SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended June 30, 2001
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OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to
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Commission file number 000-14879
Cytogen Corporation
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(Exact name of Registrant as specified in its charter)
Delaware 22-2322400
-------------------------------- ----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
600 College Road East, CN 5308, Princeton, NJ 08540-5308
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(Address of Principal Executive Offices and Zip Code)
Registrant's telephone number, including area code (609) 750-8200
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes X No .
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Class Outstanding at August 1, 2001
---------------------------- -----------------------------
Common Stock, $.01 par value 79,358,957
PART I - FINANCIAL INFORMATION
-------------------------------
Item I - Consolidated Financial Statements
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except share data)
(Unaudited)
June 30, December 31,
2001 2000
---------- ------------
ASSETS:
Current Assets:
Cash and cash equivalents ....................................... $ 18,713 $ 11,993
Receivable on income tax benefit sold ........................... -- 1,625
Accounts receivable, net ........................................ 2,211 1,841
Inventories ..................................................... 1,862 883
Other current assets ............................................ 820 377
--------- ---------
Total current assets ......................................... 23,606 16,719
Property and Equipment, net ......................................... 1,916 2,193
Other Assets ........................................................ 1,857 1,504
--------- ---------
$ 27,379 $ 20,416
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Current portion of long-term debt ............................... $ 104 $ 151
Accounts payable and accrued liabilities ........................ 5,809 7,218
Deferred revenue ................................................ 835 859
--------- ---------
Total current liabilities .................................. 6,748 8,228
--------- ---------
Long-Term Debt ...................................................... 2,313 2,374
--------- ---------
Deferred Revenue .................................................... 2,191 2,596
--------- ---------
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, 250,000,000 shares authorized,
78,859,000 and 75,594,000 shares issued and outstanding
at June 30, 2001 and December 31, 2000, respectively ......... 789 756
Additional paid-in capital ...................................... 350,362 335,938
Deferred compensation ........................................... (704) (895)
Accumulated deficit ............................................. (334,320) (328,581)
--------- ---------
Total stockholders' equity ................................... 16,127 7,218
--------- ---------
$ 27,379 $ 20,416
========= =========
The accompanying notes are an integral part of these statements.
2
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands, except per share data)
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
-------------------- --------------------
2001 2000 2001 2000
-------- -------- -------- --------
Revenues:
Product related:
ProstaScint ................................. $ 1,769 $ 1,492 $ 3,991 $ 3,187
Others ...................................... 213 130 326 307
-------- -------- -------- --------
Total product sales ................... 1,982 1,622 4,317 3,494
Quadramet royalties ......................... 595 508 1,036 1,006
-------- -------- -------- --------
Total product related ................. 2,577 2,130 5,353 4,500
License and contract .......................... 257 305 472 578
-------- -------- -------- --------
Total revenues ........................ 2,834 2,435 5,825 5,078
-------- -------- -------- --------
Operating Expenses:
Cost of product ............................... 622 981 1,774 1,911
Research and development ...................... 2,483 1,540 4,222 3,032
Selling and marketing ......................... 1,577 1,323 3,331 2,453
General and administrative .................... 1,349 1,107 2,522 2,055
-------- -------- -------- --------
Total operating expenses .............. 6,031 4,951 11,849 9,451
-------- -------- -------- --------
Operating loss ........................ (3,197) (2,516) (6,024) (4,373)
Interest income ................................. 156 195 377 363
Interest expense ................................ (44) (52) (92) (109)
-------- -------- -------- --------
Loss before cumulative effect of
accounting change .................... (3,085) (2,373) (5,739) (4,119)
Cumulative effect of accounting change .......... -- -- -- (4,314)
-------- -------- -------- --------
Net loss ........................................ $ (3,085) $ (2,373) $ (5,739) $ (8,433)
======== ======== ======== ========
Net loss per share:
Basic and diluted net loss before cumulative
effect of accounting change .................. $ (0.04) $ (0.03) $ (0.07) $ (0.06)
Cumulative effect of accounting change ........ -- -- -- (0.06)
-------- -------- -------- --------
Basic and diluted net loss .................... $ (0.04) $ (0.03) $ (0.07) $ (0.12)
======== ======== ======== ========
Weighted average common shares outstanding ...... 77,444 72,779 76,836 72,130
======== ======== ======== ========
The accompanying notes are an integral part of these statements.
3
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
(Unaudited)
Six Months Ended June 30,
-------------------------
2001 2000
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................................ $ (5,739) $ (8,433)
-------- --------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ................................... 580 472
Imputed interest ................................................ (22) (29)
Stock based compensation ........................................ 257 201
Amortization of deferred revenue ................................ (430) (430)
Cumulative effect of accounting change .......................... -- 4,314
Gain on sale of equipment ....................................... -- (148)
Changes in assets and liabilites:
Accounts receivable, net ..................................... (348) (190)
Inventories .................................................. (979) (125)
Other assets ................................................. 830 (818)
Accounts payable and accrued liabilities ..................... (1,219) (121)
Other liabilities ............................................ -- 77
-------- --------
Total adjustments ................................... (1,331) 3,203
-------- --------
Net cash used in operating activities ........................... (7,070) (5,230)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of equipment ..................................... -- 148
Purchases of property and equipment ..................................... (303) (597)
-------- --------
Net cash used in investing activities ........................... (303) (449)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock ...................................... 14,201 3,759
Redemption of short-term investments .................................... -- 1,593
Payment of long-term liabilities ........................................ (108) (11)
-------- --------
Net cash provided by financing activities ................... 14,093 5,341
-------- --------
Net increase (decrease) in cash and cash equivalents .................... 6,720 (338)
Cash and cash equivalents, beginning of period .......................... 11,993 10,801
-------- --------
Cash and cash equivalents, end of period ................................ $ 18,713 $ 10,463
======== ========
The accompanying notes are an integral part of these statements.
4
18
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company
Cytogen Corporation ("Cytogen" or the "Company") is a biopharmaceutical
company with an established and growing product line in prostate cancer and
other areas of oncology, and a leadership position in proteomics research
designed to accelerate drug discovery and development. In oncology, FDA-approved
products include ProstaScint(R) (a monoclonal antibody-based imaging agent used
to image the extent and spread of prostate cancer); BrachySeed(TM) (a uniquely
designed next-generation radioactive seed implant for the treatment of localized
prostate cancer), Quadramet(R) (a therapeutic agent marketed for the relief of
bone pain in prostate and other types of cancer), and OncoScint CR/OV(R) (a
monoclonal antibody-based imaging agent for colorectal and ovarian cancer).
Cytogen is evolving a pipeline of oncology product candidates by exploiting its
prostate specific membrane antigen, or PSMA, technologies, which are exclusively
licensed from Memorial Sloan-Kettering Cancer Center. In addition, Cytogen plans
to use AxCell's proteomics technology to research and develop novel drug targets
independently or via collaborative ventures.
AxCell Biosciences, a subsidiary of Cytogen Corporation, is a leader in the
effort to chart protein signaling pathways in the human proteome as a means of
discovering new drug targets. In conjunction with InforMax, AxCell is developing
a proprietary protein pathway database, ProChart(TM), as a discovery and
development tool for subscribers in the pharmaceutical, biotechnology and
agricultural industries. AxCell is also seeking to develop alliances for the
development of custom protein pathway information utilizing its proprietary
Genetic Diversity Library(TM), Cloning of Ligant Targets(TM), and affinity
screening technologies.
Basis of Consolidation
The consolidated financial statements include the accounts of Cytogen and
its subsidiaries. Intercompany balances and transactions have been eliminated in
consolidation.
Basis of Presentation
The consolidated financial statements and notes thereto of Cytogen are
unaudited and include all adjustments, which in the opinion of management, are
necessary to present fairly the financial condition and results of operations as
of and for the periods set forth in the Consolidated Balance Sheets,
Consolidated Statements of Operations and Consolidated Statements of Cash Flows.
5
CYTOGEN CORPORATION
NOTES TO CONSOLIDATED FINANCIALS STATEMENTS (Cont'd)
All such accounting adjustments are of a normal, recurring nature. The
consolidated financial statements do not include all of the information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles and should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission, which includes financial statements as of and for the
year ended December 31, 2000. The results of the Company's operations for any
interim period are not necessarily indicative of the results of the Company's
operations for any other interim period or for a full year.
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.
Net Loss Per Share
Basic net loss per share is based upon the weighted average common shares
outstanding during each period. Diluted net loss per share is the same as basic
net loss per share, as the inclusion of common stock equivalents would be
antidilutive.
Inventories
The Company's inventories are primarily related to ProstaScint and
OncoScint CR/OV. Inventories are stated at the lower of cost or market using the
first-in, first-out method and consisted of the following:
June 30, December 31,
2001 2000
----------- ------------
Raw materials................. $1,370,000 $718,000
Work-in process............... 135,000 59,000
Finished goods................ 357,000 106,000
---------- ---------
$1,862,000 $883,000
========== ========
Revenue Recognition
Effective January 1, 2000, the Company adopted U.S. Securities and Exchange
Commission Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial
Statements" ("SAB 101"), which requires up-front, non-refundable license fees to
be deferred and recognized over the performance period. The cumulative effect of
adopting SAB 101 resulted in a one-time, non-cash charge of $4.3 million or
$0.06 per share, which reflects the deferral of an up-front license fee received
from Berlex Laboratories, Inc., net of associated costs, related to the
licensing of Quadramet recognized in October 1998 and a license fee for certain
6
CYTOGEN CORPORATION
NOTES TO CONSOLIDATED FINANCIALS STATEMENTS (Cont'd)
applications of PSMA to a joint venture formed by Cytogen and Progenics
Pharmaceuticals Inc. recognized in June 1999. Previously, the Company had
recognized up-front license fees when the Company had no obligations to return
the fees under any circumstances. Under SAB 101, these payments are recorded as
deferred revenue to be recognized over the remaining term of the related
agreements.
2. SALES OF CYTOGEN COMMON STOCK:
Under the terms of a $70 million equity financing facility (the "Equity
Financing Facility") entered into between the Company and Acqua Wellington North
American Equities Fund, Ltd. ("Acqua Wellington") in October 2000, Cytogen may,
at its discretion, sell shares of its common stock to Acqua Wellington at a
small discount to the market price. Pursuant to this Equity Financing Facility,
in February 2001, the Company sold to Acqua Wellington 1,276,557 shares of its
common stock at an aggregate price of $6.5 million or $5.092 per share.
In June 2001, the Company entered into a Share Purchase Agreement (the
"Agreement") with the State of Wisconsin Investment Board ("SWIB"), pursuant to
which the Company sold 1,820,000 shares of Cytogen common stock to SWIB for an
aggregate purchase price of $8.2 million, before transaction costs, or $4.50 per
share. In connection with the Agreement, the Company discontinued the use of the
Equity Financing Facility.
7
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion contains historical information as well as forward
looking statements that involve a number of risks and uncertainties. Statements
contained or incorporated by reference in this Quarterly Report on Form 10-Q
that are not based on historical fact are "forward-looking statements" within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended.
Generally, forward looking statements can be identified by the use of phrases
like "believe", "expect", "anticipate", "plan", "may", "will", "could",
"estimate", "potential", "opportunity" and "project" and similar terms. The
Company's actual results could differ materially from the Company's historical
results of operations and those discussed in the forward looking statements.
Factors that could cause actual results to differ materially, include, but are
not limited to those identified in the Company's Annual Report on Form 10-K for
the year ended December 31, 2000 under the caption "Additional Factors That May
Affect Future Results". Investors are cautioned not to put undue reliance on any
forward looking statement.
Cautionary Statement
In addition to the risks discussed under the caption referred to above,
among other factors that could cause actual results to differ materially from
expected results are the following: (i) the Company's ability to access the
capital markets in the near term and in the future for continued funding of
existing projects and for the pursuit of new projects; (ii) the ability to
attract and retain personnel needed for business operations and strategic plans;
(iii) the timing and results of clinical studies, and regulatory approvals; (iv)
market acceptance of the Company's products, including programs designed to
facilitate use of the products, such as the Partners in Excellence or PIE
Program; (v) demonstration over time of the efficacy and safety of the Company's
products; (vi) the degree of competition from existing or new products; (vii)
the decision by the majority of public and private insurance carriers on whether
to reimburse patients for the Company's products; (viii) the ability of the
Company to comply with applicable governmental regulations and changes thereto;
(ix) the profitability of its products; (x) the ability to attract, and the
ultimate success of, strategic partnering arrangements, collaborations, and
acquisition candidates; (xi) the ability of the Company and its partners to
identify new products as a result of those collaborations that are capable of
achieving FDA approval, that are cost-effective alternatives to existing
products and that are ultimately accepted by the key users of the product; (xii)
the success of the Company in obtaining marketing approvals for its products in
Canada and Europe; (xiii) the ability of the Company to protect its proprietary
technology, trade secrets or know-how under the patent and other intellectual
property laws of the United States and other countries; and (xiv) the ability of
Advanced Magnetics Inc. to satisfy the conditions specified by the FDA regarding
approval to market Combidex in the United States.
The following discussion and analysis should be read in conjunction with
the Financial Statements and related notes thereto contained elsewhere herein,
as well as the Company's Annual Report on Form 10-K for the year ended December
31, 2000 and from time to time the Company's other filings with the Securities
and Exchange Commission.
8
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
Of Operations (Cont'd)
Significant Events in 2001
In the first half of 2001, the Company launched the iodine version of
BrachySeed(TM), a second generation radioactive implant for treatment of
localized prostate cancer, which was in-licensed by the Company from Draximage,
Inc. The Company expects to introduce, in the second half of 2001, the palladium
version of BrachySeed, a uniquely designed next generation radioactive seed
implant, which recently received marketing clearance from the U.S. Food and Drug
Administration. The Company is utilizing its existing oncology sales force to
market BrachySeed. There can be no assurance, however, as to the market
acceptance of these products or whether these products will significantly
increase the revenues of the Company.
AxCell Biosciences Corporation, a subsidiary of the Company, began
marketing the ProChart database with its marketing partner InforMax, Inc.
ProChart is a proprietary protein pathway database which measures protein
domain-ligand interactions in a high-throughput manner. ProChart will be
marketed by InforMax using its Protein-Protein Interaction module, a new
addition to GenoMax(TM) enterprise software package. AxCell launched its
ProChart database product with is marketing partner, InforMax, in the second
quarter of 2001. There can be no assurance, however, as to the market acceptance
of this product or whether this product will significantly increase the revenues
for the Company.
Results of Operations
Three Months Ended June 30, 2001 and 2000
Revenues. Total revenues for the second quarter of 2001 were $2.8 million
compared to $2.4 million for the same period in 2000. The increase from the
prior year period is due to higher product related revenues, partially offset by
lower license and contract revenues. Product related revenues, which included
product sales and royalties, accounted for 91% of total revenues in 2001,
compared to 87% from the comparable period of 2000. License and contract
revenues accounted for the remainder of revenues in such periods.
Product related revenues for the second quarter of 2001 were $2.6 million
compared to $2.1 million for the same period in 2000. Sales of ProstaScint
accounted for 69% and 70% of product related revenues in the second quarters of
2001 and 2000, respectively, while Quadramet royalties accounted for 23% and 24%
of product related revenues, respectively, for such periods. Sales of
ProstaScint were approximately $1.8 million in the second quarter of 2001,
$277,000 higher than the $1.5 million recorded in the second quarter of 2000,
due primarily to a price increase which became effective in January 2001 and
secondarily, to an increase in sales volume. Beginning in July 2000, the Company
assumed sole responsibility for selling and marketing ProstaScint from Bard
Urological Division of the C.R. Bard Inc. ("Bard"), its former co-marketing
partner. The Company took this step because it believed that a highly trained
and dedicated internal sales force will be able to market its products most
effectively and to build a marketing capability for BrachySeed and future
products. The Company cannot be certain, however, as to the effect on sales of
ProstaScint and the BrachySeed products as a result of this action.
9
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
Other revenues include sales of OncoScint CR/OV, which were $142,000 in the
second quarter of 2001 compared to $130,000 in the same period of 2000. The
market for OncoScint CR/OV for colorectal cancer diagnosis has been negatively
affected by positron emission tomography or "PET" scans which have shown the
same or higher sensitivity than OncoScint CR/OV. Sales of BrachySeed have not
been substantial to date, since the product is still in the initial launch
phase.
Quadramet royalties for the second quarter of 2001 increased to $595,000
from $508,000 in the same period of 2000. Quadramet is currently marketed by the
Company's marketing partner, Berlex Laboratories ("Berlex"). Although Cytogen
believes that Berlex is an advantageous partner, there can be no assurance that
Quadramet will achieve greater market penetration on a timely basis or result in
significant revenues for Cytogen.
License and contract revenues for the second quarter of 2001 were $257,000
compared to $305,000 for the same period of 2000. As a result of the adoption of
SAB 101 (see Note 1 to the Consolidated Financial Statements), license revenues
for both 2000 and 2001 include the recognition of $215,000 of deferred revenues
from certain up-front, non-refundable license fees previously recognized in
prior years.
Operating Expenses. Total operating expenses for the second quarter of 2001
were $6.0 million compared to $5.0 million recorded in the same quarter of 2000.
The increase from the prior year period is attributable primarily to additional
funding for the proteomics research program, costs associated with the
development of new manufacturing and purification processes for the Company's
currently marketed antibody products, the expansion of Cytogen's in-house sales
force to assume sole responsibility of marketing and sales of the Company's
products and the 2001 launch of BrachySeed. The increase is partially offset by
lower cost of goods in the second quarter of 2001.
Cost of product for the second quarter of 2001 was $622,000 compared to
$981,000 recorded in the same period of the prior year. The decrease from the
prior year period is due to favorable production yields resulting in lower
manufacturing costs, partly offset by increased costs associated with higher
sales.
Research and development expenses for the second quarter of 2001 were $2.5
million compared to $1.5 million recorded in the same period of 2000. The
increase from the prior year period is due to increased funding for the
proteomics research program and to costs associated with the development of new
manufacturing and purification processes to enable the Company to outsource the
manufacturing of its currently marketed antibody products. During the second
quarter of 2001, the Company invested $1.2 million in the proteomics research
compared to $713,000 for the second quarter of 2000. The Company anticipates
that funding for this research and the manufacturing process development will
continue to increase over the remainder of this year.
10
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
Selling and marketing expenses were $1.6 million for the second quarter of
2001 compared to $1.3 million in the same period of 2000. The current year
expenses reflect the Company's efforts to expand its in-house sales force and
the assumption of sole responsibility for the selling and marketing of
ProstaScint from Bard and the launch costs associated with BrachySeed.
General and administrative expenses for the second quarter 2001 were $1.3
million compared to $1.1 million for the comparable period in 2000. The increase
from the prior year period is due in part to stock based compensation for
employees and professional fees.
Interest Income/Expense. Interest income for the second quarter of 2001 was
$156,000 compared to $195,000 recorded in the same period of 2000. The decrease
from the prior year period is due to a lower average yield on investments for
the periods in 2001. Interest expense for the second quarter of 2001 was $44,000
compared to $52,000 recorded in the same period of 2000. The interest expenses
included finance charges related with various equipment leases.
Net Loss. Net loss for the second quarter of 2001 was $3.1 million compared
to $2.4 million recorded in the same period of 2000. The net loss per share for
the first quarter of 2001 was $0.04 based on average common shares outstanding
of 77.4 million compared to a net loss per share of $0.03 based on average
common shares outstanding of 72.8 million for the same period in 2000.
Six months ended June 30, 2001 and 2000
Revenues. Total revenues for the first half of 2001 and 2000 were $5.8
million and $5.1 million, respectively. The increase from the prior year period
is due to higher product related revenues, partially offset by lower license and
contract revenues. Product related revenues, which included product sales and
royalties, accounted for 92% of total revenues in 2001 compared to 89% from the
comparable period of 2000. License and contract revenues accounted for the
remainder of revenues.
Product related revenues for the first half of 2001 and 2000 were $5.4
million and $4.5 million, respectively. Sales of ProstaScint accounted for 75%
and 71% of product related revenues in the first half of 2001 and 2000,
respectively, while Quadramet royalties accounted for 19% and 22% of product
related revenues, respectively. Sales of ProstaScint were $4.0 million in the
first half of 2001 compared to $3.2 million in the same period of 2000, due
primarily to a price increase which became effective in January 2001 and
secondarily, to an increase in sales volume. Beginning in July 2000, the Company
assumed sole responsibility for the selling and marketing of ProstaScint from
Bard. Royalties from Quadramet were $1.0 million in each of the first half of
2001 and 2000. Quadramet royalties are based on net sales of Quadramet by
Berlex.
Other revenues include sales of OncoScint CR/OV which were $223,000 in 2001
compared to $307,000 in the same period of 2000. The market for OncoScint CR/OV
for colorectal cancer diagnosis has been negatively affected by positron
emission tomography or "PET" scans which have shown the same or higher
sensitivity than OncoScint CR/OV. Sales of BrachySeed have not been substantial
to date, since the product is still in the initial launch phase.
11
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
License and contract revenues for the first half of 2001 and 2000 were
$472,000 and $578,000, respectively. As a result of the adoption of SAB 101 (see
Note 1 to the Consolidated Financial Statements), license revenues for both 2001
and 2000 include the recognition of $420,000 of deferred revenues from certain
up-front non-refundable license fees previously recognized in prior years.
Operating Expenses. Total operating expenses for the first half of 2001
were $11.8 million compared to $9.5 million recorded in the same quarter of
2000. The increase from the prior year period is attributable primarily to the
additional funding for the proteomics research program, costs associated with
the development of new manufacturing and purification processes for the
Company's currently marketed antibody products, the expansion of Cytogen's
in-house sales force to assume sole responsibility of marketing and sales of
ProstaScint and the 2001 launch of BrachySeed.
Cost of product for the first half of 2001 was $1.8 million compared to
$1.9 million recorded in the same period of the prior year. The decrease from
the prior year period is due to favorable production yield resulting in lower
manufacturing costs, partly offset by increased costs associated with higher
sales.
Research and development expenses for the first half of 2001 were $4.2
million compared to $3.0 million recorded in the same period of 2000. The
increase from the prior year period is due to increased funding for the
proteomics research program and costs associated with the development of new
manufacturing and purification processes to enable the Company to outsource
manufacturing of its currently marketed antibody products to another contract
manufacturer. During the first half of 2001, the Company invested $2.4 million
in the proteomics research compared to $1.3 million for the same period of 2000.
The Company anticipates that funding for this research and manufacturing process
development will continue to increase over the remainder of this year.
Selling and marketing expenses were $3.3 million for the first half of 2001
compared to $2.5 million in the same period of 2000. The current year expenses
reflect the Company's efforts to expand its in-house sales force and the
assumption of sole responsibility for the selling and marketing of ProstaScint
from Bard and the launch costs associated with BrachySeed.
General and administrative expenses for the first half of 2001 were $2.5
million compared to $2.1 million for the comparable period in 2000. The increase
from the prior year period is due in part to stock based compensation for
employees and professional fees.
Interest Income/Expense. Interest income for the first half of 2001 was
$377,000 compared to $363,000 recorded in the same period of 2000. The increase
from the prior year period is due to a higher average cash balance during 2001,
partly offset by a lower average yield on investments. Interest expense for the
first half of 2001 was $92,000 compared to $109,000 recorded in the same period
of 2000. The interest expenses included finance charges related with various
equipment leases.
12
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
Net Loss. Net loss for the first half of 2001 was $5.7 million compared to
$8.4 million recorded in the same period of 2000. The net loss per share for the
first half of 2001 was $0.07 based on average common shares outstanding of 76.8
million compared to a net loss per share of $0.12 based on average common shares
outstanding of 72.1 million for the same period in 2000. The 2000 net loss
included $4.3 million or $0.06 per share for the cumulative effect of accounting
change as a result of the adoption of SAB 101 (see Note 1 to the Consolidated
Financial Statements).
Liquidity and Capital Resources
The Company's cash and cash equivalents were $18.7 million as of June 30,
2001, compared to $12.0 million as of December 31, 2000. The cash used for
operating activities for the six months ended June 30, 2001 was $7.1 million
compared to $5.2 million in the same period of 2000. The increase from the prior
year period is due primarily to the increased funding for the proteomics program
at AxCell, the Company's efforts to expand its in-house sales force, the
inventory build-up of the Company's anti-body products, the reduction in
accounts payable and accrued liabilities and milestone payments related to the
2001 launch of BrachySeed.
Historically, the Company's primary sources of cash have been proceeds from
the issuance and sale of its stock through public offerings and private
placements, product related revenues, revenues from research services, fees
received under license agreements and interest earned on cash and short-term
investments.
In January 2001, the Company received cash of $1.6 million relating to the
December 2000 sale of New Jersey State net operating losses and research and
development credits. Under the current legislation, the Company may be able to
sell a minimum $977,000 of the remaining approved $3.7 million of tax benefits
in 2001. The actual amount of tax credits the Company may sell will depend upon
the allocation among qualifying companies of an annual pool established by the
State of New Jersey.
Under the terms of a $70 million equity financing facility (the "Equity
Financing Facility") entered into between the Company and Acqua Wellington North
American Equities Fund, Ltd. ("Acqua Wellington") the Company sold to Acqua
Wellington 1,276,557 shares of its common stock in February 2001 at an aggregate
price of $6.5 million or $5.092 per share.
In June 2001, the Company entered into a Share Purchase Agreement (the
"Agreement") with the State of Wisconsin Investment Board ("SWIB"), pursuant to
which the Company sold 1,820,000 shares of Cytogen common stock to SWIB for an
aggregate purchase price of $8.2 million before transaction costs or $4.50 per
share. In connection with the Agreement, the Company discontinued the use of the
Equity Financing Facility.
The Company's capital and operating requirements may change depending upon
various factors, including: (i) whether the Company and its strategic partners
achieve success in manufacturing, marketing and commercialization of its
products; (ii) the amount of resources which the Company devotes to clinical
evaluations and the expansion of marketing and sales capabilities; (iii) results
13
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
of clinical trials and research and development activities; and (iv) competitive
and technological developments, in particular the Company may expend funds for
development of its proteomics and PSMA technologies.
The Company's financial objectives are to meet its capital and operating
requirements through revenues from existing products and licensing arrangements.
To achieve its strategic objectives, the Company 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 the
Company in either cash or stock in addition to the costs associated with
developing and marketing a product or technology. However, the Company believes
that, if successful, such strategies may increase long-term revenues. There can
be no assurance as to 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, the Company may sell equity or debt securities as market
conditions permit or enter into credit facilities.
The Company has incurred negative cash flows from operations since its
inception, and has expended, and expects to continue to expend in the future,
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 its
marketing and sales programs. The Company expects that its existing capital
resources should be adequate to fund the Company's operations for the
foreseeable future. The Company cannot be certain that it will not consume a
significant amount of its currently available resources and reasonably expects
that it will have additional requirements for debt or equity capital,
irrespective of whether and when it reaches profitability, for further product
development costs, product and technology acquisition costs, and working
capital.
The Company's future capital requirements and the adequacy of available
funds will depend on numerous factors, including the successful
commercialization of its products, the costs associated with the acquisition of
complementary products and technologies, progress in its product development
efforts, the magnitude and scope of such efforts, progress with clinical trials,
progress with regulatory affairs activities, the cost of filing, prosecuting,
defending and enforcing patent claims and other intellectual property rights,
competing technological and market developments, and the expansion of strategic
alliances for the sales, marketing, manufacturing and distribution of its
products. To the extent that the currently available funds and revenues are
insufficient to meet current or planned operating requirements, the Company will
be required to obtain additional funds through equity or debt financing,
strategic alliances with corporate partners and others, or through other
sources. There can be no assurance that the financial sources described above
will be available when needed or at terms commercially acceptable to the
Company. If adequate funds are not available, the Company may be required to
delay, further scale back or eliminate certain aspects of its operations or
attempt to obtain funds through arrangements with collaborative partners or
others that may require the Company to relinquish rights to certain of its
technologies, product candidates, products or potential markets. If adequate
funds are not available, the Company's business, financial condition and results
of operations will be materially and adversely affected.
14
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company does not have operations subject to risks of foreign currency
fluctuations, nor does it use derivative financial instruments in its operations
or investment portfolio. The Company does not have exposure to market risks
associated with changes in interest rates, as it has no variable interest rate
debt outstanding. The Company does not believe it has any other material
exposure to market risks associated with interest rates.
15
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to the Vote of Security Holders
On June 19, 2001, the Company held its annual meeting of stockholders
to (i) elect seven directors; (ii) to consider and vote upon a
proposal to amend the Company's 1999 Non-Employee Director Stock
Option Plan (the "Director Plan") to: (a) increase the number of
shares of common stock underlying automatic initial option grants
under the Director Plan to new non-employee Directors from 10,000 to
20,000 shares; and (b) provide, in certain circumstances, at the
discretion of and after formal action by the Board of Directors, for
the issuance of common stock under the Director Plan to Directors, in
lieu of the cash component of Director compensation; (iii) to consider
and vote upon a proposal to amend the Company's Employee Stock
Purchase Plan (the "ESPP") to: (a) decrease, from one year to six
months, the term of service required to be eligible to participate
therein; and (b) delete the requirement for stockholder approval of
any modification of the ESPP with respect to eligibility for
participation in the ESPP; and (iv) transact such other business as
might be brought up before the meeting.
The following tables set forth information regarding the number of
votes cast for, against or withheld, abstentions and broker non-votes,
with respect to each matter presented at the meeting. Under the rules
of the Nasdaq Stock Market, brokers who hold shares in street name for
customers who are beneficial owners of those shares may be prohibited
from giving a proxy to vote shares held for such customers on certain
matters without specific instructions from such customers (broker
non-votes). Under Delaware law, abstentions and broker non-votes are
counted as shares represented at the meeting for purposes of
determining the presence or absence of a quorum at a stockholders
meeting. The election of directors is decided by a plurality of the
votes cast. Therefore, votes that are withheld have no effect on the
outcome of the vote. Adoption of the remaining proposal required the
affirmative vote of a majority of shares cast at the meeting.
Therefore, abstentions and broker non-votes have no effect on the
vote.
(i) Election of Directors:
Against or Broker
Nominee For Withheld Abstentions Non-Votes
------- --- ---------- ----------- ---------
John E. Bagalay Jr. 69,199,289 1,689,592 N/A N/A
Stephen K. Carter 70,294,440 594,441 N/A N/A
James A. Grigsby 70,092,568 796,313 N/A N/A
Robert F. Hendrickson 70,301,703 587,178 N/A N/A
Kevin G. Lokay 70,320,129 568,752 N/A N/A
S. Leslie Misrock 69,462,716 1,426,165 N/A N/A
H. Joseph Reiser 65,873,699 5,015,182 N/A N/A
(ii) Proposal to amend the Director Plan to: (a) increase the number
of shares of common stock underlying automatic initial option
grants under the Director Plan to new non-employee Directors from
10,000 to 20,000 shares; and (b) provide, in certain
16
circumstances, at the discretion of and after formal action by
the Board of Directors, for the issuance of common stock under
the Director Plan to Directors, in lieu of the cash component of
Director compensation.
Against or Broker
For Withheld Abstentions Non-Votes
--- ---------- ----------- ---------
64,646,134 5,929,563 313,184 N/A
(iii)Proposal to amend the ESPP to: (a) decrease, from one year to six
months, the term of service required to be eligible to
participate therein; and (b) delete the requirement for
stockholder approval of any modification of the ESPP with respect
to eligibility for participation in the ESPP.
Against or Broker
For Withheld Abstentions Non-Votes
--- ---------- ----------- ---------
68,616,728 1,948,291 323,862 N/A
Item 5 - Other Information
Change in Executive Officers
----------------------------
On June 8, 2001, the Company announced that William
Goeckeler, Ph.D., was appointed as Vice President, Research and
Development.
The Company also announced on June 8, 2001, that Terry
Novak, the Company's Vice President, Sales and Marketing,
resigned his position with the Company.
Resignation of Director
-----------------------
On July 18, 2001, S. Leslie Misrock resigned from his
position as a member of the Company's Board of Directors due to
health reasons.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1- Share Purchase Agreement, dated June 18, 2001, by and between
the Company and the State of Wisconsin Investment Board. Filed as
an exhibit to the Company's Current Report on Form 8-K dated June
18, 2001 and incorporated herein by reference.
(b) Reports on Form 8-K
During the three months ended June 30, 2001, the Company
filed with the Securities and Exchange Commission one Current
Report on Form 8-K. Such Form 8-K dated June 18, 2001, reported
on "Item 5. Other Events" that on June 18, 2001, the Company
17
entered into a Share Purchase Agreement with the State of
Wisconsin Investment Board relating to the issuance and sale of
1,820,000 shares of the Company's Common Stock for an aggregate
purchase price of approximately $8.2 million.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CYTOGEN CORPORATION
Date August 13, 2001 By /s/ H. Joseph Reiser
------------------ --------------------------------------
H. Joseph Reiser
President and Chief Executive Officer
Date August 13, 2001 By /s/ Lawrence R. Hoffman
------------------ --------------------------------------
Lawrence R. Hoffman
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
19