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 September 30, 2001
------------------
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 November 1, 2001
---------------------------- -------------------------------
Common Stock, $.01 par value 79,386,800
PART I - FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except share data)
(Unaudited)
September 30, December 31,
2001 2000
------------ ------------
ASSETS:
Current Assets:
Cash and cash equivalents ...................................... $ 14,548 $ 11,993
Receivable on income tax benefit sold .......................... - 1,625
Accounts receivable, net ....................................... 2,198 1,841
Inventories .................................................... 1,712 883
Other current assets ........................................... 575 377
--------- ---------
Total current assets ........................................ 19,033 16,719
Property and Equipment, net ........................................ 1,794 2,193
Other Assets ....................................................... 1,855 1,504
--------- ---------
$ 22,682 $ 20,416
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Current portion of long-term debt .............................. $ 89 $ 151
Accounts payable and accrued liabilities ....................... 4,890 7,218
Deferred revenue ............................................... 685 859
--------- ---------
Total current liabilities ................................... 5,664 8,228
--------- ---------
Long-Term Debt ..................................................... 2,336 2,374
--------- ---------
Deferred Revenue ................................................... 2,125 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,
78,887,000 and 75,594,000 shares issued and outstanding
at September 30, 2001 and December 31, 2000, respectively .... 789 756
Additional paid-in capital ..................................... 350,476 335,938
Deferred compensation .......................................... (608) (895)
Accumulated deficit ............................................ (338,100) (328,581)
--------- ---------
Total stockholders' equity .................................. 12,557 7,218
--------- ---------
$ 22,682 $ 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 Nine Months
Ended September 30, Ended September 30,
--------------------- ---------------------
2001 2000 2001 2000
-------- -------- -------- --------
Revenues:
Product related:
ProstaScint ............................................... $ 1,679 $ 1,849 $ 5,670 $ 5,036
Others .................................................... 317 130 643 437
-------- -------- -------- --------
Total product sales ................................ 1,996 1,979 6,313 5,473
Quadramet royalties ....................................... 579 523 1,615 1,529
-------- -------- -------- --------
Total product related .............................. 2,575 2,502 7,928 7,002
License and contract ........................................ 225 231 697 809
-------- -------- -------- --------
Total revenues ..................................... 2,800 2,733 8,625 7,811
-------- -------- -------- --------
Operating Expenses:
Cost of product ............................................... 1,400 1,136 3,174 3,047
Research and development ...................................... 2,661 2,005 6,882 5,037
Acquisition of marketing and technology rights ................ - 13,241 - 13,241
Selling and marketing ......................................... 1,489 1,242 4,820 3,695
General and administrative .................................... 1,147 1,716 3,670 3,770
-------- -------- -------- --------
Total operating expenses ........................... 6,697 19,340 18,546 28,790
-------- -------- -------- --------
Operating loss ..................................... (3,897) (16,607) (9,921) (20,979)
Interest income ................................................ 162 182 538 545
Interest expense ................................................ (44) (24) (136) (133)
-------- -------- -------- --------
Loss before cumulative effect of
accounting change ................................. (3,779) (16,449) (9,519) (20,567)
Cumulative effect of accounting change .......................... - - - (4,314)
-------- -------- -------- --------
Net loss ........................................................ $ (3,779) $(16,449) $ (9,519) $(24,881)
======== ======== ======== ========
Net loss per share:
Basic and diluted net loss before cumulative
effect of accounting change .............................. $ (0.05) $ (0.22) $ (0.12) $ (0.28)
Cumulative effect of accounting change ...................... - - - (0.06)
-------- -------- -------- --------
Basic and diluted net loss .................................. $ (0.05) $ (0.22) $ (0.12) $ (0.34)
======== ======== ======== ========
Weighted average common shares outstanding ...................... 78,866 73,632 77,446 72,660
======== ======== ======== ========
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)
Nine Months Ended September 30,
-------------------------------
2001 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................. $ (9,519) $(24,881)
-------- --------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ..................... 885 679
Imputed interest .................................. (32) (66)
Stock based compensation .......................... 480 284
Amortization of deferred revenue .................. (645) (645)
Cumulative effect of accounting change ............ - 4,314
Acquisition of marketing and technology rights .... - 13,079
Gain on sale of equipment ......................... - (148)
Changes in assets and liabilites:
Accounts receivable, net ........................ 1,300 (169)
Inventories ..................................... (829) 54
Other assets .................................... (49) (91)
Accounts payable and accrued liabilities ........ (2,138) (495)
Other liabilities ............................... - 117
-------- --------
Total adjustments ...................... (1,028) 16,913
-------- --------
Net cash used in operating activities ............. (10,547) (7,968)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of product rights ............................... (500) -
Purchase of property and equipment ....................... (486) (751)
Net proceeds from sale of equipment ...................... - 148
Redemption of short-term investments ..................... - 1,593
-------- --------
Net cash (used in) provided by investing activities (986) 990
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ................... 14,188 10,411
Payment of long-term liabilities ......................... (100) (56)
-------- --------
Net cash provided by financing activities ......... 14,088 10,355
-------- --------
Net increase in cash and cash equivalents ................ 2,555 3,377
Cash and cash equivalents, beginning of period ........... 11,993 10,801
-------- --------
Cash and cash equivalents, end of period ................. $ 14,548 $ 14,178
======== ========
The accompanying notes are an integral part of these statements.
4
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 pioneer
in the effort to chart protein signaling pathways in the human proteome to
accelerate the discovery of new drug targets and facilitate efficient
pharmaceutical and biotechnology research and development. Through the
systematic and industrialized application of proteomics, AxCell provides a
growing portfolio of protein pathway solutions based on its proprietary Genetic
Diversity Library(TM), Cloning of Ligand Targets(TM), and affinity screening
technologies. In conjunction with InforMax, Inc., AxCell is developing a
proprietary protein pathway database, called ProChart(TM), which is commercially
available 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 and intends to leverage its proteomic capabilities to identify novel
drug targets for internal use.
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
5
CYTOGEN CORPORATION
NOTES TO CONSOLIDATED FINANCIALS STATEMENTS (Cont'd)
of and for the periods set forth in the Consolidated Balance Sheets,
Consolidated Statements of Operations and Consolidated Statements of Cash Flows.
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:
September 30, December 31,
2001 2000
-------------- --------------
Raw materials................. $1,383,000 $718,000
Work-in process............... 135,000 59,000
Finished goods................ 194,000 106,000
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$1,712,000 $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, as applied to the Company, 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
6
CYTOGEN CORPORATION
NOTES TO CONSOLIDATED FINANCIALS STATEMENTS (Cont'd)
1998 and a license fee for certain 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. DRAXIMAGE INC.:
In December 2000, the Company entered into a Product Manufacturing and
Supply Agreement with Draximage Inc. ("Draximage") to market and distribute
BrachySeed(TM) implants for prostate cancer therapy in the U.S. Under the terms
of the agreement, Draximage will supply radioactive iodine and palladium seeds
to Cytogen in exchange for royalties on sales and certain milestone payments.
Accordingly, Cytogen paid Draximage $500,000 upon the execution of the contract
in 1999 and $500,000 upon the first sale of the Iodine-125 BrachySeeds in 2000.
These payments have been recorded as other assets in the accompanying
consolidated balance sheet and are being amortized over the ten year term of the
Draximage agreement. In addition, pursuant to the agreement, Cytogen will pay
Draximage $1.0 million upon the first sale of the Palladium-103 BrachySeeds.
Other payments are due Draximage upon the achievement of certain other
milestones. The Company launched the radioactive Iodine BrachySeed in the U.S.
in February 2001.
3. 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
could, 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. The Equity Financing Facility was terminated in June 2001.
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 was required to discontinue
the use of the Equity Financing Facility and such agreement was terminated.
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 its
operations including 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, during the fourth quarter 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. during
the second quarter of 2001. ProChart is a proprietary protein pathway database
which measures protein domain-ligand interactions in a high-throughput manner.
ProChart is being marketed by InforMax using its Protein-Protein Interaction
module, a new addition to its GenoMax(TM) enterprise software package. 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 September 30, 2001 and 2000
Revenues. Total revenues for the third quarter of 2001 were $2.8 million
compared to $2.7 million for the same period in 2000. The increase from the
prior year period is due to higher product related revenues. Product related
revenues, which included product sales and royalties, accounted for 92% of total
revenues in each of year 2000 and 2001. License and contract revenues accounted
for the remainder of revenues in such periods.
Product related revenues for the third quarter of 2001 were $2.6 million
compared to $2.5 million for the same period in 2000. Sales of ProstaScint
accounted for 65% and 74% of product related revenues in the third quarters of
2001 and 2000, respectively, while Quadramet royalties accounted for 22% and 21%
of product related revenues, respectively, for such periods. Sales of
ProstaScint were $1.7 million in the third quarter of 2001, which is slightly
below the $1.8 million recorded in the third quarter of 2000. Beginning in July
2000, the Company assumed sole responsibility for selling and marketing
ProstaScint from the Bard Urological Division of 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 would be able to market its
products most effectively and to build a marketing capability for future
products. There can be no assurance, however, the Company's internal sales force
will be able to significantly increase the sale of ProstaScint.
9
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
Other product revenues include sales of BrachySeed and OncoScint CR/OV.
Sales of BrachySeed were $244,000 in the third quarter of 2001. Since the launch
of BrachySeed in February 2001, the Company has increased its market penetration
for the treatment of localized prostate cancer using its radioactive seed
product. This has contributed to a positive sales trend and consistent
quarter-over-quarter growth since the launch. The Company plans to launch the
palladium version of BrachySeed in the fourth quarter of 2001. Sales of
OncoScint were $73,000 in the third 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.
Accordingly, the Company is emphasizing marketing of OncoScint for the recurrent
ovarian cancer setting. There can be no assurance, however, as to the market
acceptance of the BrachySeed products or whether these new products along with a
different strategy for OncoScint will significantly increase the revenues of the
Company.
Quadramet royalties for the third quarter of 2001 increased to $579,000
from $523,000 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 third quarter of 2001 were $225,000
compared to $231,000 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 third quarter of 2001
were $6.7 million compared to $19.3 million recorded in the same quarter of
2000. The decrease from the prior year period is attributable primarily to
charges in 2000 for the acquisition of the marketing and technology rights to
two product candidates (Combidex and Code 7228) in the amount of $13.2 million
and costs associated with the termination of the Company's proposed merger with
Advanced Magnetics Inc. The decrease during the current year is partially offset
by costs associated with the development of new manufacturing and purification
processes for ProstaScint, costs associated with the launch of BrachySeed and
higher cost of goods.
Cost of product for the third quarter of 2001 was $1.4 million compared to
$1.1 million recorded in the same period of the prior year. The increase from
the prior year period is primarily due to costs associated with the purchase of
the BrachySeed product from Draximage Inc.
Research and development expenses for the third quarter of 2001 were $2.7
million compared to $2.0 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 to costs associated with the development of new
manufacturing and purification processes to enable the Company to outsource the
manufacturing of ProstaScint. During the third quarter of 2001, the Company
invested $1.2 million in its proteomics research compared to $924,000 for the
10
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
third quarter of 2000. The Company anticipates that funding for this research
and the manufacturing process development will continue to at its current trend
over the remainder of this year.
Acquisition of marketing and technology rights of $13.2 million in the
third quarter of 2000 represents a charge related to the acquisition of certain
rights to product candidates Combidex and Code 7228 from Advanced Magnetics
Inc., of which $13.1 million was non-cash.
Selling and marketing expenses were $1.5 million for the third quarter of
2001 compared to $1.2 million in the same period of 2000. The current year
expenses reflect the Company's efforts to expand its in-house sales force
related to the selling and marketing of ProstaScint and BrachySeed.
General and administrative expenses for the third quarter 2001 were $1.1
million compared to $1.7 million for the comparable period in 2000. The decrease
from the prior year period is due primarily to legal expenses incurred relating
to the termination of the Company's proposed merger with Advanced Magnetics Inc.
and relocation expenses for certain key employees.
Interest Income/Expense. Interest income for the third quarter of 2001 was
$162,000 compared to $182,000 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 period in 2001. Interest expense for the third quarter of 2001 was $44,000
compared to $24,000 recorded in the same period of 2000. The interest expenses
included finance charges related with various equipment leases.
Net Loss. Net loss for the third quarter of 2001 was $3.8 million compared
to $16.4 million recorded in the same period of 2000. The net loss per share for
the third quarter of 2001 was $0.05 based on average common shares outstanding
of 78.9 million compared to a net loss per share of $0.22 based on average
common shares outstanding of 73.6 million for the same period in 2000. The 2000
net loss included a $13.2 million one-time charge for the acquisition of certain
product rights to two product candidates as described above.
Nine months ended September 30, 2001 and 2000
Revenues. Total revenues for the nine months ended September 30, 2001 and
2000 were $8.6 million and $7.8 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 90% from the comparable period of 2000. License and contract
revenues accounted for the remainder of revenues.
Product related revenues for the nine months ended September 30, 2001 and
2000 were $7.9 million and $7.0 million, respectively. Sales of ProstaScint
accounted for 72% of product related revenues for each of the nine months ended
September 30, 2001 and 2000, respectively, while Quadramet royalties accounted
for 20% and 22% of product related revenues, respectively. Sales of ProstaScint
were $5.7 million in the nine months ended September 2001, compared to $5.0
million in the same period of 2000, due primarily to a price increase which
11
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
became effective in January 2001. Beginning in July 2000, the Company assumed
sole responsibility for the selling and marketing of ProstaScint from Bard.
Royalties from Quadramet were $1.6 million and $1.5 million in the nine months
ended September 30, 2001 and 2000, respectively. Quadramet royalties are based
on net sales of Quadramet by Berlex.
Other revenues include sales of BrachSeed and OncoScint CR/OV. For the
nine months ended September 30, 2001, sales of BrachySeed were $347,000. This
product was launched in February 2001. The Company also plans to introduce to
market the palladium version of BrachySeed in the fourth quarter of 2001. Sales
of OncoScint during the nine months ended September 30, 2001 were $296,000 in
2001 compared to $437,000 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. Accordingly, the Company is emphasizing
marketing of OncoScint for the recurrent ovarian cancer setting. There can be no
assurance, however, as to the market acceptance of the BrachySeed products or
whether these new products along with a different strategy for OncoScint will
significantly increase the revenues of the Company.
License and contract revenues for the nine months ended September 30, 2001
and 2000 were $697,000 and $809,000, 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 $645,000 of deferred
revenues from certain up-front non-refundable license fees previously recognized
in prior years.
Operating Expenses. Total operating expenses for the nine months ended
September 30, 2001 were $18.5 million compared to $28.8 million recorded in the
same period of 2000. The current year operating expenses reflect costs
associated with the proteomics research program, the development of new
manufacturing and purification processes for ProstaScint, 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. The decrease in
operating expenses from the prior year period is attributable primarily to
charges in 2000 for the acquisition of marketing and technology rights to two
product candidates (Combidex and Code 7228) in the amount of $13.2 million and
costs associated with the termination of the Company's proposed merger with
Advanced Magnetics Inc. The decrease is partially offset by 2001 costs
associated with the development of new manufacturing and purification processes
for ProstaScint, the launch of BrachySeed and higher cost of goods.
Cost of product for the nine months ended September 30, 2001 was $3.2
million compared to $3.0 million recorded in the same period of the prior year.
The increase from the prior year period is due primarily to the 2001 costs
associated with the purchase of BrachySeed.
Research and development expenses for the nine months ended September 2001
were $6.9 million compared to $5.0 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 the
manufacturing of ProstaScint to another contract manufacturer. During the nine
months ended September 30, 2001, the Company invested $3.6 million in the
12
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
proteomics research compared to $2.2 million for the same period of 2000. The
Company anticipates that funding for this research and manufacturing process
development will continue at its current trend for the remainder of this year.
Acquisition of marketing and technology rights of $13.2 million in the
third quarter of 2000 represents a charge related to the acquisition of certain
rights to product candidates Combidex and Code 7228 from Advanced Magnetics, of
which $13.1 million was non-cash.
Selling and marketing expenses were $4.8 million for the nine months ended
September 30, 2001 compared to $3.7 million in the same period of 2000. The
current year expenses reflect the Company's efforts to expand its in-house sales
force for the selling and marketing of ProstaScint and the launch costs
associated with the BrachySeed.
General and administrative expenses for the nine months ended September
30, 2001 were $3.7 million compared to $3.8 million for the comparable period in
2000. The decrease from the prior year period is due primarily to legal expenses
incurred relating to the termination of the Company's proposed merger with
Advanced Magnetics Inc. and relocation expenses for certain key employees,
partly offset by higher costs in 2001 for stock based compensation and
professional fees.
Interest Income/Expense. Interest income for the nine months ended
September 30, 2001 was $538,000 compared to $545,000 recorded in the same period
of 2000. The decrease from the prior year period is due to a lower average yield
on investments, partly offset by income resulting from a higher average cash
balance during 2001. Interest expense for the nine months ended September 30,
2001 was $136,000 compared to $133,000 recorded in the same period of 2000. The
interest expenses included finance charges related with various equipment
leases.
Net Loss. Net loss for the nine months ended September 30, 2001 was $9.5
million compared to $24.9 million recorded in the same period of 2000. The net
loss per share for the nine months ended September 30, 2001 was $0.12 based on
average common shares outstanding of 77.4 million compared to a net loss per
share of $0.34 based on average common shares outstanding of 72.7 million for
the same period in 2000. The 2000 net loss included a $13.2 million one-time
charge for the acquisition of certain product rights to two product candidates
as described above and $4.3 million or $0.06 per share for the cumulative effect
of an 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 $14.5 million as of September
30, 2001, compared to $12.0 million as of December 31, 2000. The cash used for
operating activities for the nine months ended September 30, 2001 was $10.5
million compared to $8.0 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 expansion of its in-house sales
force, the inventory build-up of the Company's antibody products, the reduction
in accounts payable and accrued liabilities and milestone payments to Draximage
Inc. related to the 2001 launch of BrachySeed.
13
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
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. The Equity Financing Facility was
terminated in June 2001.
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 was required to discontinue
the use of the Equity Financing Facility and such arrangement was terminated.
In October 2001, the Company filed a shelf Registration Statement on Form
S-3 to register 10,000,000 shares of its common stock. Such Registration
Statement was declared effective by the Securities and Exchange Commission in
November 2001. The Company may issue such registered shares of common stock from
time to time and may use the proceeds thereof for general corporate purposes,
including, but not limited to, continued development and commercialization of
its proteomics technologies, research and development of additional products and
expansion of its sales and marketing capabilities.
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
of clinical trials and research and development activities; and (iv) competitive
and technological developments, in particular, the Company expects to incur
significant costs for the development of its proteomics and PSMA technologies.
14
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
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.
15
Item 3 - Quantitative and Qualitative Disclosures 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.
16
PART II - OTHER INFORMATION
Item 5 - Other Events
In October 2001, the Company filed a shelf Registration Statement on Form
S-3 to register 10,000,000 shares of its common stock. Such Registration
Statement was declared effective by the Securities and Exchange Commission in
November 2001. The Company may issue such registered shares of common stock from
time to time and may use the proceeds thereof for general corporate purposes,
including, but not limited to, continued development and commercialization of
its proteomics technologies, research and development of additional products and
expansion of its sales and marketing capabilities.
In connection with the closing of the SWIB financing, the Company was
obligated to adopt certain amendments to its Bylaws and option plans. Such
amendments are attached hereto as exhibits.
At the Annual Meeting of Shareholders, the Company obtained shareholder
approval for certain amendments to the Employee Stock Purchase Plan and the 1999
Non-Employee Directors Plan. Such amendments are attached hereto as exhibits.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Amended Bylaws of Cytogen Corporation
10.1 Amended and Restated 1995 Stock Option Plan
10.2 Amended and Restated 1999 Stock Option Plan for Non-Employee
Directors
10.3 Amended Employee Stock Purchase Plan of Cytogen Corporation
(b) Reports on Form 8-K:
None
17
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 November 13, 2001 By /s/ H. Joseph Reiser
---------------------- ---------------------------------------------
H. Joseph Reiser
President and Chief Executive Officer
Date November 13, 2001 By /s/ Lawrence R. Hoffman
---------------------- ---------------------------------------------
Lawrence R. Hoffman
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
18