
quarter ended March 31, 2002, filed with the Commission on May 14,
2002,
and incorporated herein by reference.
|
|
|
10.17.1
|
Stock
Exchange Agreement among Cytogen Corporation and the Stockholders
and
Debtholders of Prostagen, Inc. Filed as an exhibit to the
Company's Registration Statement on Form S-3 (Reg. No. 333-83215)
dated
July 19, 1999, as amended, filed with the Commission on July 20,
1999, and
incorporated herein by reference.
|
|
|
10.17.2
|
Addendum
to Stock Exchange Agreement among Cytogen Corporation and the Shareholders
and Debtholders of Prostagen, Inc. dated as of May 14, 2002, and
amended
as of August 13, 2002. Filed as an exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002,
filed
with the Commission on August 14, 2002, and incorporated herein by
reference.
|
|
|
10.17.3
|
Addendum
No. 2 to Stock Exchange Agreement among Cytogen Corporation and the
Stockholders and Debtholders of Prostagen, Inc. Filed as an
exhibit to the Company's Current Report on Form 8-K dated November
19,
2004, filed with the Commission on November 22, 2004, and incorporated
herein by reference.
|
|
|
10.18
|
Strategic
Alliance Agreement between AxCell Biosciences Corporation and InforMax,
Inc. dated as of September 15, 1999. Filed as an exhibit to the
Company's Annual Report on Form 10-K for the year ended December
31, 1999,
filed with the Commission on March 28, 2000, and incorporated herein
by
reference.*
|
|
|
10.19
|
AxCell
Biosciences Corporation Stock Option Plan. Filed as an exhibit
to the Company's Annual Report on Form 10-K for the year ended December
31, 1999, filed with the Commission on March 28, 2000, and incorporated
herein by reference. +
|
|
|
10.20
|
Master
Loan and Security Agreement No. S7600 among Cytogen Corporation,
AxCell
Biosciences Corporation and Finova Capital Corporation dated December
30,
1999. Filed as an exhibit to the Company's Annual Report on
Form 10-K for the year ended December 31, 1999, filed with the Commission
on March 28, 2000, and incorporated herein by
reference.
|
|
Exhibit
No.
|
||
|
10.21
|
Written
Compensatory Agreement by and between Cytogen Corporation and H.
Joseph
Reiser dated August 24, 1998, as revised on July 11,
2000. Filed as an exhibit to the Company's Registration
Statement on Form S-8 (Reg. No. 333-48454), filed with the Commission
on
October 23, 2000, and incorporated herein by reference.
+
|
|
|
10.22
|
Written
Compensatory Agreement by and between Cytogen Corporation and Lawrence
Hoffman dated July 10, 2000. Filed as an exhibit to the
Company's Registration Statement on Form S-8 (Reg. No. 333-48454),
filed
with the Commission on October 23, 2000, and incorporated herein
by
reference. +
|
|
|
10.23
|
License
and Marketing Agreement by and between Cytogen Corporation and Advanced
Magnetics, Inc. dated August 25, 2000. Filed as an exhibit to
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000, filed with the Commission on November 14, 2000,
and
incorporated herein by reference.*
|
|
|
10.24
|
Development
and Manufacturing Agreement by and between Cytogen Corporation and
DSM
Biologics Company B.V. dated July 12, 2000. Filed as an exhibit
to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000, filed with the Commission on November 14, 2000,
and
incorporated herein by reference.*
|
|
|
10.25
|
Product
Manufacturing and Supply Agreement by and between Cytogen Corporation
and
Draximage Inc. dated December 5, 2000. Filed as an exhibit to
the Company's Annual Report on Form 10-K for the year ended December
31,
2000, filed with the Commission on March 30, 2001, and incorporated
herein
by reference. *
|
|
|
10.26
|
License
and Distribution Agreement by and between Cytogen Corporation and
Draximage Inc. dated December 5, 2000. Filed as an exhibit to
the Company's Annual Report on Form 10-K for the year ended December
31,
2000, filed with the Commission on March 30, 2001, and incorporated
herein
by reference. *
|
|
|
10.27
|
Cytogen
Corporation Stock Payment Program Bonus Plan. Filed as an
exhibit to the Company's Registration Statement on Form S-8 (Reg.
No.
333-58384), filed with the Commission on April 6, 2001, and incorporated
herein by reference. +
|
|
|
10.28
|
MFS
Fund Distributors, Inc. 401(K) Profit Sharing Plan and
Trust. Filed as an exhibit to the Company's Registration
Statement on Form S-8 (Reg. No. 333-59718), filed with the Commission
on
April 27, 2001, and incorporated herein by reference.
+
|
|
Exhibit
No.
|
||
|
10.29
|
Adoption
Agreement for MFS Fund Distributors, Inc. Non-Standardized 401(K)
Profit
Sharing Plan and Trust, with amendments. Filed as an exhibit to
the Company's Registration Statement on Form S-8 (Reg. No. 333-59718),
filed with the Commission on April 27, 2001, and incorporated herein
by
reference.
|
|
|
10.30
|
Cytogen
Corporation Performance Bonus Plan with Stock Payment
Program. Filed as an exhibit to Company's Registration
Statement on Form S-8 (Reg. No. 333-75304), filed with the Commission
on
December 17, 2001, and incorporated herein by reference.
+
|
|
|
10.31
|
Share
Purchase Agreement by and between Cytogen Corporation and the State
of
Wisconsin Investment Board dated as of January 18, 2002. Filed
as an exhibit to the Company's Current Report on Form 8-K, dated
January
18, 2002, filed with the Commission on January 24, 2002, and incorporated
herein by reference.
|
|
|
10.32
|
Form
of Executive Change of Control Severance Agreement by and between
Cytogen
Corporation and each of its Executive Officers. Filed as an
exhibit to the Company's Annual Report on Form 10-K for the year
ended
December 31, 2001, filed with the Commission on March 28, 2002, and
incorporated herein by reference. +
|
|
|
10.33.1
|
Office
Space Lease by and between Yardley Associates, L.P. and AxCell Biosciences
Corporation dated as of July 23, 1999. Filed as an exhibit to
the Company's Annual Report on Form 10-K for the year ended December
31,
2001, filed with the Commission on March 28, 2002, and incorporated
herein
by reference.
|
|
|
10.33.2
|
First
Amendment to the Lease Agreement by and between 826 Newtown Associates,
L.P. and AxCell Biosciences Corporation dated as of March 16,
2001. Filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2001, filed with the Commission
on May 14, 2001, and incorporated herein by reference.
|
|
|
10.34.1
|
Sublease
Agreement by and between Cytogen Corporation and Hale and Dorr LLP
dated
as of May 23, 2002. Filed as an exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002,
filed
with the Commission on August 14, 2002, and incorporated herein by
reference.
|
|
|
10.34.2
|
First
Amendment to Sublease Agreement by and between Cytogen Corporation
and
Hale and Dorr LLP dated February 10, 2004. Filed as an exhibit
to the Company's Quarterly Report on Form 10-Q for the quarter ended
March
31, 2004, filed with the Commission on May 7, 2004, and incorporated
herein by reference.
|
|
Exhibit
No.
|
||
|
10.35
|
Cytogen
Corporation Amended and Restated 1995 Stock Option Plan. Filed
as an exhibit to the Company's Annual Report on Form 10-K for the
year
ended December 31, 2002, filed with the Commission on March 31, 2003,
and
incorporated herein by reference. +
|
|
|
10.36
|
Amended
and Restated 1999 Stock Option Plan for Non-Employee
Directors. Filed as an exhibit to the Company's Annual Report
on Form 10-K for the year ended December 31, 2002, filed with the
Commission on March 31, 2003, and incorporated herein by reference.
+
|
|
|
10.37
|
Distribution
Agreement by and between Cytogen Corporation and Matritech Inc. dated
October 18, 2002. Filed as an exhibit to the Company's Annual
Report on Form 10-K for the year ended December 31, 2002, filed with
the
Commission on March 31, 2003, and incorporated herein by reference.
*
|
|
|
10.38
|
Written
Compensatory Agreement by and between Cytogen Corporation and Michael
D.
Becker dated December 17, 2002. Filed as an exhibit to the
Company's Annual Report on Form 10-K for the year ended December
31, 2002,
filed with the Commission on March 31, 2003, and incorporated herein
by
reference. +
|
|
|
10.39
|
Contract
Manufacturing Agreement by and between Cytogen Corporation and Laureate
Pharma, L.P. dated January 15, 2003. Filed as an exhibit to the
Company's Annual Report on Form 10-K for the year ended December
31, 2002,
filed with the Commission on March 31, 2003, and incorporated herein
by
reference. *
|
|
|
10.40
|
Quality
Agreement by and between Cytogen Corporation and Laureate Pharma,
L.P.
dated January 15, 2003. Filed as an exhibit to the Company's
Annual Report on Form 10-K for the year ended December 31, 2002,
filed
with the Commission on March 31, 2003, and incorporated herein by
reference. *
|
|
|
10.41
|
Securities
Purchase Agreement by and among Cytogen Corporation and certain purchasers
of the Company's common stock dated June 6, 2003. Filed as an
exhibit to the Company's Current Report on Form 8-K dated June 6,
2003,
filed with the Commission on June 9, 2003, and incorporated herein
by
reference.
|
|
Exhibit
No.
|
||
|
10.42
|
Form
of Common Stock Purchase Warrant issued by the Company in favor of
certain
purchasers of the Company's common stock dated June 6,
2003. Filed as an exhibit to the Company's Current Report on
Form 8-K dated June 6, 2003, filed with the Commission on June 9,
2003,
and incorporated herein by reference.
|
|
|
10.43
|
Registration
Rights Agreement by and among the Company and certain purchasers
of the
Company's common stock dated June 6, 2003. Filed as an exhibit
to the Company's Current Report on Form 8-K dated June 6, 2003, filed
with
the Commission on June 9, 2003, and incorporated herein by
reference.
|
|
|
10.44
|
Securities
Purchase Agreement by and among Cytogen Corporation and certain purchasers
of the Company's common stock dated July 10, 2003. Filed as an
exhibit to the Company's Current Report on Form 8-K dated July 10,
2003,
filed with the Commission on July 11, 2003, and incorporated herein
by
reference.
|
|
|
10.45
|
Form
of Common Stock Purchase Warrant issued by Cytogen Corporation in
favor of
certain purchasers of the Company's common stock dated July 10,
2003. Filed as an exhibit to the Company's Current Report on
Form 8-K dated July 10, 2003, filed with the Commission on July 11,
2003,
and incorporated herein by reference.
|
|
|
10.46
|
Registration
Rights Agreement by and among Cytogen Corporation and certain purchasers
of the Company's common stock dated July 10, 2003. Filed as an
exhibit to the Company's Current Report on Form 8-K dated July 10,
2003,
filed with the Commission on July 11, 2003, and incorporated herein
by
reference.
|
|
|
10.47
|
Share
Purchase Agreement by and among Cytogen Corporation and certain purchasers
of the Company's common stock dated November 6, 2003. Filed as
an exhibit to the Company's Current Report on Form 8-K dated November
6,
2003, filed with the Commission on November 7, 2003, and incorporated
herein by reference.
|
|
|
10.48
|
Manufacturing
and Supply Agreement by and among Cytogen Corporation, Berlex
Laboratories, Inc. and DuPont Pharmaceuticals Company dated November
13,
1998 and effective as of January 1, 1999. Filed as an exhibit
to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 2003, filed with the Commission on November 12, 2003,
and
incorporated herein by reference. **
|
|
|
10.49
|
Termination
Agreement between Cytogen Corporation and Berlex Laboratories, Inc.,
dated
June 16, 2003. Filed as an exhibit to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2003, filed
with
the Commission on November 12, 2003, and incorporated herein by reference.
**
|
|
Exhibit
No.
|
||
|
10.50
|
Assignment
Agreement between Cytogen Corporation and Berlex Laboratories, Inc.,
dated
August 1, 2003. Filed as an exhibit to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2003, filed
with
the Commission on November 12, 2003, and incorporated herein by reference.
**
|
|
|
10.51
|
Placement
Agency Agreement by and among Cytogen Corporation, CIBC World Markets
Corp., JMP Securities LLC and ThinkEquity Partners LLC dated April
14,
2004. Filed as an exhibit to the Company's Current Report on
Form 8-K dated April 14, 2004, filed with the Commission on April
15,
2004, and incorporated herein by reference.
|
|
|
10.52
|
Manufacturing
and Supply Agreement by and between Cytogen Corporation and Bristol-Myers
Squibb Medical Imaging, Inc. effective as of January 1,
2004. Filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2004, filed with the Commission
on May 7, 2004, and incorporated herein by reference.
**
|
|
|
10.53
|
Cytogen
Corporation 2004 Stock Incentive Plan. Filed as an exhibit to
the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30,
2004, filed with the Commission on August 9, 2004, and incorporated
herein
by reference. +
|
|
|
10.54
|
Cytogen
Corporation 2004 Non-Employee Director Stock Incentive
Plan. Filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2004, filed with the Commission
on August 9, 2004, and incorporated herein by reference.
+
|
|
|
10.55
|
Manufacturing
Agreement dated September 10, 2004 by and between Cytogen Corporation
and
Laureate Pharma, L.P. Filed as an exhibit to the Company's
Current Report on Form 8-K dated September 10, 2004, filed with the
Commission on September 14, 2004, and incorporated herein by
reference.**
|
|
|
10.56
|
Warrant
Agreement, dated June 10, 2003, between Cytogen Corporation and Howard
Soule, Ph.D. Filed as an exhibit to the Company's Registration
Statement on Form S-8 (Reg. No. 333-121320), filed with the Commission
on
December 16, 2004, and incorporated herein by reference.
+
|
|
|
10.57
|
Cytogen
Corporation Employee Stock Purchase Plan, amended as of February
2005. Filed as an exhibit to the Company's Current Report on
Form 8-K dated February 8, 2005, filed with the Commission on February
10,
2005, and incorporated herein by reference.
+
|
|
Exhibit
No.
|
||
|
10.58
|
Form
of Securities Purchase Agreement by and among the Company and the
Purchasers dated July 19, 2005. Filed as an exhibit to the
Company's Current Report on Form 8-K, filed with the Commission on
July
20, 2005, and incorporated herein by reference.
|
|
|
10.59
|
Form
of Common Stock Purchase Warrant issued by the Company in favor of
each
Purchaser dated July 19, 2005. Filed as an exhibit to the
Company's Current Report on Form 8-K, filed with the Commission on
July
20, 2005, and incorporated herein by reference.
|
|
|
10.60
|
Cytogen
Corporation 2005 Employee Stock Purchase Plan. Filed as an
exhibit to the Company's Current Report on Form 8-K, filed with the
Commission on September 27, 2005, and incorporated herein by reference.
+
|
|
|
10.61
|
Form
of Securities Purchase Agreement by and among the Company and the
Purchasers dated December 13, 2005. Filed as an exhibit to the
Company's Current Report on Form 8-K, filed with the Commission on
December 14, 2005, and incorporated herein by
reference.
|
|
|
10.62
|
Form
of Common Stock Purchase Warrant issued by the Company in favor of
each
Purchaser dated December 13, 2005. Filed as an exhibit to the
Company's Current Report on Form 8-K, filed with the Commission on
December 14, 2005, and incorporated herein by
reference.
|
|
|
10.63
|
Engagement
Agreement dated December 13, 2005 between Cytogen Corporation and
Rodman
& Renshaw, LLC. Filed as an exhibit to the Company's
Current Report on Form 8-K/A, filed with the Commission on December
14,
2005, and incorporated herein by reference.
|
|
|
10.64
|
Cytogen
Corporation 2006 Equity Compensation Plan. Filed as an exhibit
to the Company's Quarterly Report on Form 10-Q for the quarter ended
March
31, 2006, filed with the Commission on May 10, 2006, and incorporated
herein by reference. +
|
|
|
10.65
|
Membership
Interest Purchase Agreement dated as of April 20, 2006 between the
Company
and Progenics Pharmaceutical, Inc. Filed as an exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended March
31,
2006, filed with the Commission on May 10, 2006, and incorporated
herein
by reference.
|
|
Exhibit
No.
|
||
|
10.66
|
Amended
and Restated PSMA/PSMP License Agreement dated April 20, 2006 among
the
Company, Progenics Pharmaceuticals, Inc. and PSMA Development Company
LLC.** Filed
as an exhibit to the Company's Quarterly Report on Form 10-Q for
the
quarter ended March 31, 2006, filed with the Commission on May 10,
2006,
and incorporated herein by reference.
|
|
|
10.67
|
Exclusive
Distribution Agreement dated as of April 21, 2006 between the Company
and
Savient Pharmaceuticals, Inc.
** Filed
as an exhibit to the Company's Quarterly Report on Form 10-Q for
the
quarter ended March 31, 2006, filed with the Commission on May 10,
2006,
and incorporated herein by reference.
|
|
|
10.68
|
Manufacture
and Supply Agreement dated April 21, 2006 between the Company, Savient
Pharmaceuticals, Inc. and Rosemont Pharmaceuticals Limited.** Filed
as an exhibit to the Company's Quarterly Report on Form 10-Q for
the
quarter ended March 31, 2006, filed with the Commission on May 10,
2006,
and incorporated herein by reference.
|
|
|
10.69
|
Product
Purchase and Supply Agreement dated as of June 20, 2006 between the
Company and Oncology Therapeutics Network, J.V. Filed as an
exhibit to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2006, filed with the Commission on August 9, 2006,
and
incorporated herein by reference.
|
|
|
10.70
|
Manufacturing
Agreement dated September 29, 2006 by and between the Company and
Laureate
Pharma, Inc.
** Filed as an exhibit to the Company's Quarterly
Report on Form 10-Q, filed with the Commission on November 9, 2006,
and
incorporated herein by reference.
|
|
|
10.71
|
Product
License and Assignment Agreement dated as of October 11, 2006 by
and among
the Company, InPharma AS, and InPharma, Inc.
** Filed as an exhibit to the Company's Quarterly
Report on Form 10-Q, filed with the Commission on November 9, 2006,
and
incorporated herein by reference.
|
|
|
10.72
|
Securities
Purchase Agreement dated as of November 1, 2006, among the Company
and
certain Purchasers. Filed as an exhibit to the Company's
Current Report on Form 8-K, filed with the Commission on November
9, 2006,
and incorporated herein by reference.
|
|
|
10.73
|
Form
of Common Stock Purchase Warrant issued by the Company in favor of
certain
Purchasers. Filed as an exhibit to the Company's Current Report
on Form 8-K, filed with the Commission on November 9, 2006, and
incorporated herein by reference.
|
|
Exhibit
No.
|
||
|
10.74
|
Form
of Registration Rights Agreement among the Company and certain
Purchasers. Filed as an exhibit to the Company's Current Report
on Form 8-K, filed with the Commission on November 9, 2006, and
incorporated herein by reference.
|
|
|
Settlement
and Release Agreement dated February 15, 2007 between the Company
and
Advanced Magnetics, Inc. Filed herewith.
|
||
|
Contract
Manufacturing Agreement dated as of January 8, 2007 between the Company
and Holopack Verpackungstechnik GmbH. Filed herewith. **
|
||
|
Subsidiaries
of Cytogen Corporation. Filed herewith.
|
||
|
Consent
of KPMG LLP. Filed herewith
|
||
|
Consent
of PricewaterhouseCoopers LLP. Filed herewith
|
||
|
Certification
of President and Chief Executive Officer pursuant to Rule 13a-14(a)
or
15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant
to
Section 302 of the Sarbanes-Oxley Act 2002. Filed
herewith.
|
||
|
Certification
of Senior Vice President, Finance and Chief Financial Officer pursuant
to
Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934,
as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act 2002.
Filed
herewith.
|
||
|
Certification
of President and Chief Executive Officer pursuant to 18 U.S.C.
Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of
2002. Filed herewith.
|
||
|
Certification
of Senior Vice President, Finance and Chief Financial Officer pursuant
to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. Filed
herewith.
|
+
Management contract or compensatory plan or arrangement.
*
We have
received confidential treatment of certain provisions contained in this exhibit
pursuant to an order issued by the Securities and Exchange
Commission. The copy filed as an exhibit omits the information
subject to the confidentiality grant.
**
We
have submitted an application for confidential treatment with the Securities
and
Exchange Commission with respect to certain provisions contained in this
exhibit. The copy filed as an exhibit omits the information subject
to the confidentiality application.
|
|
(b)
|
Exhibits:
|
|
|
The
Exhibits filed with this Form 10-K are listed above in response to
Item
15(a)(3).
|
|
|
(c)
|
Financial
Statement Schedules:
|
|
|
None.
|
110
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by
the undersigned, thereunto duly authorized on the16th day
of March, 2007.
|
CYTOGEN
CORPORATION
|
||
|
By:
|
/s/
MICHAEL D. BECKER
|
|
|
Michael
D. Becker,
|
||
|
President
and Chief Executive Officer
|
||
SIGNATURES
AND POWER OF ATTORNEY
We,
the
undersigned officers and directors of Cytogen Corporation, hereby severally
constitute and appoint Michael D. Becker and Kevin J. Bratton and each of them
singly, our true and lawful attorneys with full power to any of them, and to
each of them singly, to sign for us and in our names in the capacities indicated
below, the Annual Report on Form 10-K filed herewith and any and all amendments
to said Annual Report on Form 10-K and generally to do all such things in our
name and behalf in our capacities as officers and directors to enable Cytogen
Corporation to comply with the provisions of the Securities Exchange Act of
1934, as amended, and all requirements of the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as they may be signed
by our said attorneys, or any of them, to said Annual Report on Form 10-K and
any and all amendments thereto.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
|||
|
By:
|
/s/ MICHAEL
D. BECKER
|
President
and Chief Executive Officer
|
March
16, 2007
|
||
|
Michael
D. Becker
|
(Principal
Executive Officer and Director)
|
||||
|
By:
|
/s/ KEVIN
J. BRATTON
|
Senior
Vice President, Finance, and Chief Financial
|
March
16, 2007
|
||
|
Kevin
J. Bratton
|
Officer
(Principal Financial and Accounting Officer)
|
||||
|
By:
|
/s/ JOHN
E. BAGALAY, JR.
|
Director
|
March
16, 2007
|
||
|
John
E. Bagalay, Jr.
|
|||||
|
By:
|
/s/ ALLEN
BLOOM
|
Director
|
March
16, 2007
|
||
|
Allen
Bloom
|
|||||
|
By:
|
/s/ STEPHEN
K. CARTER
|
Director
|
March16,
2007
|
||
|
Stephen
K. Carter
|
|||||
|
By:
|
/s/ JAMES
A. GRIGSBY
|
Director
and Chairman of the Board
|
March
16, 2007
|
||
|
James
A. Grigsby
|
|||||
|
By:
|
/s/ ROBERT
F. HENDRICKSON
|
Director
|
March
16, 2007
|
||
|
Robert
F. Hendrickson
|
|
By:
|
/s/ DENNIS
H. LANGER
|
Director
|
March
16, 2007
|
||
|
Dennis
H. Langer
|
|||||
|
By:
|
/s/ KEVIN
G. LOKAY
|
Director
|
March
16, 2007
|
||
|
Kevin
G. Lokay
|
|||||
|
By:
|
/s/ JOSEPH
A. MOLLICA
|
Director
|
March
16, 2007
|
||
|
Joseph
A. Mollica
|
Index
to
Consolidated Financial Statements
|
F-2
|
|
|
F-4
|
|
|
F-5
|
|
|
F-6
|
|
|
F-7
|
|
|
F-8
|
|
|
F-9
|
The
Board
of Directors and Stockholders
Cytogen
Corporation:
We
have
audited the accompanying consolidated balance sheets of Cytogen Corporation
and
subsidiaries as of December 31, 2006 and 2005, and the related consolidated
statements of operations, stockholders' equity and comprehensive loss, and
cash
flows for each of the years in the three-year period ended December 31,
2006. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits. We did not audit the financial statements of PSMA Development
Company LLC (a development stage enterprise), a 50% owned unconsolidated
investee company. The Company's equity interest in the loss of PSMA
Development Company LLC was $3.2 million and $2.9 million for the years ended
December 31, 2005 and 2004, respectively. The Company's investment in
PSMA Development Company LLC was $379,000 as of December 31,
2005. The 2005 and 2004 financial statements of PSMA Development
Company LLC were audited by other auditors whose report has been furnished
to
us, and our opinion, insofar as it relates to the 2005 and 2004 amounts
included for PSMA Development Company LLC, is based solely on the report of
the
other auditors. The report of the other auditors on the 2005 and 2004
financial statements of PSMA Development Company LLC contains an explanatory
paragraph that states that PSMA Development Company LLC has suffered recurring
losses from operations and does not have a work plan or budget for 2006, all
of
which raise substantial doubt about its ability to continue as a going concern,
and that its financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the report of the other
auditors provide a reasonable basis for our opinion.
In
our
opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Cytogen Corporation and
subsidiaries as of December 31, 2006 and 2005, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2006, in conformity with U.S. generally accepted accounting
principles.
As
discussed in notes 1 and 13 to the consolidated financial statements, the
Company adopted the provisions of Statement of Financial Accounting Standards
No. 123R, "Share-Based Payment" effective January 1, 2006.
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of Cytogen Corporation's
internal control over financial reporting as of December 31, 2006, based on
criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO), and
our
report dated March 15, 2007 expressed an unqualified opinion on management's
assessment of, and the effective operation of, internal control over financial
reporting.
|
/s/
KPMG LLP
|
Princeton,
New Jersey
March
15,
2007
To
the
Management Committee and Members of
PSMA
Development Company LLC:
In
our
opinion, the balance sheet and the related statements of operations, of Members'
(deficit) equity and of cash flows (not presented herein) present fairly, in
all
material respects, the financial position of PSMA Development Company LLC (the
"Company") (a development stage enterprise) at December 31, 2005, and the
results of its operations and its cash flows for each of the two years in the
period ended December 31, 2005, and, cumulatively, for the period from June
15,
1999 (date of inception) to December 31, 2005 in conformity with accounting
principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on
our audits. We conducted our audits of these statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
The
financial statements have been prepared assuming that the Company will continue
as a going concern. As discussed in Note 1 to the financial
statements, the Company has suffered recurring losses from operations and does
not have a work plan or budget for 2006, all of which raise substantial doubt
about its ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from
the
outcome of this uncertainty.
/s/
PricewaterhouseCoopers LLP
New
York,
New York
March
15,
2006
CONSOLIDATED
BALANCE SHEETS
(All
amounts in thousands, except share and per share data)
|
December
31,
|
||||||||
|
2006
|
2005
|
|||||||
|
ASSETS:
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ |
32,507
|
$ |
30,337
|
||||
|
Restricted
cash
|
1,100
|
—
|
||||||
|
Accounts
receivable, net
|
2,113
|
1,743
|
||||||
|
Inventories
|
2,538
|
3,582
|
||||||
|
Inventories
at wholesalers
|
93
|
—
|
||||||
|
Prepaid
expenses
|
1,571
|
906
|
||||||
|
Other
current assets
|
63
|
354
|
||||||
|
Total
current assets
|
39,985
|
36,922
|
||||||
|
Property
and equipment, less accumulated depreciation and amortization of
$1,409
and $981 at December 31, 2006 and 2005, respectively
|
691
|
886
|
||||||
|
Product
license fees, less accumulated amortization of $2,577 and $1,673,
at
December 31, 2006 and 2005, respectively
|
11,612
|
6,327
|
||||||
|
Other
assets
|
2,065
|
655
|
||||||
| $ |
54,353
|
$ |
44,790
|
|||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY:
|
||||||||
|
Current
liabilities:
|
||||||||
|
Current
portion of long-term liabilities
|
$ |
64
|
$ |
26
|
||||
|
Accounts
payable and accrued liabilities
|
10,104
|
5,271
|
||||||
|
Total
current liabilities
|
10,168
|
5,297
|
||||||
|
Warrant
liabilities
|
6,464
|
1,869
|
||||||
|
Other
long-term liabilities
|
59
|
46
|
||||||
|
Total
liabilities
|
16,691
|
7,212
|
||||||
|
Commitments
and contingencies (Note 19)
|
||||||||
|
Stockholders'
equity:
|
||||||||
|
Preferred
stock, $.01 par value, 5,400,000 shares authorized – Series C Junior
Participating Preferred Stock, $.01 par value, 200,000 shares authorized,
none issued and outstanding
|
—
|
—
|
||||||
|
Common
stock, $.01 par value, 50,000,000 shares authorized, 29,605,631 and
22,473,762 shares issued and outstanding at December 31, 2006 and
2005,
respectively
|
296
|
225
|
||||||
|
Additional
paid-in capital
|
465,016
|
450,502
|
||||||
|
Unearned
compensation
|
—
|
(610 | ) | |||||
|
Accumulated
other comprehensive income
|
20
|
28
|
||||||
|
Accumulated
deficit
|
(427,670 | ) | (412,567 | ) | ||||
|
Total
stockholders' equity
|
37,662
|
37,578
|
||||||
| $ |
54,353
|
$ |
44,790
|
|||||
The
accompanying notes are an integral part of these statements.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(All
amounts in thousands, except per share data)
|
Year
Ended December 31,
|
||||||||||||
|
2006
|
2005
|
2004
|
||||||||||
|
REVENUES:
|
||||||||||||
|
Product
revenue:
|
||||||||||||
|
PROSTASCINT
|
$ |
9,125
|
$ |
7,407
|
$ |
7,186
|
||||||
|
QUADRAMET
|
8,141
|
8,350
|
7,293
|
|||||||||
|
Others
|
30
|
—
|
1
|
|||||||||
|
Total
product
revenue
|
17,296
|
15,757
|
14,480
|
|||||||||
|
License
and contract
revenue
|
11
|
189
|
139
|
|||||||||
|
Total
revenues
|
17,307
|
15,946
|
14,619
|
|||||||||
|
OPERATING
EXPENSES:
|
||||||||||||
|
Cost
of product
revenue
|
10,150
|
9,523
|
9,223
|
|||||||||
|
Selling,
general and administrative
|
30,166
|
25,895
|
20,318
|
|||||||||
|
Research
and
development
|
7,301
|
6,162
|
3,292
|
|||||||||
|
Equity
in loss of joint
venture
|
120
|
3,175
|
2,896
|
|||||||||
|
Total
operating
expenses
|
47,737
|
44,755
|
35,729
|
|||||||||
|
Operating
loss
|
(30,430 | ) | (28,809 | ) | (21,110 | ) | ||||||
|
Interest
income
|
1,451
|
712
|
448
|
|||||||||
|
Interest
expense
|
(36 | ) | (114 | ) | (185 | ) | ||||||
|
Gain
on sale of equity interest in joint venture
|
12,873
|
—
|
—
|
|||||||||
|
Decrease
in value of warrant liabilities
|
1,039
|
1,666
|
—
|
|||||||||
|
Loss
before income
taxes
|
(15,103 | ) | (26,545 | ) | (20,847 | ) | ||||||
|
Income
tax
benefit
|
—
|
(256 | ) | (307 | ) | |||||||
|
Net
loss
|
$ | (15,103 | ) | $ | (26,289 | ) | $ | (20,540 | ) | |||
|
Basic
and diluted net loss per share
|
$ | (0.64 | ) | $ | (1.54 | ) | $ | (1.40 | ) | |||
|
Weighted-average
common shares outstanding
|
23,494
|
17,117
|
14,654
|
|||||||||
The
accompanying notes are an integral part of these statements.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS
(All
amounts in thousands, except share data)
|
Common
Stock
|
Additional
Paid-in
|
Unearned
|
Accumulated
Other
Comprehensive
|
Accumulated
|
Total
Stockholders'
|
|||||||||||||||||||||||
|
Share
|
Amount
|
Capital
|
Compensation
|
Income
|
Deficit
|
Equity
|
||||||||||||||||||||||
|
Balance,
December 31, 2003
|
12,857,488
|
$ |
129
|
$ |
401,649
|
$ |
—
|
$ |
—
|
$ | (365,738 | ) | $ |
36,040
|
||||||||||||||
|
Sale
of shares of common stock including exercise of stock
options
|
2,580,755
|
26
|
23,992
|
—
|
—
|
—
|
24,018
|
|||||||||||||||||||||
|
Issuance
of shares of common stock and amendment of options related to
compensation
|
873
|
—
|
15
|
—
|
—
|
—
|
15
|
|||||||||||||||||||||
|
Issuance
of shares of common stock in connection with Prostagen
|
50,000
|
—
|
497
|
—
|
—
|
—
|
497
|
|||||||||||||||||||||
|
Net
loss and comprehensive loss
|
—
|
—
|
—
|
—
|
—
|
(20,540 | ) | (20,540 | ) | |||||||||||||||||||
|
Balance,
December 31, 2004
|
15,489,116
|
155
|
426,153
|
—
|
—
|
(386,278 | ) |
40,030
|
||||||||||||||||||||
|
Sale
of shares of common stock including exercise of stock options and
warrants
|
6,887,847
|
69
|
23,129
|
—
|
—
|
—
|
23,198
|
|||||||||||||||||||||
|
Issuance
of shares of common stock related to compensation
|
4,000
|
—
|
19
|
—
|
—
|
—
|
19
|
|||||||||||||||||||||
|
Issuance
of shares of common stock related to Prostagen
|
92,799
|
1
|
499
|
—
|
—
|
—
|
500
|
|||||||||||||||||||||
|
Unearned
compensation related to non-vested stock grants
|
—
|
—
|
869
|
(869 | ) |
—
|
—
|
—
|
||||||||||||||||||||
|
Reversal
of unearned compensation related to non-vested stock
grants
|
—
|
—
|
(167 | ) |
167
|
—
|
—
|
—
|
||||||||||||||||||||
|
Amortization
of unearned compensation
|
—
|
—
|
—
|
92
|
—
|
—
|
92
|
|||||||||||||||||||||
|
Comprehensive
loss:
|
||||||||||||||||||||||||||||
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
(26,289 | ) | (26,289 | ) | |||||||||||||||||||
|
Unrealized
gain on marketable securities
|
—
|
—
|
—
|
—
|
28
|
—
|
28
|
|||||||||||||||||||||
|
Total
comprehensive loss
|
—
|
—
|
—
|
—
|
—
|
—
|
(26,261 | ) | ||||||||||||||||||||
|
Balance,
December 31, 2005
|
22,473,762
|
225
|
450,502
|
(610 | ) |
28
|
(412,567 | ) |
37,578
|
|||||||||||||||||||
|
Sale
of shares of common stock
|
7,131,869
|
71
|
13,247
|
—
|
—
|
—
|
13,318
|
|||||||||||||||||||||
|
Share-based
compensation expense
|
—
|
—
|
1,877
|
—
|
—
|
—
|
1,877
|
|||||||||||||||||||||
|
Reversal
of unearned compensation related to non-vested stock
grants
|
—
|
—
|
(610 | ) |
610
|
—
|
—
|
—
|
||||||||||||||||||||
|
Comprehensive
loss:
|
||||||||||||||||||||||||||||
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
(15,103 | ) | (15,103 | ) | |||||||||||||||||||
|
Unrealized
loss on marketable securities
|
—
|
—
|
—
|
—
|
(8 | ) |
—
|
(8 | ) | |||||||||||||||||||
|
Total
comprehensive loss
|
—
|
—
|
—
|
—
|
—
|
—
|
(15,111 | ) | ||||||||||||||||||||
|
Balance,
December 31, 2006
|
29,605,631
|
$ |
296
|
$ |
465,016
|
$ |
—
|
$ |
20
|
$ | (427,670 | ) | $ |
37,662
|
||||||||||||||
The
accompanying notes are an integral part of these statements.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(All
amounts in thousands)
|
Year
Ended December 31,
|
||||||||||||
|
2006
|
2005
|
2004
|
||||||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
|
Net
loss
|
$ | (15,103 | ) | $ | (26,289 | ) | $ | (20,540 | ) | |||
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
|
Depreciation
and amortization
|
1,366
|
1,018
|
984
|
|||||||||
|
Decrease
in value of warrant liabilities
|
(1,039 | ) | (1,666 | ) |
—
|
|||||||
|
Share-based
compensation expense
|
1,877
|
111
|
15
|
|||||||||
|
Share-based
milestone obligation
|
—
|
500
|
497
|
|||||||||
|
Increase
(decrease) in provision for doubtful accounts
|
2
|
(72 | ) |
—
|
||||||||
|
Amortization
of premiums on investments, net
|
—
|
52
|
132
|
|||||||||
|
Gain
on sale of equity interest in joint venture
|
(12,873 | ) |
—
|
—
|
||||||||
|
Asset
impairment
|
—
|
—
|
67
|
|||||||||
|
Deferred
rent
|
(19 | ) |
12
|
15
|
||||||||
|
Gain
on disposition of assets
|
—
|
—
|
(2 | ) | ||||||||
|
Changes
in assets and liabilities:
|
||||||||||||
|
Accounts
receivables
|
(372 | ) | (265 | ) |
39
|
|||||||
|
Inventories
|
1,044
|
51
|
(1,736 | ) | ||||||||
|
Other
assets
|
(1,588 | ) | (139 | ) |
25
|
|||||||
|
Liability
related to joint venture
|
—
|
(396 | ) |
396
|
||||||||
|
Accounts
payable and accrued liabilities
|
3,852
|
(2,385 | ) |
2,435
|
||||||||
|
Net
cash used in operating activities
|
(22,853 | ) | (29,468 | ) | (17,673 | ) | ||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
|
Purchases
of product rights
|
(6,845 | ) |
—
|
—
|
||||||||
|
Purchases
of property and equipment
|
(171 | ) | (405 | ) | (695 | ) | ||||||
|
Net
proceeds from sale of property and equipment
|
—
|
—
|
187
|
|||||||||
|
Proceeds
from sale of equity interest in joint venture
|
13,132
|
—
|
—
|
|||||||||
|
Maturities
of short-term investments
|
—
|
22,727
|
16,700
|
|||||||||
|
Purchases
of short-term investments
|
—
|
—
|
(23,026 | ) | ||||||||
|
Net
cash provided by (used in) investing activities
|
6,116
|
22,322
|
(6,834 | ) | ||||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
|
Proceeds
from issuance of common stock
|
13,318
|
23,198
|
24,018
|
|||||||||
|
Proceeds
from issuance of warrants
|
5,634
|
3,535
|
—
|
|||||||||
|
Payments
of long-term liabilities
|
(45 | ) | (2,296 | ) | (95 | ) | ||||||
|
Net
cash provided by financing activities
|
18,907
|
24,437
|
23,923
|
|||||||||
|
Net
increase (decrease) in cash and cash equivalents
|
2,170
|
17,291
|
(584 | ) | ||||||||
|
Cash
and cash equivalents, beginning of year
|
30,337
|
13,046
|
13,630
|
|||||||||
|
Cash
and cash equivalents, end of year
|
$ |
32,507
|
$ |
30,337
|
$ |
13,046
|
||||||
|
Supplemental
disclosure of non-cash information:
|
||||||||||||
|
Unrealized
holding gain (loss) on marketable securities
|
$ | (8 | ) | $ |
28
|
$ |
—
|
|||||
|
Capital
lease of equipment
|
96
|
25
|
73
|
|||||||||
|
Supplemental
disclosure of cash information:
|
||||||||||||
|
Cash
paid for interest
|
$ |
32
|
$ |
395
|
$ |
185
|
||||||
|
Cash
received for taxes
|
—
|
256
|
307
|
|||||||||
The
accompanying notes are an integral part of these statements.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
|
Business
Cytogen
Corporation (the "Company") is a specialty pharmaceutical company dedicated
to
advancing the treatment and care of cancer patients by building, developing,
and
commercializing a portfolio of oncology products for underserved markets where
there are unmet needs. The Company's product portfolio includes four
oncology products approved by the United States Food and Drug Administration
("FDA"), CAPHOSOL®, QUADRAMET®,
PROSTASCINT®, and SOLTAMOX™,
which are marketed solely by the Company's specialized sales force to the
U.S. oncology market. The Company introduced its fourth product,
CAPHOSOL, in the first quarter of 2007. CAPHOSOL is an electrolyte
solution for the treatment of oral mucositis and dry mouth that was approved
as
a prescription medical device. QUADRAMET is approved for the
treatment of pain in patients whose cancer has spread to the
bone. PROSTASCINT is a PSMA-targeting monoclonal antibody-based agent
to image the extent and spread of prostate cancer. SOLTAMOX, which
the Company introduced in the second half of 2006, is the first liquid
hormonal therapy approved in the U.S. for the treatment of breast cancer in
adjuvant and metastatic settings. Currently, the Company's clinical
development initiatives are focused on new indications for QUADRAMET and
PROSTASCINT, as well the product candidate, CYT-500, a radiolabeled antibody
in
Phase 1 development for the treatment of prostate cancer.
On
April
21, 2006, the Company and Savient Pharmaceuticals, Inc. ("Savient") entered
into
a distribution agreement granting the Company exclusive marketing rights for
SOLTAMOX in the United States. SOLTAMOX, a cytostatic estrogen
receptor antagonist, is indicated for the treatment of breast cancer in adjuvant
and metastatic settings and to reduce the risk of breast cancer in women with
ductal carcinoma in situ (DCIS) or with high risk of breast
cancer. In addition, the Company entered into a supply agreement with
Savient and Rosemont Pharmaceuticals Limited, previously a wholly-owned
subsidiary of Savient ("Rosemont"), for the manufacture and supply of
SOLTAMOX.
On
October 11, 2006, the Company and InPharma AS ("InPharma") entered into a
license agreement granting the Company exclusive rights for CAPHOSOL in North
America. Approved as a prescription medical device, CAPHOSOL is a
topical oral agent indicated in the United States as an adjunct to standard
oral
care in treating oral mucositis caused by radiation or high dose
chemotherapy. CAPHOSOL is also indicated for dryness of the mouth or
dryness of the throat regardless of the cause or whether the conditions are
temporary or permanent.
Cytogen
has a history of operating losses since its inception. The Company
currently relies on two products, PROSTASCINT and QUADRAMET, for substantially
all of its revenues. In addition, the Company has, from time to time,
stopped selling certain products, such as NMP22 BLADDERCHEK, BRACHYSEED and
ONCOSCINT, that the Company previously
believed
would generate significant revenues. The Company's products are
subject to significant regulatory review by the FDA and other federal and state
agencies, which requires significant time and expenditures in seeking,
maintaining and expanding product approvals. In addition, the Company
relies on collaborative partners to a significant degree, among other things,
to
manufacture its products, to secure raw materials, and to provide licensing
rights to their proprietary technologies for the Company to sell and market
to
others. The Company is also subject to revenue and credit
concentration risks as a small number of its customers account for a high
percentage of total revenues and corresponding receivables. The loss
of one of these customers or changes in their buying patterns could result
in
reduced sales, thereby adversely affecting the operating results.
The
Company has incurred negative cash flows from operations since its inception,
and has expended, and expects to continue to expend, substantial funds to
implement its planned product development efforts, including acquisition of
products and complementary technologies, research and development, clinical
studies and regulatory activities, and to further the Company's marketing and
sales programs including new product launches. The Company expects
its existing capital resources at December 31, 2006, along with the receipt
of
the $4.0 million settlement from Advanced Magnetics, Inc. in the first quarter
of 2007, should be adequate to fund operations and commitments at least into
2008. The Company cannot assure you that its business or operations
will not change in a manner that would consume available resources more rapidly
than anticipated. The Company expects that it will have additional
requirements for debt or equity capital, irrespective of whether and when
profitability is reached, for further product development costs, product and
technology acquisition costs, and working capital.
Basis
of Consolidation
The
consolidated financial statements include the financial statements of Cytogen
and its subsidiaries. All intercompany balances and transactions have
been eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
Cash
and Cash Equivalents
Cash
and
cash equivalents include cash on hand, cash in banks and all highly-liquid
investments with a maturity of three months or less at the time of
purchase.
Restricted
Cash
In
connection with the Company's license agreement with InPharma executed in
October 2006, the Company pledged $1.1 million as collateral to secure a letter
of credit for $1.0 million in favor of InPharma to guarantee Cytogen's payment
of $1.0 million on April 11, 2007 (see
Note
19). Drawing under this letter of credit may not be made prior to
April 12, 2007 and only if Cytogen fails to fulfill its payment
obligation. The cash collateral is restricted from use until the
expiration of the letter of credit on April 17, 2007.
Accounts
Receivable
The
Company's accounts receivable balances are net of an estimated allowance for
uncollectible accounts. The Company continuously monitors collections
and payments from its customers and maintains an allowance for uncollectible
accounts based upon its historical experience and any specific customer
collection issues that the Company has identified. While the Company
believes its reserve estimate to be appropriate, the Company may find it
necessary to adjust its allowance for uncollectible accounts if the future
bad
debt expense exceeds its estimated reserve. The Company is subject to
concentration risks as a limited number of its customers provide a high percent
of total revenues, and corresponding receivables. The Company does
not have any off-balance sheet credit exposure related to its
customers.
At
December 31, 2006 and 2005, accounts receivable were net of an allowance for
doubtful accounts of $6,000 and $4,000, respectively. Expense charged
to the provisions for doubtful accounts during 2006 was $2,000, compared to
an
expense reversal of $72,000 recorded in 2005 which was a result of a decrease
in
the allowance for doubtful accounts. No such expense was charged in
2004. The Company wrote off $7,000 of uncollectible accounts in 2004
and none in 2006 or 2005.
Inventories
The
Company's inventories include PROSTASCINT and SOLTAMOX with the majority of
the
inventories related to PROSTASCINT. Inventories are stated at the
lower of cost or market, as determined using the first-in, first-out method,
which most closely reflects the physical flow of our inventories. The
Company's products and raw materials are subject to expiration
dating. The Company regularly reviews quantities on hand to determine
the need to write-down inventory for excess and obsolete inventories based
primarily on our estimated forecast of product sales. The Company's
estimate of future product demand may prove to be inaccurate, in which case
the
Company may have understated or overstated its reserve for excess and obsolete
inventories.
|
December
31,
|
||||||||
|
2006
|
2005
|
|||||||
|
(All
amounts in thousands)
|
||||||||
|
Raw
materials
|
$ |
325
|
$ |
291
|
||||
|
Work-in
process
|
1,296
|
2,625
|
||||||
|
Finished
goods
|
917
|
666
|
||||||
| $ |
2,538
|
$ |
3,582
|
|||||
Other
Current Assets
At
December 31, 2006 and 2005, other current assets include $6,000 and $68,000,
respectively, of receivables from employees for advances related to travel,
tuition and sales incentive payments.
Property
and Equipment
Property
and equipment are stated at cost, net of accumulated depreciation or
amortization. Leasehold improvements are amortized on a straight-line
basis over the lease period or the estimated useful life, whichever is
shorter. Equipment and furniture are depreciated on a straight-line
basis over three to five years. Expenditures for repairs and
maintenance are charged to expense as incurred. Property and
equipment consisted of the following:
|
December
31,
|
||||||||
|
2006
|
2005
|
|||||||
|
(All
amounts in thousands)
|
||||||||
|
Leasehold
improvements
|
$ |
175
|
$ |
168
|
||||
|
Equipment
and furniture
|
1,925
|
1,699
|
||||||
|
2,100
|
1,867
|
|||||||
|
Less:
Accumulated depreciation and amortization
|
(1,409 | ) | (981 | ) | ||||
| $ |
691
|
$ |
886
|
|||||
Depreciation
and amortization expense for property and equipment was $462,000, $331,000
and
$288,000 in 2006, 2005 and 2004, respectively.
Fair
Value of Financial Instruments
The
Company's financial instruments consist primarily of cash and cash equivalents,
restricted cash, accounts receivable, accounts payable, accrued expenses and
long-term debt. Management believes the carrying value of these
assets and accounts payable and accrued expenses are representative of their
fair value because of the short-term nature of these instruments. The
fair value of long-term debt is estimated by discounting the future cash flows
of each instrument at rates currently offered to the Company for similar debt
instruments of comparable maturities by the Company's bankers. The
resulting fair value of long-term debt approximates its carrying
amount. The warrant liabilities are measured at fair value using the
Black-Scholes option-pricing model at each reporting date (see Notes 11 and
12).
Impairment
of Long-Lived Assets
In
accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," if indicators
of impairment exist, management assesses the recoverability of the affected
long-lived assets by determining whether the carrying value of such assets
can
be recovered through undiscounted future operating cash flows and eventual
disposition of the asset. If impairment is indicated,
management
measures the amount of such impairment by comparing the carrying value of the
assets to the present value of the expected future cash flows associated with
the use of the asset.
In
July
2004, as part of the Company's continuing effort to reduce non-strategic
expenses, the Company initiated the closure of its AxCell Biosciences
facilities. In connection with such closure, the Company recorded a
charge of $100,000 for equipment impairment to write down the carrying value
of
the assets to fair value based on prices of similar assets and similar
conditions. This charge is included in selling, general and
administrative expenses for 2004 in the accompanying consolidated statement
of
operations.
Costs
Associated with Exit or Disposal Activities
In
accordance with the SFAS No. 146, "Accounting for Costs Associated with Exit
or
Disposal Activities," the Company is required to record a liability for costs
associated with an exit or disposal activity, measured at fair value, in the
period in which the liability is incurred. A liability related to
one-time termination benefits provided to severed employees as a result of
the
exit or disposal activity is recorded when certain criteria have been met and
the employees are notified of the details of the plan. A liability
for costs to terminate a lease or other contract before the end of its term
is
recognized and measured at its fair value when the Company terminates the
contract in accordance with the contract terms. If the contract is an
operating lease, the fair value of the liability at the cease-use date is
determined based on the remaining lease rentals, reduced by estimated sublease
rentals that could be reasonably obtained for the property, even if the Company
does not intend to enter into a sublease.
As
part
of the Company's continuing effort to reduce non-strategic expenses, the Company
restructured AxCell in September 2002 by reducing 75% of AxCell's workforce,
initiated the closure of AxCell facilities in July 2004, and terminated early
an
operating lease in December 2004. The Company accounted for the
AxCell restructuring and subsequent facility closure pursuant to SFAS No.
146. In 2002, the Company established a liability of $350,000 for
future payments on leased facilities that were no longer being used in
operations. In December 2004, in connection with the lease
termination, the Company was obligated to pay a termination fee of $130,000,
which was subsequently paid in January 2005. The then remaining
liability for future lease payments of $163,000 was eliminated in 2004 resulting
in a gain of $33,000 which is recorded in selling, general and administrative
expense in the accompanying consolidated statement of operations.
Product
License Fees
Product
license fees consisted of the following:
|
December
31,
|
||||||||
|
2006
|
2005
|
|||||||
|
(All
amounts in thousands)
|
||||||||
|
QUADRAMET
license fee, net (see Note 6)
|
$ |
5,631
|
$ |
6,327
|
||||
|
SOLTAMOX
license fee, net (see Note 17)
|
1,890
|
—
|
||||||
|
CAPHOSOL
license fee, net (see Note 19)
|
4,091
|
—
|
||||||
| $ |
11,612
|
$ |
6,327
|
|||||
QUADRAMET
License Fee
In
August
2003, Cytogen reacquired marketing rights to QUADRAMET in North America and
Latin America in exchange for an up-front payment of $8.0 million which was
capitalized as a QUADRAMET license fee and is being amortized on a straight-line
basis over approximately 12 years, the estimated performance period of the
agreement. The balance is comprised as follows:
|
December
31,
|
||||||||
|
2006
|
2005
|
|||||||
|
(All
amounts in thousands)
|
||||||||
|
QUADRAMET
license
fee
|
$ |
8,000
|
$ |
8,000
|
||||
|
Less:
Accumulated
amortization
|
(2,369 | ) | (1,673 | ) | ||||
| $ |
5,631
|
$ |
6,327
|
|||||
During
2006, 2005 and 2004, Cytogen recorded $696,000, $697,000 and $696,000,
respectively, of such amortization as cost of product revenues in the
accompanying consolidated statements of operations. Estimated
amortization expense is $696,000 for each of the next fiscal years through
2014
and $63,000 in 2015.
SOLTAMOX
License Fee
In
February and April 2006, Cytogen paid an aggregate total of $2.0 million to
Savient Pharmaceuticals, Inc. representing an up-front licensing fee granting
exclusive marketing rights for SOLTAMOX in the United States which was
capitalized as a SOLTAMOX license fee and is being amortized on a straight-line
basis over approximately 12 years, the estimated performance period of the
agreement. The balance is comprised as follows:
|
December
31,
|
||||
|
2006
|
||||
|
(All
amounts in thousands)
|
||||
|
SOLTAMOX
license fee
|
$ |
2,000
|
||
|
Less:
Accumulated amortization
|
(110 | ) | ||
| $ |
1,890
|
|||
During
2006, the Company recorded $110,000 of such amortization as cost of product
revenues in the accompanying consolidated statements of
operations. Estimated amortization expense is $164,000 for each of
the next fiscal years through 2017 and $86,000 in 2018.
CAPHOSOL
License Fee
In
October 2006, Cytogen acquired from InPharma the exclusive marketing rights
to
CAPHOSOL in North America and an option to acquire the marketing rights to
CAPHOSOL in Europe and Asia. Based on the relative fair value of the
assets acquired, the Company allocated the license and option fees and related
transaction costs as follows: $4.2 million to CAPHOSOL
marketing
rights in North America which excludes a $400,000 payment contingent upon
certain conditions, $1.7 million to the option to license the product rights
in
Europe and $162,000 to the option to license the product rights in Asia (see
"Other Assets" below and Note 19). The allocated license fee for
North America was capitalized as CAPHOSOL license fee in the accompanying
consolidated balance sheet and is being amortized on a straight-line basis
over
approximately eleven years, which is the estimated performance period of the
agreement. The balance is comprised as follows:
|
December
31,
|
||||
|
2006
|
||||
|
(All
amounts in thousands)
|
||||
|
CAPHOSOL
license fee
|
$ |
4,189
|
||
|
Less:
Accumulated amortization
|
(98 | ) | ||
| $ |
4,091
|
|||
During
2006, the Company recorded $98,000 of such amortization as cost of product
revenues in the accompanying consolidated statements of
operations. Estimated amortization expense is $381,000 for each of
the next fiscal year through 2016 and $281,000 in 2017.
Other
Assets
Other
assets consisted of the following:
|
December
31,
|
||||||||
|
2006
|
2005
|
|||||||
|
(All
amounts in thousands)
|
||||||||
|
Investment
in PSMA Development Company LLC (Note 4)
|
$ |
--
|
$ |
379
|
||||
|
CAPHOSOL
option fee for
Europe
|
1,656
|
—
|
||||||
|
Deferred
royalty
expense
|
105
|
—
|
||||||
|
Other
|
304
|
276
|
||||||
| $ |
2,065
|
$ |
655
|
|||||
In
October 2006, the Company acquired from InPharma an option to purchase marketing
rights to CAPHOSOL in Europe (see "CAPHOSOL License Fee" above and Note
19). The allocated option fee of $1.7 million for Europe is recorded
as other assets and will be transferred to the appropriate asset account if
exercised. The Company periodically evaluates the option value for
impairment by assessing, among other things, its intent and ability to exercise
the option, the option expiry date and the market and product
competitiveness.
In
2006,
the Company introduced SOLTAMOX to the U.S. oncology market and began supplying
the distribution channels to support the initial patient
demand. Approximately $1.1 million of SOLTAMOX supply was shipped to
wholesalers, however, these shipments have not been recognized as revenues
because the Company does not have sufficient information to estimate expected
product returns. Accordingly, royalties owed based on SOLTAMOX
shipments to wholesalers are deferred, since the Company has the right to offset
royalties paid
for
products that are later returned against subsequent royalty
obligations. At December 31, 2006, the deferred royalty expense of
$105,000 is classified as other assets in the accompanying consolidated balance
sheet and will be recognized as royalty expense as SOLTAMOX sales are recognized
as revenue.
Other
assets in 2006 and 2005 each include $48,000 of restricted cash which is used
as
collateral for a letter of credit required by a facility lease as a security
deposit. The letter of credit is automatically renewed annually but
not beyond the term of the lease.
Other
assets in 2006 and 2005 also include $20,000 and $28,000, respectively, of
marketable securities that relate to the 275,350 shares of Northwest
Biotherapeutics, Inc. common stock which the Company received in connection
with
the acquisition of Prostagen, Inc. in 1999. The Company has
classified this investment as available-for-sale securities in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity
Securities." Available-for-sale securities are carried at fair value,
based on quoted market prices, with unrealized gains or losses reported as
a
separate component of stockholders' equity. As of December 31, 2006,
the Company had an unrealized gain of $20,000 related to this investment
compared to an unrealized gain of $28,000 at December 31, 2005. There
is no assurance, however, that the Company can sell these securities within
a
reasonable amount of time without negatively affecting the price of the stock
because of low daily trading volume.
Warrant
Liabilities
Emerging
Issues Task Force ("EITF") No. 00-19, "Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company's Own Stock"
addresses accounting for equity derivative contracts indexed to, and potentially
settled in a company's own stock, or equity derivatives, by providing guidance
for distinguishing between permanent equity, temporary equity and assets and
liabilities. Under EITF 00-19, to qualify as permanent equity, the
equity derivative must permit the issuer to settle in unregistered
shares. EITF 00-19 considers the ability to keep a registration
statement effective as beyond a company's control and warrants that cannot
be
classified as permanent equity are instead classified as a
liability. In addition, warrants that permit net cash settlement at
the option of the holder are also classified as a liability.
Equity
derivatives not qualifying for permanent equity accounting are recorded at
their
fair value using the Black-Scholes option-pricing model and are remeasured
at
each reporting date until the warrants are exercised or
expire. Changes in the fair value of the warrants will be reported in
the consolidated statements of operations as non-operating income or
expense. The fair value of the warrants as calculated using the
Black-Scholes option-pricing model is subject to significant fluctuation based
on changes in the Company's stock price, expected volatility, expected life,
the
risk-free interest rate and dividend yield.
EITF
No.
00-19-2 "Accounting for Registration Payment Arrangements" specifies that
registration payment arrangements should play no part in determining the initial
classification and subsequent accounting for the securities they related
to. The Staff position requires the
contingent
obligation in a registration payment arrangement to be separately analyzed
under
FASB Statement No. 5, "Accounting for Contingencies" and FASB Interpretation
No.
14, "Reasonable Estimation of the Amount of a Loss". If payment in a
registration payment arrangement is probable and can be reasonably estimated,
a
liability should be recorded.
Revenue
Recognition
The
Company generates revenue from product sales and license and contract
revenues. The Company recognizes revenue in accordance with the SEC's
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
as amended by Staff Accounting Bulletin No. 104 (together, "SAB 101"), and
FASB
Statement No. 48 "Revenue Recognition When Right of Return Exists" ("SFAS
48"). SAB 101 states that revenue should not be recognized until it
is realized or realizable and earned. Revenue is realized or
realizable and earned when all of the following criteria are met:
(1) persuasive evidence of an arrangement exists; (2) delivery has occurred
or services have been rendered; (3) the seller's price to the buyer is
fixed or determinable; and (4) collectibility is reasonably
assured. SFAS 48 states that revenue from sales transactions where
the buyer has the right to return the product shall be recognized at the time
of
sale only if (1) the seller's price to the buyer is substantially fixed or
determinable at the date of sale, (2) the buyer has paid the seller, or the
buyer is obligated to pay the seller and the obligation is not contingent on
resale of the product, (3) the buyer's obligation to the seller would not
be changed in the event of theft or physical destruction or damage of the
product, (4) the buyer acquiring the product for resale has economic
substance apart from that provided by the seller, (5) the seller does not
have significant obligations for future performance to directly bring about
resale of the product by the buyer, and (6) the amount of future returns
can be reasonably estimated.
Product
Sales
The
Company recognizes revenues for product sales at the time title and risk of
loss
are transferred to the customer, and the other criteria of SAB 101 and SFAS
48
are satisfied, which is generally at the time products are shipped to
customers. At the time gross revenue is recognized from product
sales, an adjustment, or decrease, to revenue for estimated rebates, discounts
and returns is also recorded. This revenue reserve is determined on a
product-by-product basis. The rebate or discount reserve is recorded
in accordance with Emerging Issues Task Force (EITF) Issue No. 01-9,
"Accounting for Consideration Given by a Vendor to a Customer", which
states that cash consideration given by a vendor to a customer is presumed
to be
a reduction of the selling prices of the vendor's products or services and,
therefore, should be characterized as a reduction of revenue when recognized
in
the vendor's income statement. At the time product is shipped, an
adjustment is recorded for estimated rebates and discounts based on the
contractual terms with customers. Revenue reserves including return
allowances are established by management as its best estimate at the time of
sale based on each product's historical experience adjusted to reflect known
changes in the factors that impact such reserves.
In
the
case of a new product like SOLTAMOX, which the Company introduced in the second
half of 2006, product shipments made to wholesalers do not meet the revenue
recognition criteria of SFAS 48 and SAB 101. Because the Company
cannot reliably estimate expected
returns
for this new product, the Company will defer recognition of revenue until the
right of return no longer exists or until the Company develops sufficient
historical experience to estimate sales returns. In 2006,
approximately $1.1 million of SOLTAMOX was shipped to
wholesalers. For these product shipments, the Company invoices the
wholesalers, records the payment received as "Customer Liability", and
classifies the inventory shipped to wholesalers as "Inventory at Wholesalers",
$93,000 at December 31, 2006, at the Company's cost of goods for such
inventory. The Company recognizes revenue for SOLTAMOX when such
product is sold through to the end users, on a first-in first-out
(FIFO) basis. Additionally, royalty amount due based on unit
shipments to wholesalers is deferred and recognized as royalty expense as those
units are sold through and recognized as revenue. The Company has the
right to offset royalties paid for product that are later returned against
subsequent royalty obligations. Expenses related to shipments of
SOLTAMOX, for which the Company does not have the ability to recover if and
when
the products are returned, are expensed as incurred.
When
available, the Company may use the following information to estimate the
prescription-based sales for SOLTAMOX and to estimate gross-to-net sales
adjustments: (1) the estimated prescription-based sales, (2) the Company's
analysis of third-party information, including information obtained from certain
wholesalers with respect to their inventory levels and sell-through to customers
and third-party market research data, and (3) the Company's internal product
sales information. The Company's estimates will be subject to the
inherent limitations of estimates that rely on third-party data, as certain
third-party information is itself in the form of estimates, and reflect other
limitations. The Company's sales and revenue recognition for SOLTAMOX
will reflect the Company's estimates of actual product sold through to the
end
user.
License
and contract revenues include milestone payments and fees under collaborative
agreements with third parties, revenues from research services, and revenues
from other miscellaneous sources. The Company defers non-refundable
up-front license fees and recognizes them over the estimated performance period
of the related agreement, when the Company has continuing
involvement. Since the term of the performance periods is subject to
management's estimates, future revenues to be recognized could be affected
by
changes in such estimates.
In
accordance with EITF No. 00-10, the Company records shipping and handling
charges billed to customers as revenue and the related costs as cost of product
revenues.
Research
and Development
Research
and development expenditures consist of projects conducted by the Company and
payments made for sponsored research programs and consultants. All
research and development costs are charged to expense as incurred.
Advertising
Costs
Advertising
costs are charged to expense as incurred. In 2006, 2005 and 2004, the
advertising costs were $2.1 million, $710,000
and $710,000, respectively, and are included
in selling, general and administrative in the Company's consolidated statements
of operations.
Patent
Costs
Patent
costs are charged to expense as incurred.
Rent
Expense
Rental
expenses for the Company's corporate offices are recognized over the term of
the
lease. The Company recognizes rent starting when possession of the
facility is taken from the landlord. When a lease contains a
predetermined fixed escalation of the minimum rent, the Company recognizes
the
related rent expense on a straight-line basis and records the difference between
the recognized rental expense and the amounts payable under the lease as
deferred lease credits. Tenant leasehold improvement allowances are
reflected in Accounts Payable and Accrued Liabilities in the consolidated
balance sheet and are amortized as a reduction to rent expense in the statement
of operations over the term of the lease.
Income
Taxes
The
Company accounts for income taxes under the asset and liability method in
accordance with SFAS No. 109, "Accounting for Income Taxes." Deferred tax assets
and liabilities are recognized for the future tax consequences attributable
to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Net
Loss Per Share
Basic
net
loss per common share is calculated by dividing the Company's net loss by the
weighted-average common shares outstanding during each
period. Diluted net loss per common share is the same as basic net
loss per share for each of the three years ended December 31, 2006, 2005 and
2004, because the inclusion of common stock equivalents, which consist of
nonvested shares, warrants and options to purchase shares of the Company's
common stock, would be antidilutive due to the Company's losses (see Notes
12
and 13).
Variable
Interest Entities
Financial
Accounting Standards Board ("FASB") Interpretation No. 46 ("FIN 46R"),
"Consolidation of Variable Interest Entities" ("VIEs"), addresses how a business
enterprise
should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. The Company was required to apply FIN 46R to variable interests in VIEs created after December 31, 2003. For variable interests in VIEs created before January 1, 2004, FIN 46R applied beginning on March 31, 2004.
should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. The Company was required to apply FIN 46R to variable interests in VIEs created after December 31, 2003. For variable interests in VIEs created before January 1, 2004, FIN 46R applied beginning on March 31, 2004.
In
June
1999, Cytogen entered into a joint venture with Progenics Pharmaceuticals Inc.
("Progenics") to form the PSMA Development Company LLC (the "Joint
Venture"). The Company sold its 50% ownership interest in the Joint
Venture to Progenics in April 2006. Cytogen accounted for the Joint
Venture using the equity method of accounting. The Company was not
required to consolidate the Joint Venture under the requirements of FIN
46R.
Share-Based
Compensation
Effective
January 1, 2006, the Company adopted SFAS No. 123(R), "Share-Based Payment,"
using the modified prospective transition method. Under this method,
compensation expense is reflected in the financial statements beginning January
1, 2006 with no restatement to the prior periods. As such,
compensation expense, which is measured based on the fair value of the
instrument on the grant date, is recognized for awards that are granted,
modified, repurchased or cancelled on or after January 1, 2006 as well as for
the portion of awards previously granted that have not vested as of January
1,
2006. The Company has adopted the straight-line expense attribution
method for all options granted after January 1, 2006. Compensation
costs associated with awards granted prior to the adoption of SFAS 123(R) are
recognized using the accelerated attribution method in accordance with FASB
Interpretation No. 28, "Accounting for Stock Appreciation Rights and Other
Variable Stock Option or Award Plan ("FIN 28"), consistent with the Company's
prior policy. Prior to the adoption of SFAS 123(R), the Company
accounted for its stock-based employee compensation expense under the
recognition and measurement principles of Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and related
interpretations.
Other
Comprehensive Income
The
Company follows SFAS No. 130, "Reporting Comprehensive Income." This
statement requires the classification of items of other comprehensive income
by
their nature and disclosure of the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in
the
equity section of the balance sheet.
Recent
Accounting Pronouncements
Accounting
for Registration Payment Arrangements
On
December 21, 2006, the FASB issued FASB Staff Position No. EITF 00-19-2,
"Accounting for Registration Payment Arrangements" ("EITF 00-19-2"), which
addresses an issuer's accounting for registration payment
arrangements. EITF 00-19-2 specifies that the contingent obligation
to make future payments or otherwise transfer consideration under a registration
payment arrangement, whether issued as a separate agreement or included as
a
provision of a financial instrument or other agreement, should be separately
recognized and
measured in accordance with FASB Statement No. 5, Accounting for Contingencies. EITF 00-19-2 further clarifies that a financial instrument subject to a registration payment arrangement should be accounted for in accordance with other applicable accounting literature without regard to the contingent obligation to transfer consideration pursuant to the registration arrangement. EITF 00-19-2 is effective immediately for new and modified registration payment arrangements. Early adoption of EITF 00-19-2 for the interim or annual period for which the financials statements have not been issued is permitted. The Company elected to adopt EITF 00-19-2 at the beginning of the fourth quarter 2006. The adoption of EITF 00-19-2 did not have any impact on the Company's consolidated financial statements in the year ended December 31, 2006.
measured in accordance with FASB Statement No. 5, Accounting for Contingencies. EITF 00-19-2 further clarifies that a financial instrument subject to a registration payment arrangement should be accounted for in accordance with other applicable accounting literature without regard to the contingent obligation to transfer consideration pursuant to the registration arrangement. EITF 00-19-2 is effective immediately for new and modified registration payment arrangements. Early adoption of EITF 00-19-2 for the interim or annual period for which the financials statements have not been issued is permitted. The Company elected to adopt EITF 00-19-2 at the beginning of the fourth quarter 2006. The adoption of EITF 00-19-2 did not have any impact on the Company's consolidated financial statements in the year ended December 31, 2006.
Evaluation
of Misstatements
On
September 13, 2006, the staff of the SEC issued Staff Accounting Bulletin No.
108, "Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements" ("SAB 108"), which provides
interpretive guidance on how the effects of prior year misstatements should
be
considered in evaluating a current year misstatement. The cumulative
effect from the initial adoption of SAB 108 may be reported as a cumulative
effect adjustment to the beginning of year retained earnings with disclosure
of
the nature and amount of each individual error. The Company applied
the provisions of SAB 108 in the fourth quarter of 2006. The adoption
of SAB 108 did not have a material impact on the Company's consolidated
financial statements.
Fair
Value Measurements
On
September 15, 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
("SFAS 157"). SFAS 157 defines fair value, establishes a framework
for measuring fair value and expands disclosures about fair value
measurements. SFAS 157 is effective as of the beginning of the first
fiscal year beginning after November 15, 2007. The Company will be
required to adopt this statement in the first quarter of
2008. Management is currently evaluating the requirements of SFAS 157
and has not yet determined the impact this standard will have on its
consolidated financial statements.
Income
Taxes
In
June
2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty
in
Income Taxes" ("FIN 48"). FIN 48 is applicable for fiscal years
beginning after December 15, 2006. This Interpretation clarifies the
accounting for uncertainty in income taxes recognized in an enterprise's
financial statements in accordance with FASB Statement No. 109, "Accounting
for
Income Taxes." This Interpretation prescribes a recognition
threshold and measurement attribute for the financial statement recognition
and
measurement of a tax position taken or expected to be taken in a tax
return. This Interpretation also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition. The Company is currently evaluating the
impact of the adoption of FIN 48 upon its financial statements and related
disclosures. The Company does not expect that the adoption will have
a material effect on its results of operations or financial
condition.
Sales
Tax
In
March
2006, the FASB's Emerging Issues Task Force released Issue 06-3, "How Sales
Taxes Collected From Customers and Remitted to Governmental Authorities Should
Be Presented in the Income Statement" ("EITF 06-3"). A consensus was
reached that entities may adopt a policy of presenting sales taxes in the income
statement on either a gross or net basis. If taxes are significant,
an entity should disclose its policy of presenting sales taxes and the amount
of
sales taxes if reflected on a gross basis in the income
statement. The guidance is effective for periods beginning after
December 15, 2006. The Company presents sales net of sales taxes in
its consolidated statements of operations and does not anticipate changing
its
policy as a result of EITF 06-3.
Abnormal
Inventory Costs
In
November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an amendment
of ARB No. 43, Chapter 4" ("SFAS No. 151"), to clarify that abnormal
amounts of idle facility expense, freight, handling costs, and wasted material
(spoilage) should be recognized as current period charges, and that fixed
production overheads should be allocated to inventory based on the normal
capacity of production facilities. This statement is effective for
inventory costs incurred during fiscal years beginning after June 15,
2005. Accordingly, the Company adopted SFAS No. 151 in its fiscal
year beginning January 1, 2006. The adoption of this standard
did not have any impact on the Company in the year ended December 31,
2006.
Reclassification
Certain
amounts in prior years' consolidated financial statements have been reclassified
to conform to the current year presentation.
|
2.
|
ADVANCED
MAGNETICS, INC.
|
In
August
2000, the Company and Advanced Magnetics, Inc., a developer of superparamagnetic
iron oxide nanoparticles used in pharmaceutical products, entered into
marketing, license and supply agreements (the "AVM
Agreements"). Under the AVM Agreements, Cytogen acquired certain
rights in the United States to Advanced Magnetics' product candidates:
COMBIDEX®, an
investigational functional molecular imaging agent for all applications; and
ferumoxytol (formerly referred to as Code 7228) for oncology applications
only. Advanced Magnetics will be responsible for all costs associated
with the clinical development of, and if approved by the FDA, the supply and
manufacture of COMBIDEX and ferumoxytol and will receive product transfer
payments and royalties based upon product sales or certain minimum payments
from
Cytogen, whichever is greater. The Company had no funding obligation
regarding research and development for Advanced Magnetics and the Company did
not earn any compensation nor incur any costs for the research and development
activities related to COMBIDEX in 2006, 2005 and 2004.
In
January 2006, the Company filed a complaint against Advanced Magnetics in the
Massachusetts Superior Court for breach of contract, fraud, unjust enrichment,
and breach of the implied covenant of good faith and fair dealing in connection
with the parties' 2000 license
agreement. The
complaint sought damages along with a request for specific performance requiring
Advanced Magnetics to take all reasonable steps to secure FDA approval of
Combidex in compliance with the terms of the licensing agreement. In
February 2006, Advanced Magnetics filed an answer to the Company's complaint
and
asserted various counterclaims, including tortuous interference, defamation,
consumer fraud and abuse of process. In February 2007, the Company
settled its lawsuit against Advanced Magnetics, as well as Advanced Magnetics'
counterclaims against Cytogen, by mutual agreement. Under the terms
of the settlement agreement, Advanced Magnetics paid $4.0 million to the Company
and will release 50,000 shares of Cytogen common stock currently being held
in
escrow. In addition, both parties agreed to early termination of the
licensing agreement.
|
3.
|
ACQUISITION
OF PROSTAGEN, INC.
|
Pursuant
to a Stock Exchange Agreement (the "Prostagen Agreement") related to the
Company's acquisition of Prostagen Inc. ("Prostagen") in June 1999, the Company
agreed to issue up to an additional $4.0 million worth of Cytogen Common Stock
to the shareholders and debtholders of Prostagen (the "Prostagen Partners"),
if
certain milestones are achieved in the dendritic cell therapy and PSMA
development programs. In May 2002, the Company entered into an
Addendum to the Prostagen Agreement (the "Addendum"), which clarifies the future
milestone payments to be made under the Prostagen Agreement, as well as the
timing of such payments. Pursuant to the Addendum, the Company may be
obligated to pay two additional milestone payments of $1.0 million each, upon
certain clinical achievements regarding the PSMA development
programs. In November 2004, the Company entered into Addendum No. 2
to the Prostagen Agreement (the "Second Addendum"), which further clarifies
the
future milestone payments to be made under the Prostagen
Agreement. Pursuant to the Second Addendum, the Company issued 92,799
shares and 50,000 shares of Common Stock to the Prostagen Partners in 2005
and
2004, respectively. As a result, the Company recorded charges to
research and development expense of $500,000 and $497,000 in 2005 and 2004,
respectively. The Company may be obligated to pay an additional
milestone payment of $1.0 million payable in shares of Cytogen common stock,
upon certain clinical achievements regarding the PSMA development
programs.
|
4.
|
PSMA
DEVELOPMENT COMPANY LLC
|
In
June
1999, Cytogen entered into a joint venture with Progenics to form the PSMA
Development Company LLC (the "Joint Venture"), a development stage
enterprise. The Joint Venture was developing antibody-based and
vaccine immunotherapeutic products utilizing Cytogen's proprietary PSMA
technology. The Joint Venture was owned equally by Cytogen and
Progenics until April 20, 2006 (see below). Cytogen accounted for the
Joint Venture using the equity method of accounting. Cytogen had
recognized 50% of the Joint Venture's operating results in its consolidated
statements of operations until April 20, 2006, when the Company entered into
a
Membership Interest Purchase Agreement with Progenics to sell the Company's
50%
ownership interest in the Joint Venture. In addition, the Company
entered into an Amended and Restated PSMA/PSMP License Agreement with Progenics
and the Joint Venture pursuant to which the Company licensed the Joint Venture
certain rights in PSMA technology. Under the terms of such
agreements, the Company sold its 50% interest in the Joint Venture for a
cash
payment
of $13.2 million, potential future milestone payments totaling up to $52 million
payable upon regulatory approval and commercialization of the Joint Venture
products, and royalties on future product sales of the Joint Venture,
if any. Cytogen has no continuing involvement and no further
obligations to provide any products, services, or financial support to the
Joint
Venture. This transaction was a sale of an asset in which the
consideration was fully received and for which the earning process is
complete. As a result, the Company recorded $12.9 million in gain on
sale of equity interest in the Joint Venture in the second quarter of 2006,
which represents the net proceeds after transaction costs less the carrying
value of the Company's investment in the Joint Venture at the time of
sale.
For
the
years ended December 31, 2006, 2005 and 2004, Cytogen recognized $120,000,
$3.2
million and $2.9 million, respectively, in losses of the Joint
Venture. In 2005 and 2004, each Member contributed capital of $4.0
million and $2.0 million, respectively, to the Joint Venture. No
capital contribution was made in 2006. As of December 31, 2005, the
carrying value of the Company's investment in the Joint Venture was $379,000,
which represents Cytogen's investment in the Joint Venture, less its cumulative
share of losses, which net investment is recorded in other assets (see Note
1). Selected financial statement information of the Joint Venture, is
as follows (all amounts in thousands):
Balance
Sheet Data:
|
December
31,
2005
|
||||
|
ASSETS:
|
||||
|
Cash
|
$ |
873
|
||
|
Prepaid
expenses
|
9
|
|||
|
Accounts
receivable from Progenics Pharmaceuticals, Inc., a related
party
|
194
|
|||
| $ |
1,076
|
|||
|
LIABILITIES
AND MEMBERS' EQUITY:
|
||||
|
Accounts
payable to Cytogen Corporation, a related party
|
$ |
3
|
||
|
Accounts
payable and accrued
expenses
|
332
|
|||
|
Total
liabilities
|
335
|
|||
|
Capital
contributions
|
31,198
|
|||
|
Deficit
accumulated during the development stage
|
(30,457 | ) | ||
|
Total
members'
equity
|
741
|
|||
|
Total
liabilities and members'
equity
|
$ |
1,076
|
||
Income
Statement Data:
|
From
January
1,
2006
to
April
20,
2006
|
Year
Ended
December
31,
2005
|
Year
Ended
December
31,
2004
|
For
the Period
From
June
15, 1999
(inception)
to
April 20,
2006
|
|||||||||||||
|
Interest
income
|
$ |
6
|
$ |
9
|
$ |
7
|
$ |
256
|
||||||||
|
Total
expenses
|
246
|
6,358
|
5,799
|
30,953
|
||||||||||||
|
Net
loss
|
$ | (240 | ) | $ | (6,349 | ) | $ | (5,792 | ) | $ | (30,697 | ) | ||||
Prior
to
the sale of its interest in the Joint Venture in April 2006, the Company
provided limited research and development services to the Joint
Venture. During 2005 and 2004, the Company recorded revenue related
to the Joint Venture of $185,000 and $106,000, respectively, and incurred costs
of $151,000 and $88,000, respectively. The Company did not provide
any research and development services to the Joint Venture in 2006.
|
5.
|
THE
DOW CHEMICAL COMPANY
|
In
1993,
Cytogen acquired an exclusive license from The Dow Chemical Company for
QUADRAMET for the treatment of osteoblastic bone metastases in the United
States. This license was amended in 1995 to expand the territory to
include Canada and Latin America and again in 1996 to expand the field to
include all osteoblastic diseases. The agreement requires the Company
to pay Dow royalties based on a percentage of net sales of QUADRAMET, or a
guaranteed annual minimum payment, whichever is greater, and future payments
upon the achievement of certain milestones. The Company recorded $1.0
million in royalty expense for each of 2006, 2005 and 2004. Future
annual minimum royalties due to Dow are $1.0 million per year in 2007 through
2012 and $833,000 in 2013.
In
May
2005, the Company entered into a license agreement with Dow to create a targeted
oncology product designed to treat prostate and other cancers. The
agreement applies proprietary MeO-DOTA bifunctional chelant technology from
Dow
to radiolabel Cytogen's PSMA antibody with a therapeutic
radionuclide. Under the agreement, proprietary chelation technology
and other capabilities, provided through ChelaMedSM radiopharmaceutical services
from Dow, will be used to attach a therapeutic radioisotope to the same murine
monoclonal antibody utilized in Cytogen's PROSTASCINT molecular imaging agent
which is called 7E11-C5.3 ("7E11"). The 7E11 antibody was excluded
from the PSMA technology licensed to the Joint Venture. As a result
of the agreement, Cytogen is obligated to pay a minimal license fee and
aggregate future milestone payments of $1.9 million for each licensed product,
if approved, and royalties based on sales of related products, if
any. Unless terminated earlier, the Dow agreement terminates on the
later of (a) the tenth anniversary of the date of first commercial sale for
each
licensed product or (b) the expiration of the last to expire valid claim that
would be infringed by the sale of the licensed product. The Company
may terminate the license agreement with Dow on 90 days written
notice.
|
6.
|
BERLEX
LABORATORIES INC.
|
On
August
1, 2003, the Company reacquired marketing rights to QUADRAMET in North America
and Latin America from Berlex Laboratories Inc. ("Berlex") in exchange for
an
up-front payment of $8.0 million and royalties based on future sales of
QUADRAMET. As a result of the agreement, the Company began recording
product revenue from the sales of QUADRAMET. The up-front license
payment of $8.0 million was capitalized in 2003 as the QUADRAMET license fee
in
the accompanying consolidated balance sheet and is being amortized on a
straight-line basis over approximately twelve years, which is the estimated
performance period of the agreement (see Note 1). Cytogen also
recorded $1.3 million, $1.4 million and $1.2 million of royalty expenses to
Berlex based on its sales of QUADRAMET in 2006, 2005 and 2004, respectively,
as
cost of product revenues.
|
7.
|
BRISTOL-MYERS
SQUIBB MEDICAL IMAGING,
INC.
|
Effective
January 1, 2004, the Company entered into a manufacturing and supply agreement
with Bristol-Myers Squibb Medical Imaging, Inc. ("BMSMI"), whereby BMSMI will
manufacture, distribute and provide order processing and customer service for
Cytogen relating to QUADRAMET. Under the terms of the agreement,
Cytogen is obligated to pay at least $4.9 million annually, subject to future
annual price adjustment, through 2008, unless terminated by BMSMI or Cytogen
on
two years prior written notice. This agreement will automatically
renew for five successive one-year periods unless terminated by BMSMI or Cytogen
on two years prior written notice. During 2006, 2005 and 2004, the
Company incurred $4.5 million, $4.3 million and $4.2 million, respectively,
of
manufacturing costs for QUADRAMET, of which $4.3 million, $4.2 million and
$4.1
million, respectively, are included in cost of product revenue and the remaining
expenses for each respective period are charged to research and development
expenses for clinical supplies. The Company also pays BMSMI a
variable amount per month for each QUADRAMET order placed to cover the costs
of
customer service which is included in selling, general and administrative
expenses.
The
two
primary components of QUADRAMET, particularly Samarium-153 and EDTMP, are
provided to BMSMI by outside suppliers. BMSMI obtains its supply of
Samarium-153 from a sole supplier, and EDTMP from another sole
supplier. Alternative sources for these components may not be readily
available, and any alternate suppliers would have to be identified and
qualified, subject to all applicable regulatory guidelines. If BMSMI
cannot obtain sufficient quantities of these components on commercially
reasonable terms, or in a timely manner, it would be unable to manufacture
QUADRAMET on a timely and cost-effective basis.
|
8.
|
LAUREATE
PHARMA, L.P.
|
In
September 2004, the Company entered into a non-exclusive manufacturing agreement
with Laureate Pharma, L.P. pursuant to which Laureate manufactured PROSTASCINT
and its primary raw materials for Cytogen in Laureate's Princeton, New Jersey
facility. Laureate is the sole manufacturer of PROSTASCINT and its
antibodies. The agreement terminated in the third quarter of 2006,
upon Laureate's completion of the specified production campaign for POSTASCINT
and shipment of the resulting products from Laureate's
facility. Under the terms
of
the
agreement, the Company incurred $35,000 and $1.8 million for the years ended
December 31, 2006 and 2005, respectively, all of which were recorded as
inventory when purchased.
In
September 2006, the Company entered into a non-exclusive manufacturing agreement
with Laureate pursuant to which Laureate shall manufacture PROSTASCINT and
its
primary raw materials for Cytogen in Laureate's Princeton, New Jersey
facility. The agreement will terminate, unless terminated earlier
pursuant to its terms, upon Laureate's completion of the specified production
campaign for PROSTASCINT and shipment of the resulting products from Laureate's
facility. Under the terms of the agreement, the Company anticipates
it will pay at least an aggregate of $3.9 million through the end of the term
of
contract, of which $500,000 was incurred and paid in 2006 and recorded as
inventory when purchased.
|
9.
|
REVENUES
FROM MAJOR CUSTOMERS
|
Revenues
from major customers (greater than 10%) as a percentage of total revenues were
as follows:
|
Year
Ended December 31,
|
||||||||||||
|
2006
|
2005
|
2004
|
||||||||||
|
Cardinal
Health (formerly Syncor International Corporation)
|
41 | % | 47 | % | 46 | % | ||||||
|
Mallinckrodt
Inc.
|
14 | % | 11 | % | 12 | % | ||||||
|
GE
Healthcare (formerly Amersham Health)
|
9 | % | 9 | % | 10 | % | ||||||
Cardinal
Health, Mallinckrodt Inc. and GE Healthcare are chains of radiopharmacies,
which
distribute PROSTASCINT and QUADRAMET.
As
of
December 31, 2006 and 2005, the receivables from the above-mentioned major
customers accounted for 56% and 60%, respectively, of gross accounts
receivable.
|
10.
|
ACCOUNTS
PAYABLE AND ACCRUED
LIABILITIES
|
Significant
components of the accounts payable and accrued liabilities were as
follows:
|
December
31,
|
||||||||
|
2006
|
2005
|
|||||||
|
(All
amounts in thousands)
|
||||||||
|
Accounts
payable
|
$ |
2,199
|
$ |
1,288
|
||||
|
Accrued
payroll, sales commission and related expenses
|
1,766
|
656
|
||||||
|
Accrued
royalty
expense
|
909
|
764
|
||||||
|
Accrued
professional and legal
expenses
|
806
|
451
|
||||||
|
Accrued
research contracts and
materials
|
467
|
734
|
||||||
|
Accrued
manufacturing
costs
|
170
|
453
|
||||||
|
Accrued
marketing
expenses
|
1,545
|
307
|
||||||
|
Liability
to InPharma (see Note
19)
|
1,000
|
--
|
||||||
|
Insurance
liability
|
338
|
261
|
||||||
|
Other
accruals
|
904
|
357
|
||||||
| $ |
10,104
|
$ |
5,271
|
|||||
|
11.
|
LONG-TERM
LIABILITIES
|
Components
of long-term liabilities were as follows:
|
December
31,
|
||||||||
|
2006
|
2005
|
|||||||
|
(All
amounts in thousands)
|
||||||||
|
Capital
lease
obligations
|
$ |
123
|
$ |
72
|
||||
|
Warrant
liabilities
|
6,464
|
1,869
|
||||||
|
6,587
|
1,941
|
|||||||
|
Less:
Current portion of long-term liabilities
|
(64 | ) | (26 | ) | ||||
| $ |
6,523
|
$ |
1,915
|
|||||
In
August
1998, Cytogen received $2.0 million from Elan Corporation, plc ("Elan") in
exchange for a convertible promissory note. The note bore annual
interest of 7%, compounded semi-annually, however, such interest was not payable
in cash but was added to the principal for the first 24 months; thereafter,
interest was payable in cash. The Company recorded $98,000 and
$160,000 in interest expense on this note for 2005 and 2004,
respectively. In August 2005, the Company made a payment of $2.3
million to satisfy its obligations on the $2.0 million promissory note and
$280,000 unpaid accrued interest.
The
Company leases certain equipment under capital lease obligations, which will
expire on various dates through 2009. The leased equipment in the
gross amount of $202,000 and $108,000 at December 31, 2006 and 2005,
respectively, are included in the Property and
Equipment
in the accompanying consolidated balance sheet with the related accumulated
depreciation of $118,000 and $51,000 at December 31, 2006 and 2005,
respectively. Depreciation of assets held under capital leases is
included with depreciation expense. Payments to be made under capital
lease obligations (including total interest of $19,000) are $75,000 in 2007,
$55,000 in 2008 and $12,000 in 2009. The Company has the option to
purchase the leased equipment at its fair value or for a dollar, depending
on
the term of each respective lease.
In
July
and August 2005, the Company sold 3,104,380 shares of its common stock and
776,096 warrants to purchase shares of its common stock having an exercise
price
of $6.00 per share (see Note 12). These warrants are exercisable
beginning six months and ending ten years after their issuance. The
shares of common stock underlying the warrants were registered under the
Company's existing shelf registration statement. The Company is
required to maintain the effectiveness of the registration statement as long
as
any warrants are outstanding.
Under
EITF 00-19, to qualify as permanent equity, the equity derivative must permit
the issuer to settle in unregistered shares. The Company does not
have that ability under the securities purchase agreement for the warrants
issued in July and August 2005 and, as EITF 00-19 considers the ability to
keep
a registration statement effective as beyond the Company's control, the warrants
cannot be classified as permanent equity and are instead classified as a
liability in the accompanying consolidated balance sheets. Upon
issuance of the warrants in July and August 2005, the Company recorded the
warrant liability at its initial fair value of $3.5 million using the
Black-Scholes option-pricing model with the following assumptions:
|
July
20,
2005
|
August
2,
2005
|
December
31,
2005
|
December
31,
2006
|
|||||||||||||
|
Dividend
yield
|
0 | % | 0 | % | 0 | % | 0 | % | ||||||||
|
Expected
volatility
|
105.27 | % | 105.03 | % | 105.86 | % | 104.00 | % | ||||||||
|
Expected
life
|
10.0
years
|
10.0
years
|
9.6
years
|
8.6
years
|
||||||||||||
|
Risk-free
interest rate
|
4.25 | % | 4.41 | % | 4.40 | % | 4.77 | % | ||||||||
|
Company
Common Stock Price
|
$ |
4.92
|
$ |
5.04
|
$ |
2.74
|
$ |
2.33
|
||||||||
In
November 2006, the Company sold to certain institutional investors 7,092,203
shares of its common stock and 3,546,107 warrants to purchase shares of its
common stock with an exercise price of $3.32 per share (see Note
12). These warrants are exercisable beginning six months and ending
five years after their issuance. The warrant agreement contains a
cash settlement feature, which is available to the warrant holders at their
option, upon an acquisition in certain circumstances. As a result,
the warrants cannot be classified as permanent equity and are instead classified
as a liability at their fair value in the accompanying consolidated balance
sheet. Upon issuance of the warrants in November 2006, the Company
recorded the warrant liability at its initial fair value of $5.6 million using
the Black-Scholes option-pricing model with the following
assumptions:
|
November
10, 2006
|
December
31, 2006
|
|||||||
|
Dividend
yield
|
0 | % | 0 | % | ||||
|
Expected
volatility
|
81.11 | % | 80.15 | % | ||||
|
Expected
life
|
5.0
years
|
4.9
years
|
||||||
|
Risk-free
interest
rate
|
4.61 | % | 4.74 | % | ||||
|
Company
Common Stock Price
|
$ |
2.53
|
$ |
2.33
|
||||
Equity
derivatives not qualifying for permanent equity accounting are recorded at
fair
value and are remeasured at each reporting date until the warrants are exercised
or expire. Changes in the fair value of the warrants issued in 2005
and 2006 as described above will be reported in the consolidated statements
of
operations as non-operating income or expense. At December 31, 2006,
the aggregate fair value of these warrants decreased to $6.5 million, using
the
Black-Scholes option pricing model with the respective assumptions in the
preceding tables, from their initial fair value or the fair value at December
31, 2005, as applicable, resulting in a gain of $1.0 million for the year ended
December 31, 2006. At December 31, 2005, the fair value of the
warrants decreased to $1.9 million, from their initial fair value, resulting
in
a gain of $1.7 million for the year ended December 31, 2005.
|
12.
|
PREFERRED
STOCK, COMMON STOCK AND
WARRANTS
|
On
November 10, 2006, the Company sold to certain institutional investors 7,092,203
shares of its common stock and 3,546,107 warrants to purchase shares of its
common stock, through a private placement offering. The warrants have
an exercise price of $3.32 per share and are exercisable beginning six months
and ending five years after their issuance. The warrant agreement
contains a cash settlement feature, which is available to the warrant holders
at
their option, upon an acquisition in certain circumstances (see
Note 11). In exchange for $2.82, the purchasers received one share of
common stock and warrants to purchase .5 shares of common stock. The
offering provided net proceeds of approximately $18.4 million to the
Company. The placement agents in this transaction received a fee
equal to 7% of the aggregate gross proceeds. In connection with this
sale, the Company entered into a Registration Rights Agreement with the
investors under which, the Company was obligated to file a registration
statement with the SEC for the resale of Cytogen shares sold to the investors
and shares issuable upon exercise of the warrants within a specified time
period. The Company is also required to use commercially reasonable
efforts to cause the registration to be declared effective by the SEC and to
remain continuously effective until such time when all of the registered shares
are sold or three years from closing date, whichever is earlier. In
the event the Company fails to keep the registration statement effective, the
Company is obligated to pay the investors liquidation damages equal to 1% of
the
purchase price paid by the investors ($20 million) for each thirty-day period
that the registration statement is not effective, up to 10%. On
December 28, 2006, the SEC declared the registration statement
effective. The Company concluded that the contingent obligation was
not probable, and therefore no contingent liability was recorded as of December
31, 2006.
In
December 2005, the Company sold 3,729,556 shares of its common stock and 932,390
warrants to purchase shares of its common stock, through a registered direct
offering. The warrants have an exercise price of $4.25 per share and
are exercisable beginning six months and ending five years after their
issuance. In exchange for $3.56, the purchasers received one
share
of
common
stock and warrants to purchase .25 shares of common stock. The
offering provided net proceeds of approximately $12.5 million to the
Company. The placement agent in this transaction received
compensation consisting of (i) a cash fee equal to 5% of the aggregate gross
proceeds and (ii) warrants to purchase 186,478 shares of Cytogen common stock
having an exercise price of $4.25 per share and exercisable beginning six months
and ending five years after their issuance (see Note 13).
In
July
and August 2005, the Company sold 3,104,380 shares of its common stock and
776,096 warrants to purchase shares of its common stock having an exercise
price
of $6.00 per share, through a registered direct offering. In exchange
for $4.50, the purchasers received one share of common stock and warrants to
purchase .25 shares of common stock. These warrants are exercisable
beginning six months and ending ten years after their issuance. The
transaction provided net proceeds of approximately $13.9 million to the Company
(see Note 11).
In
June
2005, the Company stockholders approved an amendment to the Company's
Certificate of Incorporation to increase the total authorized shares of common
stock of the Company from 25,000,000 to 50,000,000 shares.
In
April
2004, the Company issued and sold 2,570,000 shares of its common stock for
$10.10 per share through a registered direct offering that provided net proceeds
of approximately $23.9 million after the payment of placement agent fees and
expenses related to the offering.
In
2005
and 2004, the Company issued to certain members of Cytogen's Board of Directors
an aggregate total of 4,000 and 873 shares, respectively, of its common stock
as
compensation for their services as directors of the Company. No
shares were issued as compensation in 2006.
See
Note
3 for information regarding Cytogen common stock issued to the Prostagen
Partners, and Notes 13 and 14 for information regarding Cytogen common stock
issued to employees under the stock option and employee stock purchase plans
and
401(k) plan, respectively.
As
of
December 31, 2006 and 2005, including warrants to purchase Cytogen common stock
issued to non-employees (see Note 13), the Company has outstanding warrants
to
purchase 7,279,193 and 3,803,086 shares, respectively, of Cytogen common stock
at exercise prices ranging from $3.32 to $12.80 per share in 2006, and at
exercise prices ranging from $4.25 to $12.80 per share in 2005. The
warrants outstanding as of December 31, 2006 expire at various times through
August 2015. During 2006, 70,000 warrants to purchase shares of the
Company's common stock, with an exercise price of $5.65 per share
expired. 30,000 warrants with an exercise price of $5.65 per share
were exercised during 2005. At December 31, 2006, warrants to
purchase 3,733,086 shares of Cytogen's common stock with exercise prices ranging
from $4.25 to $12.80 per share are exercisable. Some warrants may
become automatically exercised, in full, subject to certain
conditions.
The
following table summarizes information about outstanding warrants to purchase
Cytogen common stock at December 31, 2006:
|
Exercise
Price
|
Outstanding
Warrants
|
Aggregate
Exercise Price
|
|||||||||
| $ |
3.32
|
3,546,107
|
$ |
11,773,075
|
|||||||
| $ |
4.25
|
|
1,118,868
|
$ |
4,755,189
|
||||||
| $ |
6.00
|
776,096
|
$ |
4,656,576
|
|||||||
| $ |
6.91
|
315,790
|
$ |
2,182,108
|
|||||||
| $ |
10.97
|
250,000
|
$ |
2,742,500
|
|||||||
| $ |
12.80
|
1,272,332
|
$ |
16,285,850
|
|||||||
The
warrants exercisable at $10.97 per share and $12.80 per share become
automatically exercised, in full, if the Company's common stock trades for
30
consecutive trading days at 130% of the respective exercise prices.
The
Board
of Directors of the Company has the authority, without further action by the
holders of common stock, to issue from time to time, up to 5,400,000 shares
of
preferred stock in one or more classes or series, and to fix the rights and
preferences of the preferred stock.
The
Company has implemented a stockholder rights plan by which one preferred stock
purchase right is attached to each share of common stock, as a means to deter
coercive takeover tactics and to prevent an acquirer from gaining control of
the
Company without some mechanism to secure a fair price for all of the Company's
stockholders if an acquisition was completed. These rights will be
exercisable if a person or group acquires beneficial ownership of 20% or more
of
Cytogen common stock and can be made exercisable by action of the Company's
Board of Directors if a person or group commences a tender offer which would
result in such person or group beneficially owning 20% or more of Cytogen common
stock. Each right will entitle the holder to buy one one-thousandth
of a share of a new series of Cytogen's junior participating preferred stock
for
$20. If any person or group becomes the beneficial owner of 20% or
more of Cytogen common stock (with certain limited exceptions), then each right
not owned by the 20% stockholder will entitle its holder to purchase, at the
right's then current exercise price, common shares having a market value of
twice the exercise price. In addition, if after any person has become
a 20% stockholder, the Company is involved in a merger or other business
combination transaction with another person, each right will entitle its holder
(other than the 20% stockholder) to purchase, at the right's then current
exercise price, common shares of the acquiring company having a value of twice
the right's then current exercise price.
|
13.
|
SHARE-BASED
COMPENSATION
|
The
Company has various share-based compensation plans that provide for the issuance
of common stock and incentive and non-qualified stock options to purchase the
Company's common stock to employees, non-employee directors and outside
consultants. These plans are administered by the Compensation
Committee of the Board of Directors (the "Compensation
Committee"). From time to time, the Company may issue warrants to
purchase Cytogen common stock to non-employees, which are outside of the
approved share-based compensation plans,
in
exchange for goods or services. The grants, terms and conditions of
the warrants must
be
approved by the Board of Directors. The Company utilizes newly issued
common shares to satisfy option exercises or upon satisfaction of service
requirement for nonvested shares.
Cytogen
Stock Options
Currently,
the Company has three plans which allow for the issuance of stock options and
other awards: the 2006 Equity Compensation Plan (the "2006 Plan"); the 2004
Stock Incentive Plan (the "2004 Plan"); and the 2004 Non-Employee Director
Stock
Incentive Plan (the "2004 Director Plan"). An aggregate of 1,500,000,
1,200,000 and 375,000 shares of Cytogen common stock have been reserved for
issuance upon the exercise of options or stock awards (as applicable) under
the
2006 Plan, 2004 Plan and 2004 Director Plan, respectively. As of
December 31, 2006, the number of remaining options or stock authorized and
available for grant is approximately 1,489,160. The Company also has
certain other option plans, for which there are options outstanding but no
new
options can be granted under those plans. Options shall become
exercisable in accordance with such terms and conditions as may be determined
by
the Compensation Committee. Generally, options granted to employees
will vest 40%, 30% and 30% one year, two years and three years after the date
of
grant, respectively. Options granted to officers will generally vest
annually one third each year over a three-year period from the date of
grant.
On
June
13, 2006, the Company's stockholders approved the 2006 Plan at the 2006 Annual
Meeting of Stockholders. The 2006 Plan provides for the grant of
incentive stock options, nonqualified stock options, stock units, stock awards,
stock appreciation rights and other stock-based awards to the Company's
employees and non-employee directors. Performance-based awards, which
will vest upon the achievement of objective performance goals, may also be
granted under the 2006 Plan. As long as Cytogen common stock is
traded on the Nasdaq National Market, the exercise price of Cytogen stock
options under the 2006 Plan will be equal to the last reported sales price
for
Cytogen common stock on the date of grant, unless a higher exercise price is
specified by the Compensation Committee. Except for certain
circumstances, the options will generally expire upon the earlier of ten years
after the date of grant or within a certain period of time after termination
of
services as determined by the Compensation Committee.
The
2004
Plan provides for the grant of incentive stock options, non-qualified stock
options or nonvested shares (see below) to the Company's employees, officers,
consultants and advisors. Performance options, which will vest upon
the achievement of certain milestones, may also be granted under the 2004
Plan. The exercise price of Cytogen stock options is equal to the
average of high and low trading prices for Cytogen common stock on the date
of
grant, unless a higher exercise price is specified by the Compensation
Committee. Except for certain circumstances, the options will
generally expire upon the earlier of ten years after the date of grant or 90
days after termination of employment.
The
2004
Director Plan provides for the grant of non-qualified stock options and shares
of Cytogen common stock, in certain circumstances, to members of the Company's
Board of Directors who are not employees of the Company. According to
the 2004 Director Plan, each re-elected Director shall automatically receive
options to purchase shares of Cytogen common stock
on
the
day following each Annual Meeting of Stockholders. Each new Director
who is appointed after the date of the most recent Annual Meeting of
Stockholders will receive a certain number of options, pro-rated for the number
of months remaining until the next Annual Meeting. The exercise price
of Cytogen stock options is equal to the average of high and low trading prices
for Cytogen common stock on the date of grant. All options will
become exercisable on the first anniversary of the date of grant, unless options
are granted to a Director who has served on the Company's Board of Directors
for
at least three years and retires or resigns after reaching 55 years of
age. In such case, the options may be exercised in full regardless of
the time lapse since the date of grant and for these options eligible for this
accelerated vesting, the share-based compensation expense is recognized entirely
on the date of grant in accordance with SFAS 123(R). Prior to the
adoption of SFAS 123(R), the Company recorded the compensation expense related
to all such awards over the vesting period. In 2006, $76,000 of
compensation expense was recognized for previous awards that would have been
recognized in 2005 had the treatment required by SFAS 123(R) been applied to
awards granted prior the adoption of SFAS 123(R). Except for certain
circumstances, the options will generally expire upon the earlier of ten years
after the date of grant or 90 days after termination date.
A
summary
of option activities related to Cytogen stock options other than performance
options, for the year ended December 31, 2006 is as follows:
|
Cytogen
Options Other than Performance
Options
|
Number
of
Cytogen
Stock
Options
|
Weighted-Average
Exercise
Price
Per
Share
|
Weighted-Average
Remaining
Contractual
Life
|
Aggregate
Intrinsic
Value
|
||||||||||||
|
Balance
at December 31, 2005
|
980,796
|
$ |
10.04
|
|||||||||||||
|
Granted
|
703,350
|
3.23
|
||||||||||||||
|
Exercised
|
--
|
--
|
||||||||||||||
|
Forfeited
|
(155,480 | ) |
4.89
|
|||||||||||||
|
Expired
|
(68,147 | ) |
13.64
|
|||||||||||||
|
Balance
at December 31, 2006
|
1,460,519
|
$ |
7.14
|
8.12
|
$ |
4,000
|
||||||||||
|
Exercisable
and expected to vest at December 31, 2006
|
1,337,924
|
$ |
7.36
|
8.10
|
$ |
3,000
|
||||||||||
|
Exercisable
at December 31, 2006
|
629,266
|
$ |
11.23
|
6.79
|
$ |
--
|
||||||||||
At
December 31, 2006, the weighted-average exercise price of exercisable options
was higher than the market price of the Company's underlying common share,
and
as a result, the aggregate intrinsic value was zero.
A
summary
of option activities related to performance options for the year ended December
31, 2006 is as follows:
|
Performance
Options
|
Number
of
Cytogen
Stock
Options
|
Weighted-Average
Exercise
Price
Per
Share
|
Weighted-Average
Remaining
Contractual
Life
|
Aggregate
Intrinsic
Value
|
||||||||||||
|
Balance
at December 31, 2005
|
150,000
|
$ |
3.54
|
|||||||||||||
|
Granted
|
--
|
--
|
||||||||||||||
|
Exercised
|
--
|
--
|
||||||||||||||
|
Forfeited
and Expired
|
--
|
--
|
||||||||||||||
|
Balance
at December 31, 2006
|
150,000
|
$ |
3.54
|
5.97
|
--
|
|||||||||||
|
Exercisable
and expected to vest at December 31, 2006
|
50,000
|
$ |
3.54
|
5.97
|
--
|
|||||||||||
|
Exercisable
at December 31, 2006
|
50,000
|
$ |
3.54
|
5.97
|
--
|
|||||||||||
In
2002,
options to purchase 150,000 shares of Cytogen common stock were granted to
a key
employee. These options have three separate and equal tranches which
vest upon the achievement of certain milestones established by the Company's
Board of Directors. In June 2006, the Board of Directors determined
that one of the performance milestones had been met, and as a result, approved
the vesting of 50,000 performance options. During the year ended
December 31, 2006, the Company recorded $152,000 in selling, general and
administrative expenses, which represent the grant date fair value of the vested
options based on the Black-Scholes option pricing model. The
remaining 100,000 performance options are not deemed probable of becoming
exercisable at December 31, 2006.
At
December 31, 2006, the weighted-average exercise price of outstanding,
exercisable and expected to vest, and exercisable options each was higher than
the market price of the Company's underlying common share, and as a result,
the
aggregate intrinsic value was zero.
Nonvested
Shares
Under
the
2004 Plan, the Company may issue nonvested shares to employees, officers,
consultants and advisors. The maximum number of shares authorized for
grant under the 2004 Incentive Plan is 200,000. Generally, the
nonvested shares will vest in installments over three to six year
periods. The Company may also issue stock awards to its employees and
non-employee directors under the 2006 Plan.
A
summary
of the Cytogen's nonvested share activities for the year ended December 31,
2006
is as follows:
|
Nonvested
Shares
|
Number
of
Nonvested
Shares
|
Weighted-Average
Grant
Date
Fair
Value
|
Weighted-Average
Remaining
Vesting
Term
|
Aggregate
Intrinsic
Value
|
||||||||||||
|
Balance
at December 31, 2005
|
136,200
|
$ |
5.15
|
|||||||||||||
|
Granted
|
246,800
|
3.00
|
||||||||||||||
|
Vested
|
--
|
--
|
||||||||||||||
|
Forfeited
|
(39,100 | ) |
4.82
|
|||||||||||||
|
Balance
at December 31, 2006
|
343,900
|
$ |
3.65
|
2.56
|
$ |
801,000
|
||||||||||
|
Vested
and expected to vest at December 31, 2006
|
300,156
|
$ |
3.58
|
2.56
|
$ |
699,000
|
||||||||||
|
Vested
at December 31, 2006
|
--
|
--
|
--
|
--
|
||||||||||||
Employee
Stock Purchase Plan
In
September 2005, the Board of Directors of the Company adopted the 2005 Employee
Stock Purchase Plan (the "2005 ESPP"). The 2005 ESPP, which was
approved by the Company's stockholders on June 13, 2006, is effective October
1,
2005, and replaces the Company's existing employee stock purchase plan which
had
no remaining shares available for future issuance. Under the 2005
ESPP, eligible employees may elect to purchase shares of Cytogen common stock
at
85% of the lower of fair value as of the first or last trading day of each
participation period. Under the 2005 ESPP, officers of the Company
who purchase shares may not transfer such shares for a period of 12 months
after
the purchase date. The initial offering period was a nine-month
period beginning on October 1, 2005 and ending on June 30,
2006. Subsequent purchase periods will be three-month periods
beginning on the first day in July, October, January and April. The
Company has reserved 500,000 shares of common stock for future issuance under
the 2005 ESPP. The 2005 ESPP plan is compensatory under SFAS
123(R). In the year ended December 31, 2006, employees purchased
39,666 shares of common stock for aggregate proceeds to the Company of
$82,000. At December 31, 2006, 460,334 shares remain available for
purchase under the 2005 ESPP.
Warrants
and Options Issued to Non-Employees
From
time
to time, the Company may issue warrants and options to purchase Cytogen common
stock to non-employees, excluding directors, in exchange for goods or
services. Warrants are issued outside of any approved compensation
plans. Terms of warrants and options vary among various arrangements,
with vesting period generally up to one year and may require exercise if certain
conditions are met. Contractual term ranges up to ten
years.
A
summary
of the Cytogen warrants and options issued to non-employees for the year ended
December 31, 2006 is as follows:
|
Warrants
and Options to Non-Employees
|
Number
of
Cytogen
Warrants
And
Options
|
Weighted-Average
Exercise
Price
Per
Share
|
Weighted-Average
Remaining
Contractual
Life
|
Aggregate
Intrinsic
Value
|
||||||||||||
|
Balance
at December 31, 2005
|
359,978
|
$ |
6.96
|
|||||||||||||
|
Granted
|
--
|
--
|
||||||||||||||
|
Exercised
|
--
|
--
|
||||||||||||||
|
Forfeited
|
--
|
--
|
||||||||||||||
|
Expired
|
(70,000 | ) | $ |
5.65
|
||||||||||||
|
Balance
at December 31, 2006
|
289,978
|
$ |
7.27
|
3.09
|
--
|
|||||||||||
|
Exercisable
and expected to vest at December 31, 2006
|
289,978
|
$ |
7.27
|
3.09
|
--
|
|||||||||||
|
Exercisable
at December 31, 2006
|
289,978
|
$ |
7.27
|
3.09
|
--
|
|||||||||||
At
December 31, 2006, the weighted-average exercise price of outstanding,
exercisable and expected to vest, and exercisable warrants each was higher
than
the market price of the Company's underlying common share, and as a result,
the
aggregate intrinsic value was zero.
AxCell
BioSciences Stock Options
AxCell
BioSciences, a non-publicly traded subsidiary of Cytogen Corporation, also
has a
stock option plan that provides for the issuance of incentive and non-qualified
stock options to purchase AxCell common stock ("AxCell Stock Options") to
employees, for which 2,000,000 shares of AxCell common stock have been
reserved. AxCell Stock Options are granted with a term of 10 years
and generally become exercisable in installments over periods of up to five
years.
A
summary
of AxCell stock option activities for the year ended December 31, 2006 is as
follows:
|
AxCell
Stock Options
|
Number
of
AxCell
Stock
Options
|
Weighted-
Average
Exercise
Price
|
Weighted-
Average
Remaining
Contractual
Term
|
|||||||||
|
Balance
at December 31, 2005
|
69,405
|
$ |
4.34
|
6.10
|
||||||||
|
Granted
|
--
|
--
|
||||||||||
|
Exercised
|
--
|
--
|
||||||||||
|
Forfeited
|
--
|
--
|
||||||||||
|
Expired
|
(19,405 | ) |
3.60
|
|||||||||
|
Balance
at December 31, 2006
|
50,000
|
$ |
4.63
|
5.33
|
||||||||
|
Exercisable
and expected to vest at December 31, 2006
|
50,000
|
$ |
4.63
|
5.33
|
||||||||
|
Exercisable
at December 31, 2006
|
50,000
|
$ |
4.63
|
5.33
|
||||||||
AxCell
is
not a publicly traded subsidiary. While there was not a readily
available market price for AxCell's underlying common share at December 31,
2006, the Company estimated that its fair value was less than the exercise
price, and as a result, the aggregate intrinsic value was zero.
Adoption
of SFAS No. 123(R)
Effective
January 1, 2006, the Company adopted SFAS No. 123(R) which requires companies
to
measure and recognize compensation expense for all share-based payments at
fair
value. Prior to the adoption of SFAS 123(R), the Company accounted
for its stock-based employee compensation expense under the recognition and
measurement principles of APB 25, and related interpretations. Under
APB 25, compensation costs related to stock options granted with exercise prices
equal to or greater than the fair value of the underlying shares at the date
of
grant under those plans were not recognized in the consolidated statements
of
operations. Compensation costs related to nonvested shares and stock
options granted with exercise prices below fair value of the underlying shares
at the date of grant were recognized in the consolidated statements of
operations over the requisite service period, generally the vesting periods
of
the awards. Compensation costs associated with those awards granted
prior to the adoption of SFAS 123(R) were recognized using the accelerated
attribution method in accordance with FIN 28 and forfeitures were recorded
as
incurred. The following table illustrates the effect on net loss and
net loss per share as if the fair value method under SFAS 123 had been
applied for the years ended December 31, 2005 and 2004 (all amounts in
thousands, except per share data):
|
Year
Ended December 31,
|
||||||||
|
2005
|
2004
|
|||||||
|
(All
amounts in thousands, except per share data)
|
||||||||
|
Net
loss, as
reported
|
$ | (26,289 | ) | $ | (20,540 | ) | ||
|
Add:
Stock-based employee compensation expense included in reported net
loss
|
111
|
15
|
||||||
|
Deduct:
Total stock-based employee compensation expense determined under
fair
value-based method for all awards
|
(1,894 | ) | (2,152 | ) | ||||
|
Pro
forma net
loss
|
$ | (28,072 | ) | $ | (22,677 | ) | ||
|
Basic
and diluted net loss per share, as reported
|
$ | (1.54 | ) | $ | (1.40 | ) | ||
|
Pro
forma basic and diluted net loss per share
|
$ | (1.64 | ) | $ | (1.55 | ) | ||
The
Company adopted SFAS No. 123(R) using the modified prospective transition
method, which requires that share-based compensation cost be based on the
grant-date fair value estimated in accordance with the provisions of SFAS 123(R)
and is recognized for all awards granted, modified or settled after the
effective date as well as awards granted to employees prior to the effective
date that remain unvested as of the effective date. In 2006, the
Company recorded $1.9 million of share-based compensation expense, of which
$1.6
million was included in selling, general and administrative expenses and
$252,000 was recorded in research and development expenses. No
compensation costs were capitalized in 2006. In 2005 and 2004, the
Company recorded a charge of $111,000 and $15,000, respectively, for share-based
compensation. There were no modification to the share-based awards in
2006, 2005 and 2004.
The
adoption of SFAS 123(R) resulted in higher net loss for the year ended December
31, 2006 of $1.6 million or $0.07 per basic and diluted share, than if the
Company had continued to account for the share-based compensation under APB
25. At December 31, 2006, unrecognized compensation expense, which
includes the impact of estimated forfeitures, related to unvested awards granted
under the Company's share-based compensation plans is approximately $2.3 million
and remains to be recognized over a weighted average period of 1.3
years. The Company recognizes share-based compensation on a
straight-line basis over the requisite service period for grants on or after
January 1, 2006, however, the cumulative amount of compensation expense
recognized at any point in time for an award cannot be less than the portion
of
the grant date fair value of the award that is vested at that
date. Unrecognized compensation expense related to grants made prior
to adoption of SFAS 123(R) are recognized using the accelerated amortization
method. Prior periods were not restated to reflect the impact of
adopting the new standard. No cumulative effect adjustment was
recorded for the accounting change related to recording actual forfeitures
as
incurred under APB 25 to estimating forfeitures in accordance with SFAS 123(R)
as the amount was de minimus.
The
Company's share-based compensation costs are generally based on the fair value
of the option awards calculated using the Black-Scholes option pricing model
on
the date of grant.
The
weighted-average fair value per share of the options granted under the Cytogen
stock option plans during 2006, 2005 and 2004 is estimated at $2.59, $3.67
and
$8.74 per share, respectively, on the date of grant using the Black-Scholes
option pricing model with the following weighted-average assumptions for 2006,
2005 and 2004:
|
Valuation
Assumptions
|
2006
|
2005
|
2004
|
|||||||||
|
Dividend
yield
|
0 | % | 0 | % | 0 | % | ||||||
|
Expected
volatility
|
95.64 | % | 96.27 | % | 109.66 | % | ||||||
|
Risk-free
interest
rate
|
4.88 | % | 3.97 | % | 3.78 | % | ||||||
|
Expected
life
|
6.4
yrs
|
4.6
yrs
|
4.6
yrs
|
|||||||||
The
compensation costs for nonvested share awards are based on the fair value of
Cytogen common stock on the date of grant. The weighted-average grant
date fair value per share of nonvested share awards granted during 2006 and
2005
was $3.00 and $5.15, respectively.
The
weighted-average fair value per share ascribed to the shares purchased under
the
employee stock purchase plan during 2006, 2005 and 2004 is estimated at $0.57,
$3.35 and $3.81 per share, respectively, on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions for 2006, 2005 and 2004:
|
Valuation
Assumptions
|
2006
|
2005
|
2004
|
|||||||||
|
Dividend
yield
|
0 | % | 0 | % | 0 | % | ||||||
|
Expected
volatility
|
43.97 | % | 112.23 | % | 52.63 | % | ||||||
|
Risk-free
interest
rate
|
4.91 | % | 2.71 | % | 1.26 | % | ||||||
|
Expected
life
|
2
months
|
3
months
|
3
months
|
|||||||||
The
weighted-average fair value per share of the warrants granted to non-employees
in exchange for services during 2005 is estimated at $2.30 per share on the
date
of grant using the Black-Scholes option pricing model with the weighted-average
assumptions of 0% for dividend yield, 93.3% for expected volatility, 4.43%
for
risk-free interest rate and 5 years for expected life. The Company
recognized the compensation charge for the associated warrants of $430,000
as
transaction costs and netted them against the proceeds received from the 2005
financing transaction (see Note 12). No warrants were granted to non
employees in exchange for services during 2006 and 2004.
Because
the Company has never declared cash dividends and has no intention to declare
cash dividends in the near future, an expected dividend yield of zero is
used. The Company calculates expected volatility for stock-based
awards using historical volatility, measured over a period equal to the expected
term of the award, which it believes is a reasonable estimate of future
volatility. The Company bases the risk-free interest rate on the
implied yield available on U.S. Treasury zero-coupon issues with the remaining
term equal to the expected term used.
In
2005
and 2004, the Company determined the expected term of an award by analyzing
historical exercise experience and post-vesting employment termination behavior
from its history of grants and exercises. In 2006, the Company
calculates the expected life using the simplified method as described in the
SEC's Staff Accounting Bulletin No. 107 ("SAB 107") for "plain
vanilla"
options meeting certain criteria. The simplified method is based on
the vesting period and the contractual term for each grant or each
vesting-tranche of awards with graded vesting. The mid-point between
the vesting date and the expiration date is used as the expected term under
this
method. As options granted to the Board of Director members do not
meet the criteria of "plain vanilla" options, the Company determines the
expected term for these options by analyzing the historical exercise experience
and post-vesting termination behaviors. The Company believes the
result is a reasonable estimate of the length of time that the options are
expected to be outstanding.
In
addition, under SFAS 123(R), the Company is required to estimate expected
forfeitures of options and stock grants over the requisite service period and
adjust shared-based compensation accordingly. The estimate of
forfeitures will be adjusted over the requisite service period to the extent
that actual forfeitures differ, or are expected to differ, from such
estimates. The cumulative effect of changes in estimated forfeitures
will be recognized in the period of change and will also impact the amount
of
stock compensation expense to be recognized in future periods. Under
the provisions of SFAS 123(R), the Company will record additional expense if
the
actual forfeiture rate is lower than what had been estimated and the Company
will record a recovery of prior expense if the actual forfeiture rate is higher
than what had been estimated.
There
was
no vesting of nonvested shares in 2006, 2005 and 2004. There were no
option exercises in 2006. Total intrinsic value was $2,000 and
$46,000 for options exercised in 2005 and 2004, respectively. Cash
received from the option exercises in 2005 and 2004 was $7,000 and $25,000,
respectively.
|
14.
|
RETIREMENT
SAVINGS PLAN
|
The
Company maintains a defined contribution 401(k) plan for its
employees. The contribution is determined by the Board of Directors
and is based upon a percentage of gross wages of eligible
employees. The plan provides for vesting over four years, with credit
given for prior service. The Company also makes contributions in cash
or its common stock, at the Company's discretion, under the 401(k) plan in
amounts which match up to 50% of the salary deferred by the participants up
to
6% of total salary. Total expense related to the 401(k) contributions
was $223,000, $164,000 and $136,000 for 2006, 2005 and 2004,
respectively. All contributions were made in cash.
|
15.
|
INCOME
TAXES
|
As
of
December 31, 2006, Cytogen had federal and state net operating loss
carryforwards of approximately $304.7 million and $244.4
million, respectively. The components of the federal net operating
loss carryforward that will expire in the next five years are as follows: $15.7
million in 2007, $10.9 million in 2008, $3.8 million in 2009, $11.9 million
in
2010 and $24.8 million in 2011. The components of the state net
operating loss carryforward that will expire in the next five years are as
follows: $13.9 million in 2007, $31.9 million in 2008, $16.9 million in 2009,
$20.4 million in 2010 and $19.4 million in 2011. The Company also had
federal and state research and development tax credit carryforwards of
approximately $4.6 million and
$441,000,
respectively. These net operating loss and credit carryforwards have
begun to expire and will continue to expire through 2026.
The
Tax
Reform Act of 1986 contains provisions that limit the utilization of net
operating loss and tax credit carryforwards if there has been an "ownership
change". Such an "ownership change", as described in Section 382 and
383 of the Internal Revenue Code, may limit the Company's utilization of its
net
operating loss and tax credit carryforwards. Additionally, various
states have similar limitations on utilization of certain state net operating
loss and credit carryforwards that may limit the Company's ability to realize
the benefits of these carryforwards.
Deferred
income taxes reflect the net tax effect of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and
the amount used for income tax purposes. Based on the Company's loss
before income taxes during 2006, 2005 and 2004, the Company would have been
expected to record a tax benefit using the statutory tax rate. During
2006, there was a decrease in the valuation allowance of $1.1 million due
primarily to the expiration of federal and state net operating loss
carryforwards in 2006. During 2005 and 2004, there were increases of
$4.3 million and $3.1 million, respectively, in the valuation allowance, due
to
the Company's loss history, and uncertainty regarding the realization of
deferred tax assets. These increases to the valuation allowance
reduced the actual benefit to $256,000 and $307,000 in 2005 and 2004,
respectively, which amounts are related to the sales of New Jersey state
operating loss carryforwards as discussed below. The Company did not
sell any New Jersey state net operating loss carryforwards in
2006. Deferred tax assets have been fully reserved as of December 31,
2006 and 2005.
|
2006
|
2005
|
|||||||
|
(All
amounts in thousands)
|
||||||||
|
Deferred
tax assets:
|
||||||||
|
Net
operating loss carryforwards
|
$ |
117,533
|
$ |
111,341
|
||||
|
Capitalized
research and development expenses
|
1,461
|
8,220
|
||||||
|
Research
and development credit
|
5,023
|
5,606
|
||||||
|
Acquisition
of in-process technology
|
613
|
722
|
||||||
|
Other,
net
|
7,040
|
6,873
|
||||||
|
Total
deferred tax
assets
|
131,670
|
132,762
|
||||||
|
Valuation
allowance
|
(131,670 | ) | (132,762 | ) | ||||
|
Net
deferred tax
assets
|
$ |
—
|
$ |
—
|
||||
During
2005 and 2004, the Company sold New Jersey state operating loss carryforwards,
resulting in the recognition of $256,000 and $307,000 of income tax benefit,
respectively.
The
effective income tax rate for the Company's continuing operations differs from
the statutory tax rate as follows:
|
2006
|
2005
|
2004
|
||||||||||
|
Federal
statutory income tax rate
|
34.0 | % | 34.0 | % | 34.0 | % | ||||||
|
Increase
in valuation allowance
|
(29.4 | %) | (29.9 | %) | (39.0 | %) | ||||||
|
Sale
of New Jersey net operating loss carryforwards
|
— | % | 1.0 | % | 1.5 | % | ||||||
|
Other
|
(4.6 | %) | (4.1 | %) | 5.0 | % | ||||||
|
Effective
income tax
rate
|
— | % | 1.0 | % | 1.5 | % | ||||||
|
16.
|
COMMITMENTS
AND CONTINGENCIES
|
The
Company leases its facilities and certain equipment under non-cancelable
operating leases that expire in October 2009. Rent expense on these
leases was $320,000, $351,000 and $510,000 in 2006, 2005 and 2004,
respectively. Minimum future obligations under the operating leases
are $958,000 as of December 31, 2006 and will be paid as follows: $338,000
in
2007, $338,000 in 2008 and $282,000 in 2009.
The
Company is obligated to make minimum future payments under contracts for
research and development, marketing, investor relations, consulting and other
supporting services that expire at various times. As of December 31,
2006, the minimum future payments under these contracts are $4.0 million and
will be paid as follows: $3.1 million in 2007, $106,000 in 2008, $76,000 in
2009, $75,000 each year from 2010 to 2017, and $31,000 in 2018. In
addition, under the BMSMI agreement, the Company is obligated to pay at least
$4.9 million annually, subject to future annual price adjustment, through
2008. The Company may terminate this agreement on two years prior
written notice (see Note 7). The Company is also obligated to pay
milestone payments upon achievement of certain milestones and royalties on
revenues from commercial product sales including certain guaranteed minimum
payments. Such obligations include payments to Dow (see Note 5),
Berlex Laboratories (see Note 6), Rosemont (see Note 17) and InPharma (see
Note
19).
Each
of
the Company's executive officers is currently party to an Executive Change
of
Control Severance Agreement with the Company. Such agreements
provide, generally, for the payment of twelve months base salary, a pro rata
portion of such officer's bonus compensation, the continuation of all benefits,
reasonable Company-paid outplacement assistance and certain other accrued
rights, in the event such officer's employment with the Company is terminated
in
connection with certain changes in control.
In
the
ordinary course of business, the Company enters into agreements with third
parties that include indemnification provisions which, in its judgment, are
normal and customary for companies in its industry sector. These
agreements are typically with business partners, clinical sites, and
suppliers. Pursuant to these agreements, the Company generally agrees
to indemnify, hold harmless and reimburse the indemnified parties for losses
suffered or incurred by the indemnified parties with respect to the Company's
products or product candidates, use of such
products
or other actions taken or omitted by the Company. The maximum
potential amount of future payments the Company could be required to make under
these indemnification provisions is unlimited. The Company has not
incurred material costs to defend lawsuits or settle claims related to these
indemnification provisions. The current estimated liabilities
relating to this provision are minimal. Accordingly, the Company has
no liabilities recorded for these provisions as of December 31, 2006 and
2005.
|
17.
|
SAVIENT
PHARMACEUTICALS, INC.
|
On
April
21, 2006, the Company and Savient entered into a distribution agreement granting
the Company exclusive marketing rights for SOLTAMOX in the United
States. SOLTAMOX, a cytostatic estrogen receptor antagonist, is the
first oral liquid hormonal therapy approved in the U.S. It is
indicated for the treatment of breast cancer in adjuvant and metastatic settings
and to reduce the risk of breast cancer in women with ductal carcinoma in situ
(DCIS) or with high risk of breast cancer. The Company introduced
SOLTAMOX to the U.S. oncology market in the second half of 2006.
In
addition, the Company entered into a supply agreement with Savient and Rosemont
previously a wholly-owned subsidiary of Savient, for the manufacture and supply
of SOLTAMOX. Cytogen's agreements with Savient were subsequently
assigned to Rosemont by Savient. Under the terms of the final
transaction, the Company paid Savient an up-front licensing fee of $2.0 million
and may pay additional contingent sales-based payments of up to a total of
$4.0
million to Savient and Rosemont. The Company is also required to pay
Rosemont royalties on net sales of SOLTAMOX. Such royalty expense was
$111,000 in 2006. Beginning in 2007, Cytogen is obligated to pay
Rosemont quarterly minimum royalties based on an agreed upon percentage of
total
tamoxifen prescriptions in the United States. Unless terminated
earlier, the distribution and supply agreements will each terminate upon the
expiration of the last to expire patent covering SOLTAMOX in the United States,
which is currently June 2018. The manufacturing agreement is
terminable by Rosemont or the Company on one year notice prior to the end of
the
then current term. In the event the tamoxifen prescriptions for an
agreed upon period of time are less than the pre-established minimum, the
agreement may be terminated if the parties are unable to reach an agreement
to
amend the terms of the contract to account for such impact.
The
up-front license payment of $2.0 million was capitalized as SOLTAMOX license
fee
in the accompanying consolidated balance sheet and is being amortized on a
straight-line basis over approximately twelve years which is the estimated
performance period of the agreement. The amortization expense for
2006 was $110,000 and is recorded as cost of product revenue (see Note
1).
|
18.
|
ONCOLOGY
THERAPEUTICS NETWORK, J.V.
|
On
June
20, 2006, the Company entered into a purchase and supply agreement with Oncology
Therapeutics Network, J.V. ("OTN") appointing OTN as the exclusive distributor
of SOLTAMOX in the United States. In August 2006 and January 2007,
the agreement was amended to revise certain terms, including changing the
role
of OTN to the exclusive
warehousing
agent and non-exclusive distributor of SOLTAMOX and CAPHOSOL
("Products"). Under the terms of the amended agreements, OTN will
purchase Products from the Company for its own wholesaler channels and, along
with third party logistics providers, distribute the Products to the Company's
other customers through its warehousing and distribution
facilities. The Company was obligated to pay OTN a minimal set up fee
upon execution of the agreement which was recorded as selling, general and
administrative expense in the second quarter of 2006. In addition,
the Company also pays OTN management fees based upon a percentage of the value
of Products shipped during the period. In 2006, the management fees
totaled $67,000 and are included in cost of product revenues. This
agreement has a three-year term and will automatically renew for successive
one-year periods unless terminated by OTN or Cytogen on a 90 days written notice
prior to the end of the applicable term. Either party also may
terminate the agreement, without cause, on 180 days written notice.
In
2006,
the Company received a payment from OTN for the purchase of SOLTAMOX, of which
$50,000 is subject to be refunded to OTN if the product is returned to the
Company. Such amount is recorded as "Customer Liability" in Accounts
Payable and Accrued Liabilities in the accompanying consolidated balance sheet
at December 31, 2006.
|
19.
|
INPHARMA
AS
|
On
October 11, 2006, the Company and InPharma entered into a license agreement
granting the Company exclusive rights for CAPHOSOL in North America and options
to license the marketing rights for CAPHOSOL in Europe and
Asia. Approved as a prescription medical device, CAPHOSOL is a
topical oral agent indicated in the United States as an adjunct to standard
oral
care in treating oral mucositis caused by radiation or high dose
chemotherapy. CAPHOSOL is also indicated for dryness of the mouth
(hyposalivation) or dryness of the throat (xerostomia) regardless of the cause
or whether the conditions are temporary or permanent. Under the terms
of the Agreement, the Company is obligated to pay InPharma $6.0 million in
aggregate up-front fees, of which $4.6 million was paid upon the execution
of
the agreement, $400,000 will be paid into an escrow account and to be released
over time provided there are no indemnification claims by the Company, and
$1.0
million will be paid upon the six-month anniversary of the execution of the
agreement. In addition, the Company is obligated to pay InPharma
royalties based on a percentage of net sales and future payments of up to an
aggregate of $49.0 million based upon the achievement of certain sales-based
milestones of which payments totaling $35 million are based upon annual sales
levels first reaching levels in excess of $30 million. The Company is
also obligated to pay a finder's fee based upon a percentage of milestone
payments paid to InPharma.
In
the
event the Company exercises the options to license marketing rights for CAPHOSOL
in Europe and Asia, the Company is obligated to pay InPharma additional fees
and
payments, including sales-based milestone payments for the respective
territories.The Company is required to obtain consents from certain licensors
but not InPharma, if the Company sublicenses the rights to market CAPHOSOL
in
Europe and Asia to other parties. The Company shall pay InPharma a
portion of any up-front license fees and milestone payments, but not royalties,
received by Cytogen in consideration of the grant by Cytogen to other parties
of
the right to market CAPHOSOL in Europe and Asia, to the extent such up-front
license fees
and
milestone payments are in excess of the respective amounts paid by Cytogen
to
InPharma for such rights.
Based
on
the relative fair value of the assets acquired, the Company allocated the
up-front fees and related transaction costs as follows: $4.2 million to CAPHOSOL
marketing rights in North America which excludes the $400,000 contingent
payment, $1.7 million to the option to license the product rights in Europe
and
$162,000 to the option to license the product rights in Asia. The
allocated license fee for North America was capitalized as CAPHOSOL license
fee
in the accompanying consolidated balance sheet and is being amortized on a
straight-line basis over approximately eleven years, which is the estimated
performance period of the agreement. The amortization expense in 2006
was $98,000 and is recorded as cost of product revenue. The allocated
option fee for Europe is recorded as other assets and will be transferred to
the
appropriate asset account if exercised. The Company periodically
evaluates the option value for impairment by assessing, among other things,
its
intent and ability to exercise the option, the option expiry date and the market
and product competitiveness. The allocated option fee for Asia is
charged to research and development expense in the accompanying consolidated
statement of operations, because the product was not approved in Asia at the
time of purchase and there was no future alternative uses for the
asset. In 2006, there was no royalty expense, since CAPHOSOL was not
introduced to the market until the first quarter of 2007.
|
20.
|
LITIGATION
AND RELATED MATTERS
|
In
September 2004, the Company announced the settlement of a patent infringement
suit brought by Immunomedics Inc. against Cytogen and C.R. Bard Inc. for an
agreed-upon payment without any admission of fault or liability. The
charge related to this settlement is recorded in the accompanying statement
of
operations for the year ended December 31, 2004. Immunomedics, Inc.
filed suit on February 17, 2000 against Cytogen and Bard, alleging that use
of
Cytogen's PROSTASCINT product infringed U.S. Patent No. 4,460,559, which claims
a method for detecting and localizing tumors. The settlement with
Immunomedics was on behalf of Cytogen and Bard.
In
December 2005, Trapezoid Healthcare Communications LLC filed a complaint against
the Company in the Superior Court of New Jersey, Law Division, Mercer County,
seeking approximately $426,000 in damages arising from the Company's alleged
failure to pay Trapezoid for marketing services allegedly provided to the
Company. On May 22, 2006, the Company settled this matter for
$365,000, without any admission of fault or liability. The Company
had previously established a reserve for the full amount of this claim in
2005.
In
January 2006, the Company filed a complaint against Advanced Magnetics in the
Massachusetts Superior Court for breach of contract, fraud, unjust enrichment,
and breach of the implied covenant of good faith and fair dealing in connection
with the parties' 2000 license agreement. The complaint sought
damages along with a request for specific performance requiring Advanced
Magnetics to take all reasonable steps to secure FDA approval of COMBIDEX in
compliance with the terms of the licensing agreement. In February
2006, Advanced Magnetics filed an answer to the Company's complaint and asserted
various counterclaims, including tortuous interference, defamation, consumer
fraud and abuse of process. In February 2007, the Company settled its
lawsuit against Advanced Magnetics, as well as
Advanced
Magnetics' counterclaims against Cytogen, by mutual agreement. Under
the terms of the settlement agreement, Advanced Magnetics paid $4 million to
the
Company and will release 50,000 shares of Cytogen common stock currently being
held in escrow. In addition, both parties agreed to early termination
of the licensing agreement.
In
addition, the Company is, from time to time, subject to claims and suits arising
in the ordinary course of business. In the opinion of management, the
ultimate resolution of any such current matters would not have a material effect
on the Company's financial condition, results of operations or
liquidity.
|
21.
|
CONSOLIDATED
QUARTERLY FINANCIAL DATA -
UNAUDITED
|
The
following tables provide quarterly data for the years ended December 31, 2006
and 2005.
|
Three
Months Ended
|
||||||||||||||||
|
March
31,
2006
|
June
30,
2006
|
Sept.
30,
2006
|
Dec.
31,
2006
|
|||||||||||||
|
(amounts
in thousands except per share data)
|
||||||||||||||||
|
Total
revenues
|
$ |
4,442
|
$ |
4,172
|
$ |
4,172
|
$ |
4,521
|
||||||||
|
Total
operating
expenses
|
11,768
|
11,038
|
10,408
|
14,523
|
||||||||||||
|
Operating
loss
|
(7,326 | ) | (6,866 | ) | (6,236 | ) | (10,002 | ) | ||||||||
|
Gain
on sale of equity interest in joint venture
|
—
|
12,873
|
—
|
—
|
||||||||||||
|
Other
(expense)/income,
net
|
(340 | ) |
1,199
|
498
|
1,097
|
|||||||||||
|
Income
(loss) before income taxes
|
(7,666 | ) |
7,206
|
(5,738 | ) | (8,905 | ) | |||||||||
|
Income
tax
benefit
|
—
|
—
|
—
|
—
|
||||||||||||
|
Net
loss
|
$ | (7,666 | ) | $ |
7,206
|
$ | (5,738 | ) | $ | (8,905 | ) | |||||
|
Basic
and diluted net income (loss) per share
|
$ | (0.34 | ) | $ |
0.32
|
$ | (0.26 | ) | $ | (0.34 | ) | |||||
|
Weighted-average
common shares outstanding, basic and diluted
|
22,474
|
22,474
|
22,494
|
26,468
|
||||||||||||
|
Product
related gross margin(1)
|
$ |
2,078
|
$ |
1,616
|
$ |
1,538
|
$ |
1,914
|
||||||||
|
Three
Months Ended
|
||||||||||||||||
|
March
31,
2005
|
June
30,
2005
|
Sept.
30,
2005
|
Dec.
31,
2005
|
|||||||||||||
|
(amounts
in thousands except per share data)
|
||||||||||||||||
|
Total
revenues
|
$ |
3,994
|
$ |
4,156
|
$ |
3,551
|
$ |
4,245
|
||||||||
|
Total
operating
expenses
|
10,688
|
12,009
|
11,549
|
10,509
|
||||||||||||
|
Operating
loss
|
(6,694 | ) | (7,853 | ) | (7,998 | ) | (6,264 | ) | ||||||||
|
Other
income,
net
|
101
|
112
|
877
|
1,174
|
||||||||||||
|
Loss
before income
taxes
|
(6,593 | ) | (7,741 | ) | (7,121 | ) | (5,090 | ) | ||||||||
|
Income
tax
benefit
|
—
|
—
|
—
|
(256 | ) | |||||||||||
|
Net
loss
|
$ | (6,593 | ) | $ | (7,741 | ) | $ | (7,121 | ) | $ | (4,834 | ) | ||||
|
Basic
and diluted net loss per share
|
$ | (0.43 | ) | $ | (0.50 | ) | $ | (0.40 | ) | $ | (0.25 | ) | ||||
|
Weighted-average
common shares outstanding, basic and diluted
|
15,513
|
15,564
|
17,857
|
19,466
|
||||||||||||
|
Product
related gross margin(1)
|
$ |
1,539
|
$ |
1,854
|
$ |
1,156
|
$ |
1,685
|
||||||||
_________
(1) Reflects reclassifications
of certain costs related to QUADRAMET clinical supplies from cost of product
revenue to research and development expenses.
F
-
47