UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 2003
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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
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
650 College Road East, Suite 3100, 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
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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 .
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Indicate by checkmark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). 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, 2003
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Common Stock, $.01 par value 11,040,846
CYTOGEN CORPORATION
TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION................................................... 1
Item 1. Consolidated Financial Statements (unaudited)...................... 1
Consolidated Balance Sheets as of June 30, 2003 and
December 31, 2002............................................... 2
Consolidated Statements of Operations for the Three and Six
Months Ended June 30, 2003 and 2002............................. 3
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2003 and 2002 ................................... 4
Notes to Consolidated Financial Statements......................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk..... 24
Item 4. Controls and Procedures........................................ 24
PART II. OTHER INFORMATION...................................................... 25
Item 2. Changes in Securities and Use of Proceeds...................... 25
Item 4. Submission of Matters to a Vote of Security Holders............ 26
Item 5. Other Information.............................................. 28
Item 6. Exhibits and Reports on Form 8-K............................... 28
SIGNATURES....................................................................... 32
-i-
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
JUNE 30, DECEMBER 31,
2003 2002
----------- ------------
ASSETS:
Current Assets:
Cash and cash equivalents .......................................... $ 13,529 $ 14,725
Accounts receivable, net ........................................... 1,290 1,778
Inventories ........................................................ 2,029 1,262
Other current assets ............................................... 632 643
--------- ---------
Total current assets ............................................. 17,480 18,408
Property and Equipment, net .......................................... 783 1,072
Other Assets ......................................................... 703 414
--------- ---------
$ 18,966 $ 19,894
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Current portion of long-term liabilities ........................... $ 75 $ 80
Accounts payable and accrued liabilities ........................... 3,839 4,427
Deferred revenue ................................................... 323 385
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Total current liabilities ........................................ 4,237 4,892
--------- ---------
Long-Term Liabilities ................................................ 2,535 2,614
--------- ---------
Deferred Revenue ..................................................... 1,670 1,800
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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, 25,000,000 shares authorized,
9,818,756 and 8,758,235 shares issued and outstanding
at June 30, 2003 and December 31, 2002, respectively ............. 99 88
Additional paid-in capital ......................................... 372,126 366,884
Deferred compensation .............................................. (2) (4)
Accumulated deficit ................................................ (361,699) (356,380)
--------- ---------
Total stockholders' equity ....................................... 10,524 10,588
--------- ---------
$ 18,966 $ 19,894
========= =========
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,
------------------------- -------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
REVENUES:
Product related:
ProstaScint ......................................... $ 1,599 $ 1,971 $ 3,219 $ 4,047
BrachySeed .......................................... - 565 240 1,017
Others .............................................. 98 56 123 110
------- ------- -------- --------
Total product sales ......................... 1,697 2,592 3,582 5,174
Quadramet royalties ................................. 465 510 914 1,009
------- ------- -------- --------
Total product related ....................... 2,162 3,102 4,496 6,183
License and contract ................................ 164 65 307 280
------- ------- -------- --------
Total revenues .............................. 2,326 3,167 4,803 6,463
------- ------- -------- --------
OPERATING EXPENSES:
Cost of product related revenues ...................... 900 1,241 1,810 2,295
Research and development .............................. 771 1,746 1,604 5,545
Equity loss in PSMA LLC ............................... 1,086 595 1,966 1,108
Selling and marketing ................................. 1,174 1,622 2,476 3,075
General and administrative ............................ 1,740 1,200 2,816 2,710
------- ------- -------- --------
Total operating expenses .................... 5,671 6,404 10,672 14,733
------- ------- -------- --------
Operating loss .............................. (3,345) (3,237) (5,869) (8,270)
INTEREST INCOME ........................................ 23 72 59 149
INTEREST EXPENSE ........................................ (46) (42) (93) (84)
------- ------- -------- --------
Loss before income taxes .................... (3,368) (3,207) (5,903) (8,205)
INCOME TAX BENEFIT ...................................... - - (584) -
------- ------- -------- --------
NET LOSS ................................................ $(3,368) $(3,207) $ (5,319) $ (8,205)
======= ======= ======== ========
BASIC AND DILUTED NET LOSS PER SHARE .................... $ (0.37) $ (0.39) $ (0.60) $ (1.00)
======= ======= ======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING .............. 9,051 8,308 8,909 8,217
======= ======= ======== ========
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,
---------------------------
2003 2002
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................... $(5,319) $(8,205)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ..................... 306 407
Stock-based compensation expenses ................. 502 747
Amortization of deferred revenue .................. (192) (280)
Stock-based milestone payment ..................... - 2,000
Changes in assets and liabilities:
Receivables, net ................................ 488 872
Inventories ..................................... (767) 518
Other assets .................................... (293) (511)
Accounts payable and accrued liabilities ........ (574) (462)
-------- --------
Net cash used in operating activities ............. (5,849) (4,914)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of product rights ............................... - (500)
Net proceeds from sale of equipment ...................... - 100
Purchases of property and equipment ...................... (2) (24)
-------- --------
Net cash used in investing activities ............. (2) (424)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ................... 4,739 12,980
Payment of long-term liabilities ......................... (84) (49)
-------- --------
Net cash provided by financing activities ......... 4,655 12,931
-------- --------
Net increase (decrease) in cash and cash equivalents...... (1,196) 7,593
Cash and cash equivalents, beginning of period ........... 14,725 11,309
-------- --------
Cash and cash equivalents, end of period ................. $ 13,529 $ 18,902
======== ========
The accompanying notes are an integral part of these statements.
4
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. THE COMPANY
BACKGROUND
Cytogen Corporation ("Cytogen" or the "Company") of Princeton, New
Jersey is a product-driven, oncology-focused biopharmaceutical company. Cytogen
markets proprietary and licensed oncology products through its in-house
specialty sales force: Quadrdamet(R) (a skeletal targeting therapeutic
radiopharmaceutical for the relief of pain due to bone metastases);
ProstaScint(R) (A monoclonal antibody-based imaging agent used to image the
extent and spread of prostate cancer), and NMP22 BladderChek(TM) (a
point-of-care, in vitro diagnostic test for bladder cancer). The Company's
pipeline is comprised of product candidates at various stages of clinical
development, including fully human monoclonal antibodies and cancer vaccines
based on PSMA prostate specific membrane antigen technology, or PSMA
technologies, which Cytogen exclusively licensed from Memorial Sloan-Kettering
Cancer Center. Cytogen also conducts research in cellular signaling through its
subsidiary, AxCell Biosciences.
In addition to the products listed above, in August 2000, Cytogen
expanded its product pipeline by entering into marketing, license and supply
agreements with Advanced Magnetics, Inc. for Combidex(R), which is an
investigational magnetic resonance imaginG (MRI) contrast agent that assists in
the differentiation of metastatic from non-metastatic lymph nodes. Cytogen holds
exclusive United States marketing rights to Combidex. Advanced Magnetics is
continuing its discussions with the FDA relating to outstanding issues regarding
an approvable letter received from the FDA in June 2000, in an effort to bring
Combidex to market.
Cytogen has had a history of operating losses since its inception.
Although the Company continually looks to expand its product pipeline, the
Company currently relies on two products. ProstaScint and Quadramet, for
substantially all of its revenues. In addition, the Company has, from time to
time, ceased sales of certain products, such as BrachySeed and OncoScint CR/OV,
that the Company previously believed would generate significant revenues for its
business. The Company's products are subject to significant regulatory review by
the FDA and other federal and state agencies, which requires significant time
and expenditures in seeking product approvals. In addition, the Company relies
on collaborative partners to a significant degree to manufacture its products,
to secure raw materials, and to provide licensing rights to their proprietary
products for the Company to sell and market to others.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Cytogen
and its subsidiaries. Intercompany balances and transactions have been
eliminated in consolidation.
5
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.
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 accounting principles generally accepted in the United States of
America 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, as amended, filed with the Securities and Exchange Commission, which
includes financial statements as of and for the year ended December 31, 2002.
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.
INVENTORIES
The Company's inventories are primarily related to ProstaScint and
NMP22 BladderChek. Inventories are stated at the lower of cost or market using
the first-in, first-out method and consisted of the following:
June 30, 2003 December 31, 2002
------------- -----------------
Raw materials.................... $ 39,000 $ 506,000
Work-in process.................. 1,695,000 39,000
Finished goods................... 295,000 717,000
----------- -----------
$ 2,029,000 $ 1,262,000
=========== ===========
NET LOSS PER SHARE
Basic net loss per common share is based upon the weighted average
common shares outstanding during each period. Diluted net loss per common share
is the same as basic net loss per share, as the inclusion of common stock
equivalents would be antidilutive due to the Company's losses.
OTHER COMPREHENSIVE LOSS
Other comprehensive loss consisted of an unrealized loss on a
marketable security. For the three and six months ended June 30, 2002, the fair
market value of that security decreased $223,000 and $539,000, respectively, and
6
as a result, the comprehensive loss for the three and six months ended June 30,
2002 was $3,430,000 and $8,744,000, respectively. There were no marketable
securities outstanding during the first half of 2003 and therefore no other
comprehensive gains or losses.
STOCK-BASED COMPENSATION
The Company follows the intrinsic value method of accounting for
stock-based employee compensation in accordance with APB Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations. The
Company records deferred compensation for option grants to employees for the
amount, if any, by which the market price per share exceeds the exercise price
per share at the measurement date, which is generally the grant date.
The Company follows the disclosure provisions of Statement of Financial
Accounting Standards (SFAS) 123 "Accounting for Stock-Based Compensation", as
amended by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition
and Disclosure." Had compensation cost for options been recognized in the
consolidated statements of operations using the fair value method of accounting,
the Company's net loss and net loss per share would have been:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- -----------------------------
2003 2002 2003 2002
---- ---- ---- ----
Net loss, as reported .................. $ (3,368,000) $ (3,207,000) $ (5,319,000) $ (8,205,000)
Add: Stock-based employee
compensation expense
included in reported net loss ....... - 203,000 1,000 491,000
Deduct: Total stock-based
employee compensation
expense determined under
fair value-based method for
all awards .......................... (361,000) (885,000) (712,000) (1,674,000)
------------- ----------- ------------ ------------
Pro forma net loss ..................... $ (3,729,000) $ (3,889,000) $ (6,030,000) $ (9,388,000)
============= ============ ============ ============
Basic and diluted net loss per
share, as reported ..................... $ (0.37) $ (0.39) $ (0.60) $ (1.00)
============= ============ ============ ============
Pro forma basic and diluted net
loss per share ......................... $ (0.41) (0.47) $ (0.68) $ (1.14)
============= ============ ============ ============
2. EQUITY LOSS IN PSMA DEVELOPMENT CO. LLC
In June 1999, Cytogen entered into a joint venture with Progenics
Pharmaceuticals Inc. ("Progenics", and collectively with Cytogen, the
"Members"), the PSMA Development Company LLC, (the "Joint Venture"), to develop
vaccine and antibody-based immunotherapeutic products utilizing Cytogen's
exclusively licensed PSMA technology. The Joint Venture is owned equally by
Cytogen and Progenics.
7
The Company accounts for the Joint Venture using the equity method of
accounting. Through November 2001, Progenics was obligated to fund the initial
$3.0 million of the development costs. Beginning in December 2001, Cytogen began
to recognize 50% of the Joint Venture's operating results in its consolidated
statements of operations. The Joint Venture is expected to continue to incur
losses in future years. For the three months ended June 30, 2003 and 2002,
Cytogen recognized $1,086,000 and $595,000, respectively, of such losses. For
the six months ended June 30, 2003 and 2002, Cytogen recognized $1,966,000 and
$1,108,000, respectively, of such losses. As of June 30, 2003 and December 31,
2002, the carrying value of the Company's investment in the Joint Venture was
$286,000 and $1,000, respectively, which represents Cytogen's investment to date
in the Joint Venture, less its cumulative share of losses, which net investment
is recorded in other assets. Selected financial statement information of the
Joint Venture is as follows:
JUNE 30, DECEMBER 31,
2003 2002
------------- -----------
Balance Sheet Data:
Cash .................................. $ 925,000 $ 290,000
============ ============
Accounts payable....................... $ 371,000 $ 304,000
Capital contributions.................. 15,898,000 11,399,000
Accumulated deficit.................... (15,344,000) (11,413,000)
------------ ------------
$ 925,000 $ 290,000
============ ============
THREE SIX
MONTHS ENDED MONTHS ENDED FOR THE PERIOD
JUNE 30, JUNE 30, FROM JUNE 15, 1999
--------------------------- ------------------------- (INCEPTION) TO
2003 2002 2003 2002 JUNE 30, 2003
------------ ----------- ----------- ----------- ---------------
Interest income.... $ 1,000 $ 4,000 $ 1,000 $ 4,000 $ 230,000
Total expenses..... 2,173,000 1,193,000 3,932,000 2,220,000 15,574,000
----------- ----------- ----------- ----------- ------------
Net loss ......... $(2,172,000) $(1,189,000) $(3,931,000) $(2,216,000) $(15,344,000)
=========== =========== =========== =========== ============
In July 2003, the Members agreed to: (i) an updated work plan governing
the activities of the Joint Venture for the remainder of 2003, including the
execution of various third-party contracts; (ii) a budget for the Joint
Venture's operations for 2003 and related capital contributions of the parties;
and (iii) an amended services agreement pursuant to which the Members will
provide research and development and related services for the remainder of 2003.
The Company is committed to contribute an additional $1.8 million to the joint
venture through the end of 2003. The Joint Venture's work plan, budget, and
other operational and financial matters relating to periods after 2003 will
require the further agreement of the Members.
8
3. LITIGATION
On March 17, 2000, Cytogen was served with a complaint filed against
the Company in the U.S. District Court for the District of New Jersey by M.
David Goldenberg ("Goldenberg") and Immunomedics, Inc. (collectively
"Plaintiffs"). The litigation claims that ProstaScint infringes a patent
purportedly owned by Goldenberg and licensed to Immunomedics. The Company
believes that ProstaScint does not infringe this patent, and that the patent is
invalid and unenforceable. The patent sought to be enforced in the litigation
has now expired; as a result, the claim even if successful would not result in
an injunction barring the continued sale of ProstaScint or affect any other of
Cytogen's products or technology. In addition, the Company has certain rights to
indemnification against litigation and litigation expenses from the inventor of
technology used in ProstaScint, which may be offset against royalty payments on
sales of ProstaScint. On December 17, 2001, Cytogen filed a motion for summary
judgment of non-infringement of the asserted claims of the patent-in-suit. The
Plaintiffs opposed that motion and filed their own cross-motion for summary
judgment of infringement. On July 3, 2002, the Court denied both parties'
summary judgment motions, with leave to renew those motions after hearing expert
testimony and legal argument based upon that testimony. On April 29, 2003,
Cytogen's motion for summary judgment of non-infringement of all asserted claims
was granted, plantiff's motion for summary judgment of infringement was denied
and the case was ordered closed. On May 12, 2003, Plaintiffs filed a Notice of
Appeal regarding this decision to the U.S. Court of Appeals for the Federal
Circuit, and subsequently filed their opening brief in the Court of Appeals for
the Federal Circuit on July 28, 2003.
4. INCOME TAXES
During the first quarter of 2003, the Company sold New Jersey State net
operating loss and research and development credit carryforwards, which resulted
in the recognition of $584,000 of income tax benefit. This benefit has been
recognized, as the sale has been approved by the necessary New Jersey state
authorities, and the Company has completed the sale with a qualified buyer.
5. SALES OF COMMON STOCK
In June 2003, the Company entered into a securities purchase agreement
pursuant to which the Company sold 1,052,632 shares of its common stock to
certain institutional investors at $4.75 per share, resulting in net proceeds of
approximately $4.7 million. In connection with the sale, the Company issued to
the investors warrants to purchase 315,790 shares of its common stock with an
exercise price of $6.91 per share. The warrants are exercisable until June 6,
2008.
In July 2003, the Company entered into a securities purchase agreement
pursuant to which the Company sold 1,172,332 shares of its common stock to
certain institutional investors at $8.53 per share, resulting in net proceeds of
approximately $9.4 million. In connection with the sale, the Company issued to
the investors warrants to purchase 1,172,332 shares of its common stock with an
exercise price of $12.80 per share. In addition, the Company also issued: (i)
warrants to purchase 100,000 shares of its common stock at an exercise price of
$12.80 per share to a consultant as part of its compensation for services
rendered in connection with this financing; and (ii) warrants to purchase an
aggregate of 250,000 shares of its common stock at an exercise price of $10.97
9
per share to certain of our stockholders in exchange for them waiving certain
rights in connection with this financing. The warrants are exercisable until
July 10, 2008 and become automatically exercised, in full, if (i) the closing
price of the Company's common stock (or in case no sales are reported on any
given trading day, the average of the closing bid and asked prices of the
Company's common stock on the NASDAQ National Market for such trading day) is at
least 130% of the exercise price then in effect for 30 consecutive trading days,
and (ii) a registration statement to register such shares of common stock to be
issued upon such exercise has been declared effective by the Securities and
Exchange Commission. Upon receipt of written notice by the Company of such
automatic exercise, the holders of the warrants must purchase all of the shares
of common stock underlying their respective warrants by paying the Company the
exercise price times the number of shares of common stock issuable upon
exercise.
6. REACQUISITION OF QUADRAMET
In June 2003, the Company announced that it had entered into an
agreement with Berlex to reacquire marketing rights to Quadramet in North
America and Latin America in exchange for an upfront payment of $8.0 million and
royalties based on future sales of Quadramet, subject to Cytogen obtaining any
necessary financing for the reacquisition. The agreement with Berlex became
effective August 1, 2003. Accordingly, effective August 1, 2003, we began
recording all revenue from the sales of Quadramet. We will no longer receive
royalty revenue.
7. MANUFACTURING COMMITMENT
In August 2003, the Company completed the reacquisition of the
marketing rights to Quadramet from Berlex. As a result, the Company has assumed
certain additional obligations under a Manufacturing and Supply Agreement with
Bristol Meyers Squibb, including an obligation to pay manufacturing costs of at
least $3.7 million annually through 2005. Such obligation for the remainder of
2003 is approximately $1.5 million.
8. WARRANTS ISSUED TO CONSULTANTS
In June 2003, the Company issued to consultants warrants to purchase an
aggregate of 100,000 shares of the Company's common stock at an exercise price
of $5.65 per share for consulting services. The warrants are exercisable in 12
equal installments on each one-month anniversary from the date of issuance and
are exercisable through June 10, 2006. The Company recorded the fair value of
these warrants, in the amount of $497,000, in its statement of operations for
the second quarter of 2003 using the Black-Scholes pricing model.
9. STOCK OPTION PLANS
At the Company's 2003 Annual Meeting of Stockholders held on June 10,
2003, the stockholders of the Company approved a proposal to amend the Company's
1995 Stock Option Plan (the "1995 Stock Option Plan") to increase the maximum
number of shares of the Company's Common Stock available for issuance thereunder
from 450,263 to 650,263 shares and to reserve an additional 200,000 shares of
the Company's Common Stock for issuance in connection with such increase for
awards to be granted under the 1995 Stock Option Plan.
10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E
of the Securities Exchange Act of 1934, as amended. All statements, other than
statements of historical facts, included in this Quarterly Report on Form 10-Q
regarding our strategy, future operations, financial position, future revenues,
projected costs, prospects, plans and objectives of management are
forward-looking statements. The words "anticipates," "believes," "estimates,"
"expects," "intends," "may," "plans," "projects," "will," "would" and similar
expressions are intended to identify forward-looking statements, although not
all forward-looking statements contain these identifying words. Such
forward-looking statements involve a number of risks and uncertainties and
investors are cautioned not to put any undue reliance on any forward-looking
statement. We cannot guarantee that we will actually achieve the plans,
intentions or expectations disclosed in any such forward-looking statements.
Risk factors that could cause actual results to differ materially include those
identified in our Annual Report on Form 10-K for the year ended December 31,
2002, as amended, under the caption "Additional Factors That May Affect Future
Results" and those under the caption "Risk Factors", as included in certain of
our other filings, from time to time, with the Securities and Exchange
Commission. Investors are cautioned not to put undue reliance on any
forward-looking statement. Any forward-looking statements made by us do not
reflect the potential impact of any future acquisitions, mergers, dispositions,
joint ventures or investments we may make. We do not assume, and specifically
disclaim, any obligation to update any forward-looking statements, and these
statements represent our current outlook only as of the date they are made.
The following discussion and analysis should be read in conjunction
with the Financial Statements and related notes thereto contained elsewhere
herein, as well as in our Annual Report on Form 10-K for the year ended December
31, 2002, as amended, and from time to time in our other filings with the
Securities and Exchange Commission.
SIGNIFICANT EVENTS IN 2003
In January 2003, we provided Draximage Inc. with notice of termination
of each of our License and Distribution Agreement and Product Manufacturing and
Supply Agreement with respect to both of Draximage's BrachySeed I-125 and
BrachySeed Pd-103 products. Effective January 24, 2003, we no longer accept or
fill new orders for the BrachySeed products. In April 2003, we entered into an
agreement with Draximage formally terminating each of these agreements.
In April 2003, NMP22 BladderChek was awarded clearance from the FDA for
use in diagnosing patients for bladder cancer, in addition to approval gained
previously for the indication of monitoring patients who have a prior diagnosis
of bladder cancer. We are in the early-phase of launching NMP22 BladderChek and
are promoting the product to urologists in the United States using our in-house
sales force.
In June 2003, we entered into a securities purchase agreement with
certain institutional investors pursuant to which we issued and sold 1,052,632
shares of our common stock at $4.75 per share. In connection with such
11
financing, we also issued warrants to such investors to purchase 315,790 shares
of our common stock with an exercise price of $6.91 per share. The warrants are
exercisable until June 6, 2008. The aggregate net proceeds received from this
financing of approximately $4.7 million after transaction costs are expected to
be used for general corporate purposes, marketing and sales initiatives for our
oncology products and development of our prostate specific membrane antigen
(PSMA) technology.
In June 2003, we announced that, subject to obtaining the necessary
finacing, we entered into an agreement with Berlex Laboratories, a U.S.
affiliate of Schering AG, Germany, referred to as Berlex Laboratories, whereby
marketing rights held by Berlex Laboratories to market Quadramet (Samarium Sm
153 Lexidronam), a skeletal targeting therapeutic radiapharmaceutical for the
relief pain due to bone metastases arising from prostate, breast, multiple
myeloma and other types of cancer, in North America and Latin America were to be
returned to us in exchange for an upfront payment of $8.0 million and royalties
based on future sales. Effective August 1, 2003, we have reacquired from Berlex
Laboratories the marketing rights to Quadramet and paid to Berlex Laboratories
the upfront payment of $8.0 million. Accordingly, effective as of August 1,
2003, we began recording all revenue from the sales of Quadramet. We will no
longer receive royalty revenue.
In June 2003, we announced that we had formed a partnership with
Siemens Medical Solutions and the University Hospitals of Cleveland to promote
advances in prostate cancer imaging. Through this partnership, physicians at the
University Hospitals of Cleveland will be using Siemens e.cam(TM) gamma camera
with Flash 3D iterative reconstruction and CT attenuation correction technologY,
in combination with our ProstaScint imaging agent. The resulting images may
provide improvements for the diagnosis and staging of metastatic prostate
cancer. Also in June 2003, we announced the formation of an alliance with GE
Medical Systems, a unit of General Electric Company, to market a total molecular
imaging system to help evaluate the extent and spread of prostate cancer by
integrating GE Medical's Infinia(TM) Hawkeye(R) imaging system with our
ProstaScint imaging agent. We cannot assure you that these partnerships ANd
alliances will be successful in increasing ProstaScint revenue, or that such
increase, if any, will be significant.
In July 2003, we entered into a securities purchase agreement pursuant
to which we sold 1,172,332 shares of our common stock to certain institutional
investors at $8.53 per share, resulting in net proceeds of approximately $9.4
million. In connection with the sale, we issued to such investors warrants to
purchase 1,172,332 shares of our common stock with an exercise price of $12.80
per share. In addition, we also issued: (i) warrants to purchase 100,000 shares
of our common stock at an exercise price of $12.80 per share to a consultant as
part of its compensation for services rendered in connection with this
financing; and (ii) warrants to purchase an aggregate of 250,000 shares of our
common stock at an exercise price of $10.97 per share to certain of our
stockholders in exchange for them waiving certain rights in connection with this
financing. The warrants are exercisable until July 10, 2008 and become
automatically exercised, in full, if (i) the closing price of the our common
stock (or in case no sales are reported on any given trading day, the average of
the closing bid and asked prices of our common stock on the NASDAQ National
Market for such trading day) is at least 130% of the exercise price then in
effect for 30 consecutive trading days, and (ii) a registration statement to
register such shares of common stock to be issued upon such exercise has been
12
declared effective by the Securities and Exchange Commission. Upon receipt of
written notice by us of such automatic exercise, the holders of the warrants
must purchase all of the shares of common stock underlying their respective
warrants by paying us the exercise price times the number of shares of common
stock issuable upon exercise. The net proceeds from this financing were used in
our reacquisition of certain marketing rights from Berlex and related expenses.
In July 2003, in connection with our joint venture with Progenics
Pharmaceuticals, Inc., we and Progenics agreed to: (i) an updated work plan
governing the activities of the joint venture for the remainder of 2003,
including the execution of various third-party contracts; (ii) a budget for the
joint venture's operations for 2003 and related capital contributions of the
parties; and (iii) an amended services agreement pursuant to which each party to
the joint venture will provide research and development and related services for
the remainder of 2003. The joint venture work plan, budget, and other
operational and financial matters relating to periods after 2003 will require
the further agreement between us and Progenics.
In August 2003, we paid to Berlex Laboratories the upfront payment of
$8.0 million and have reacquired from Berlex Laboratories the marketing rights
to Quadramet. Accordingly, effective as of August 1, 2003, we began recording
all revenue from the sales of Quadramet.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2003 AND 2002
REVENUES. Total revenues for the second quarter of 2003 were $2.3
million compared to $3.2 million for the same period in 2002. The decrease from
the prior year period is due primarily to lower product related revenues.
Product related revenues, which included product sales and royalties, accounted
for 93% and 98% of total revenues for the second quarters of 2003 and 2002,
respectively. License and contract revenues accounted for the remainder of
revenues.
Product related revenues for the second quarter of 2003 were $2.2
million compared to $3.1 million for the same period in 2002. Sales of
ProstaScint accounted for 74% and 64% of product related revenues in the second
quarters of 2003 and 2002, respectively, while Quadramet royalties accounted for
22% and 16% of product related revenues for such quarters, respectively. Sales
of ProstaScint were $1.6 million for the second quarter of 2003, a decrease of
$372,000 from $2.0 million in the second quarter of 2002. Such decrease in sales
of ProstaScint may be due, in part, to the tendency of radiopharmacy
wholesalers, during times of economic downturn, to order high-priced drugs, such
as ProstaScint, on an as-needed basis, and no longer store quantities for future
use. Additionally, ProstaScint historically has been a challenging product for
physicians and technologists to use, in part because imaging results may be
difficult to interpret. While we believe that the period to period decrease in
ProstaScint sales that we have experienced is due, to a large degree, to such
challenge, we also believe that such decline in ProstaScint revenue may be
reversed depending upon, among other things, the implementation and continued
research relating to the following:
13
- Advances in imaging technology:
- Fusion imaging - an image processing technique that combines
functional information from a ProstaScint scan with anatomic
images provided by CT (computed tomography) or MR (magnetic
resonance) scans in a digital overlay to provide information that
cannot be achieved with separate imaging modalities alone, which
may improve diagnostic interpretation; and
- Image enhancements - improving the quality of ProstaScint images
through reconstruction and attenuation-correction methods to
address inherent limitations of single photon emission computed
tomography (SPECT) imaging by correcting for the effects of
radiation scatter and/or inherent collimator/detector blur.
- New product applications:
- Utilization of ProstaScint scans to guide therapy ("image-guided
therapy"), to enhance therapy targeting for treatments such as
brachytherapy, cryotherapy and external beam radiation, such as
intensity modulated radiation therapy (IMRT); and
- Utilization of ProstaScint scans to guide biopsy ("image-guided
biopsy"), which could be facilitated by future advances in image
acquisition technology.
There can be no assurance, however, that the achievement of any of the
above will significantly increase our sales of ProstaScint.
Revenues from the sale of BrachySeed during the second quarter of 2002
were $565,000, which represented 18% of product related revenues in the second
quarter of 2002. As described above, effective January 24, 2003, we no longer
accept or fill new orders for the BrachySeed I-125 and BrachySeed Pd-103
products. In April 2003, we entered into an agreement with Draximage to formally
terminate our agreements with respect to these products.
Other product sales include sales from NMP22 BladderChek, which we
began promoting to urologists in the United States in November 2002 using our
in-house sales force, and OncoScint CR/OV which we stopped selling in December
2002. During the second quarter 2003, sales of NMP22 BladderChek were $98,000.
NMP22 BladderChek is one of only two immunoassay fluid tests approved by the FDA
for diagnosing patients for cancer; the other is the prostate specific antigen
(PSA) test for prostate cancer. The NMP22 BladderChek test is currently approved
for use in two clinical settings:
- Monitoring - In July 2002, NMP22 BladderChek was approved by FDA for
monitoring patients previously diagnosed with bladder cancer; and
- Diagnosis - In April 2003, NMP22 BladderChek was approved by FDA to
aid in the diagnosis of patients with bladder cancer.
There can be no assurance however, as to the market acceptance of NMP22
BladderChek or whether sale of NMP22 BladderChek will significantly increase our
revenues.
14
We discontinued selling OncoScint CR/OV in December 2002 in order to
focus on our other oncology products, since 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 OncoScint CR/OV during the second quarter of 2002 were
$56,000.
Quadramet royalties for the second quarter of 2003 were $465,000, a
decrease of $45,000 from $510,000 in the second quarter of 2002. Through July
31, 2003, Quadramet was marketed in the United States by our marketing partner,
Berlex Laboratories. In June 2003, we entered into an agreement with Berlex
Laboratories whereby marketing rights held by Berlex Laboratories to market
Quadramet in North America and Latin America were to be returned to us in
exchange for an upfront payment of $8.0 million and royalties based on future
sales. On August 1, 2003, we reacquired such rights from Berlex Laboratories and
began to market Quadramet through an in-house specialty sales force. We believe
that the period to period decrease in such sales was attributable, in part, to
the transition of marketing rights from Berlex to Cytogen. Currently, we market
Quadramet only in the United States. Schering AG, Germany which acquired CIS Bio
International in 2000 will continue to market Quadramet in Europe as a direct
licensee of Dow Chemical Company. We cannot assure you that we will be able to
successfully market Quadramet or that any such sales will result in further
revenue for us in the future. We believe that the future growth and market
penetration of Quadramet is dependent upon, among other things:
- New clinical data supporting the expanded and earlier use of Quadramet
in various cancers;
- Novel research supporting combination uses with other therapies, such
as chemotherapy and bisphophonates;
- Establishing the use of Quadramet at higher doses to target and treat
primary bone cancers; and
- Increased marketing and sales penetration to physicians.
There can be no assurance that Quadramet will achieve greater market
penetration on a timely basis or result in significant revenues for us.
License and contract revenues for the second quarter of 2003 were
$164,000 compared to $65,000 for the same period of 2002. As a result of our
adoption of Securities and Exchange Commission's Staff Accounting Bulletin
No.101 (referred to as SAB 101) in 2000, license revenues from certain up-front,
non-refundable license fees previously recognized in prior years were deferred
and are being amortized over the estimated performance period. In the second
quarter of 2003, we recognized $96,000 of deferred license revenue compared to
$65,000 for the same period in 2002. In the second quarter of 2003, we recorded
$53,000 of contract revenues for research and development services provided by
us to the PSMA Development Company LLC, our joint venture with Progenics
Pharmaceuticals Inc. The level of future revenues for the remainder of 2003, if
any, for contract services provided to the joint venture will be dependent upon
the extent of the research and development services required by the joint
venture.
OPERATING EXPENSES. Total operating expenses for the second quarter of
2003 were $5.7 million compared to $6.4 million in the same quarter of 2002. The
decrease from the prior year period is attributable primarily to lower costs of
15
product sales and lower selling and marketing expenses due to our
discontinuation of selling and marketing BrachySeed products in January 2003 and
cost-saving measures implemented in September 2002 as a result of a
restructuring at our subsidiary AxCell Biosciences. The decrease is partially
offset by increased funding for our joint venture and increased general and
administrative expenses primarily from a non-cash charge related to warrants
granted to certain consultants in 2003.
Cost of product related revenues for the second quarter of 2003 were
$900,000 compared to $1.2 million in the same period of 2002. The decrease from
the prior year period is substantially due to lower product sales, primarily,
the discontinuation of selling and marketing of BrachySeed products in January
2003.
Research and development expenses for the second quarter of 2003 were
$771,000 compared to $1.7 million in the same period of 2002. The decrease from
the prior year period is attributable primarily to cost-saving measures
implemented in September 2002 as a result of a restructuring at our subsidiary
AxCell Biosciences and development efforts in the amount of $352,000 in 2002,
which did not recur in 2003, related to the new manufacturing and purification
process for ProstaScint. During the second quarters of 2003 and 2002, we
invested $357,000 and $1.0 million, respectively, in AxCell's signal
transduction research activities.
Our share in the equity loss in the PSMA Development Company LLC, our
joint venture with Progenics Pharmaceuticals, Inc. was $1.1 million during the
second quarter of 2003 compared to $595,000 in the same quarter of 2002 and
represented 50% of the joint venture's operating results. The joint venture is
equally owned by us and Progenics. We account for the joint venture using the
equity method of accounting. We share equally with Progenics the costs of the
joint venture. We expect to incur significant and increasing costs in the future
to fund our share of the development costs from the joint venture. On July 14,
2003, we agreed with Progenics, in connection with the joint venture: (i) to an
updated work plan governing the activities of the joint venture for the
remainder of 2003, including the execution of various third-party contracts;
(ii) to a budget for the joint venture's operations for 2003 and related capital
contributions of the parties; and (iii) to an amended services agreement
pursuant to which each party to the joint venture will provide research and
development and related services for the remainder of 2003. The joint venture's
work plan, budget, and other operational and financial matters relating to
periods after 2003 will require the further agreement between us and Progenics.
There can be no assurances made that such further agreements will be reached.
Selling and marketing expenses for the second quarter of 2003 were $1.2
million compared to $1.6 million in the same period of 2002. The decrease from
the prior year is primarily due to the discontinuation of the selling and
marketing activities related to the BrachySeed products effective January 2003.
General and administrative expenses for the second quarter of 2003 were
$1.7 million compared to $1.2 million in the same period of 2002. The increase
from the prior year period is primarily due to stock based compensation expenses
related to warrants granted to certain consultants, partially offset by lower
compensation expenses due to reduced staffing.
16
INTEREST INCOME/EXPENSE. Interest income for the second quarter of 2003
was $23,000 compared to $72,000 in the same period of 2002. The decrease from
the prior year period is due to a lower average yield on investments and lower
average cash balances in 2003. Interest expense for the second quarter of 2003
was $46,000 compared to $42,000 in the same period of 2002. Interest expense
includes interest on outstanding debt and finance charges related to various
equipment leases.
NET LOSS. Net loss for the second quarter of 2003 was $3.4 million
compared to $3.2 million reported in the second quarter of 2002. The net loss
per share for the second quarter of 2003 was $0.37 based on weighted average
common shares outstanding of 9.1 million, compared to a net loss per share of
$0.39 based on weighted average common shares outstanding of 8.3 million for the
same period in 2002.
SIX MONTHS ENDED JUNE 30, 2003 AND 2002
REVENUES. Total revenues for the first half of 2003 and 2002 were $4.8
million and $6.5 million, respectively. The decrease from the prior year period
is due primarily to lower product related revenues and royalties. Product
related revenues, which included product sales and royalties, accounted for 94%
of total revenues in the first half of 2003 compared to 96% from the comparable
period of 2002. License and contract revenues accounted for the remainder of
revenues.
Product related revenues for the first half of 2003 and 2002 were $4.5
million and $6.2 million, respectively. Sales of ProstaScint accounted for 72%
and 65% of product related revenues in the first half of 2003 and 2002,
respectively, while Quadramet royalties accounted for 20% and 16% of product
related revenues for such periods, respectively. Sales of ProstaScint were $3.2
million for the first half of 2003 compared to $4.0 million for the first half
of 2002. Such decrease in sales of ProstaScint may be due, in part, to the
tendency of radiopharmacy wholesalers, during times of economic downturn, to
order high-priced drugs, such as ProstaScint, on an as-needed basis, and no
longer store quantities for future use. Additionally, ProstaScint historically
has been a challenging product for physicians and technologists to use, in part
because imaging results may be difficult to interpret. While we believe that the
period to period decrease in ProstaScint sales that we have experienced is due,
to a large degree, to such challenge, we also believe that such decline in
ProstaScint revenue may be reversed, depending upon, among other things, the
implementation and continued research in advances in imaging technology such as
fusion imaging and image enhancements, and new product applications, such as
using ProstaScint scans to guide the placement of brachytherapy seeds and/or
external beam radiation. There can be no assurance, however, that such
initiatives will significantly increase our sales of ProstaScint.
Royalties from Quadramet were $914,000 and $1.0 million for each of the
first half of 2003 and 2002, respectively. We completed the reacquisition of
marketing rights to Quadramet from Berlex Laboratories, Inc. on August 1, 2003
for an upfront payment of $8.0 million and royalties on future sales. We believe
that the decrease in such sales was attributable in part to the transition of
marketing rights from Berlex to Cytogen. Currently, we market Quadramet only in
the United States. We cannot assure you that that we will be able to
successfully market Quadramet or that our marketing efforts will result in
further revenue for us in the future.
17
Revenues from the sale of BrachySeed for the first half of 2003 were
$240,000, or 5% of product related revenue, compared to $1.0 million in
BrachySeed sales which represented 16% of product related revenues recorded in
the same period of 2002. As described above, effective January 24, 2003, we no
longer accept or fill new orders for the BrachSeed I-125 and BrachySeed Pd-103
products. In April 2003, we entered into an arrangement with Draximage to
formally terminate our agreements with respect to these products.
Other product sales include sales from NMP22 BladderChek, which we
began promoting to urologists in the United States in November 2002 using our
in-house sales force, and OncoScint CR/OV, which we stopped selling in December
2002. For the first half of 2003, sales of NMP22 BladderChek were $123,000.
There can be no assurance however, as to the market acceptance of NMP22
BladderChek or whether sales of NMP22 BladderChek will significantly increase
our revenues.
We discontinued selling OncoScint CR/OV in December 2002 in order to
focus on our other oncology products, since 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 OncoScint CR/OV in the first half of 2002 were
$110,000.
License and contract revenues for the first half of 2003 and 2002
were $307,000 and $280,000, respectively. In the first half of 2003, we
performed limited research and development services for the joint venture,
resulting in $100,000 of contract revenue. The level of future revenue for the
remainder of 2003, if any, for services provided by us to the joint venture will
be dependent upon the extent of the research and development services required
by the joint venture. License revenues for both 2003 and 2002 also include the
recognition of deferred revenues from certain up-front non-refundable license
fees which were $193,000 and $280,000, respectively.
OPERATING EXPENSES. Total operating expenses for the first half of 2003
were $10.7 million compared to $14.7 million recorded in 2002. The decrease from
the prior year period is attributable primarily to a non-cash milestone expense
of $2.0 million in 2002 related to the progress of the dendritic cell prostate
cancer clinical trials at Northwest Biotherapeutics, decreases in research and
development expenditures relating to AxCell Biosciences, the development cost of
$583,000 incurred in 2002 relating to a new manufacturing and purification
process for ProstaScint, and lower cost of product sales and selling and
marketing expenses primarily from the discontinuation of selling and marketing
BrachySeed products in January 2003. The decrease is partially offset by
increased development costs associated with our joint venture.
Cost of product related revenues for the first half of 2003 were $1.8
million compared to $2.3 million in the same period of 2002. The decrease from
the prior year period is primarily due to the lower product sales and to a
reversal of $133,000 related to lower royalty expenses on the 2002 BrachySeed
sales as a result of a termination agreement entered into with Draximage with
respect to the BrachySeed products.
18
Research and development expenses for the first half of 2003 were $1.6
million compared to $5.5 million recorded in the same period of 2002. The
decrease from the prior year period is attributable primarily to a non-cash
milestone expense of $2.0 million in 2002 related to the progress of dendritic
cell prostate cancer clinical trials at Northwest Biotherapeutics, decreased
costs associated with the AxCell's research programs and the development cost of
$583,000 in 2002, which did not recur in 2003, relating to a new manufacturing
and purification process for ProstaScint. During the first six months of 2003
and 2002, we invested $807,000 and $2.3 million, respectively, in AxCell's
subsidiary. In September 2002, we significantly reduced AxCell's workforce to
reduce the cash expenditures relating to AxCell in order to leverage our
oncology franchise. We still conduct research and development efforts through
AxCell, however, such efforts have been scaled back as a result of the workforce
reduction.
Our share in the equity loss in the PSMA Development Company LLC, our
joint venture with Progenics Pharmaceuticals, Inc., was $2.0 million and $1.1
million during the first half of 2003 and 2002, respectively, and represented
50% of the joint venture's operating results. The joint venture is equally owned
by us and Progenics and we account for this joint venture using the equity
method of accounting. We share equally with Progenics the costs associated with
the joint venture. We expect to incur significant and increasing costs in the
future to fund our share of the development costs from the joint venture.
Selling and marketing expenses were $2.5 million for the first half of
2003 compared to $3.1 million in the same period of 2002. The decrease from the
prior year period is due to the discontinuation of selling and marketing
activities relating to BrachySeed products in January 2003.
General and administrative expenses for the first half of 2003 were
$2.8 million compared to $2.7 million for the comparable period in 2002. Such
increase was due primarily to increased legal fees and stock based compensation
expenses related to warrants granted to certain consultants in 2003, partially
offset by stock-based compensation charges in 2002 relating to options granted
to a key employee, and reduced staffing in 2003.
INTEREST INCOME/EXPENSE. Interest income for the first half of 2003 was
$59,000 compared to $149,000 recorded in the same period of 2002. The decrease
from the prior year period is due a lower average yield on investments and a
lower average cash balance in 2003. Interest expense for the first half of 2003
was $93,000 compared to $84,000 recorded in the same period of 2002. Interest
expense included interest on outstanding debt and finance charges related with
various equipment leases.
INCOME TAX BENEFIT. During the first quarter of 2003, we sold New
Jersey State net operating loss and research and development credit
carryforwards, which resulted in the recognition of a $584,000 income tax
benefit. Assuming the State of New Jersey continues to fund this program, which
is uncertain, the future amount of net operating losses and tax credits which we
may sell will also depend upon the allocation among qualifying companies of an
annual pool established by the State of New Jersey. We did not recognize any
such benefits during the first half of 2002.
19
NET LOSS. Net loss for the first half of 2003 was $5.3 million compared
to $8.2 million recorded in the same period of 2002. The net loss per share for
the first half of 2003 was $0.60 based on weighted average common shares
outstanding of 8.9 million compared to a net loss per share of $1.00 based on
the weighted average common shares outstanding of 8.2 million for the same
period in 2002.
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalents were $13.5 million as of June 30, 2003,
compared to $14.7 million as of December 31, 2002. Cash used for operating
activities for the six months ended June 30, 2003 was $5.8 million compared to
$4.9 million in the same period of 2002. The increase from the prior year period
is due primarily to our build-up of ProstaScint inventories in the first half of
2003 and to our increased capital contributions to the PSMA Development Company,
LLC, our joint venture with Progenics Pharmaceuticals, Inc.
Historically, our primary sources of cash have been proceeds from the
issuance and sale of our stock through public offerings and private placements,
product related revenues, revenues from contract research services, fees paid
under license agreements and interest earned on cash and short-term investments.
In January 2003, we received $584,000 relating to a sale of New Jersey
State net operating losses and research and development credits. Assuming the
State of New Jersey continues to fund this program, which is uncertain, the
future amount of net operating losses and tax credits which we may sell will
also depend upon the allocation among qualifying companies of an annual pool
established by the State of New Jersey.
In June 2003, we entered into a securities purchase agreement with
certain institutional investors pursuant to which we issued and sold 1,052,632
shares of our common stock at $4.75 per share. In connection with such
financing, we also issued warrants to such investors to purchase 315,790 shares
of the our common stock with an exercise price of $6.91 per share. The warrants
are exercisable until June 6, 2008. The aggregate net proceeds received by us
after transaction costs was approximately $4.7 million.
In July 2003, we sold to the certain institutional investors 1,172,332
shares of our common stock and warrants to purchase an additional 1,172,332
shares of our common stock for aggregate net proceeds received by us of
approximately $9.4 million after transaction costs. The warrants to purchase the
shares of our common stock have an exercise price of $12.80 per share. The
warrants are exercisable until July 10, 2008 and become automatically exercised,
in full, if (i) the closing price of the our common stock (or in case no sales
are reported on any given trading day, the average of the closing bid and asked
prices of our common stock on the NASDAQ National Market for such trading day)
is at least 130% of the exercise price then in effect for 30 consecutive trading
days, and (ii) a registration statement to register such shares of common stock
to be issued upon such exercise has been declared effective by the Securities
and Exchange Commission. In addition, we also issued: (i) warrants to purchase
100,000 shares of our common stock at an exercise price of $12.80 per share to a
consultant as part of its compensation for services rendered in connection with
this financing; and (ii) warrants to purchase an aggregate of 250,000 shares of
20
our common stock at an exercise price of $10.97 per share to certain of our
stockholders in exchange for them waving certain rights in connection with this
financing. On August 1, 2003, $8.0 million of the proceeds from this financing
were used to pay for the reacquisition of marketing rights to Quadramet in North
and Latin America from Berlex Laboratories, Inc.
In August 2003, we completed the reacquisition of the marketing rights
to Quadramet from Berlex. As a result, we have assumed certain additional
obligations under our Manufacturing and Supply Agreement with Bristol Meyers
Squibb, including an obligation to pay manufacturing costs of at least $3.7
million annually through 2005. Such obligation for the remainder of 2003 is
approximately $1.5 million.
We have historically relied upon revenues from sales of the BrachySeed
products to partially fund ongoing operations. For the six months ended June 30,
2003 and 2002, revenue from the sale of BrachySeed products was $240,000 and
$1.0 million, respectively. In December 2002, we served notice of termination of
our agreements with Draximage, and in April 2003, entered into an agreement with
Draximage to formally terminate each of our License and Distribution Agreement
and Product Manufacturing and Supply Agreement with respect to both the
BrachySeed I-125 and BrachySeed Pd-103 products. As of January 24, 2003, we no
longer accept or fill new orders for the BrachySeed products.
Beginning in December 2001, we began to equally share the costs of the
joint venture with Progenics. We expect our share of losses and funding in the
joint venture to continue at an even higher level in the subsequent periods. We
are committed to contribute an additional $1.8 million to the joint venture by
the end of 2003. The joint venture is funded by equal capital contributions from
each of Progenics and Cytogen in accordance with an annual budget approved by
the joint venture's management committee. On July 14, 2003, we agreed with
Progenics, in connection with this joint venture: (i) to an updated work plan
governing the activities of the joint venture for the remainder of 2003,
including the execution of various third-party contracts; (ii) to a budget for
the joint venture's operations for 2003 and related capital contributions of the
parties; and (iii) to an amended services agreement pursuant to which each party
to the joint venture will provide research, development and related services for
the remainder of 2003. The joint venture work plan, budget, and other
operational and financial matters relating to periods after 2003 will require
the further agreement between us and Progenics.
Our capital and operating requirements may change depending upon
various factors, including: (i) whether we and our strategic partners achieve
success in manufacturing, marketing and commercialization of our products; (ii)
the amount of resources which we devote 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, we expect to incur significant costs for the
development of our PSMA technologies.
Our financial objectives are to meet our capital and operating
requirements through revenues from existing products and licensing arrangements.
To achieve our strategic objectives, we may enter into research and development
partnerships and acquire, in-license and develop other technologies, products or
21
services. Certain of these strategies may require payments by us in either cash
or stock in addition to the costs associated with developing and marketing a
product or technology. However, we believe that, if successful, such strategies
may increase long-term revenues. 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, we may sell equity or
debt securities as market conditions permit or enter into credit facilities.
We have incurred negative cash flows from operations since our
inception, and have expended, and expect to continue to expend in the future,
substantial funds to implement our planned product development efforts,
including acquisition of products and complementary technologies, research and
development, clinical studies and regulatory activities, and to further our
marketing and sales programs. We expect that our existing capital resources
should be adequate to fund our operations and commitments into the second half
of 2004. We cannot assure you that our business or operations will not change in
a manner that would consume available resources more rapidly than anticipated.
We expect that we will have additional requirements for debt or equity capital,
irrespective of whether and when we reach profitability, for further product
development costs, product and technology acquisition costs, and working
capital.
Our future capital requirements and the adequacy of available funds
will depend on numerous factors, including: (i) the successful commercialization
of our products; (ii) the costs associated with the acquisition of complementary
products and technologies; (iii) progress in our product development efforts and
the magnitude and scope of such efforts; (iv) progress with clinical trials; (v)
progress with regulatory affairs activities; (vi) the cost of filing,
prosecuting, defending and enforcing patent claims and other intellectual
property rights; (vii) competing technological and market developments; and
(viii) the expansion of strategic alliances for the sales, marketing,
manufacturing and distribution of our products. To the extent that the currently
available funds and revenues are insufficient to meet current or planned
operating requirements, we will be required to obtain additional funds through
equity or debt financing, strategic alliances with corporate partners and
others, or through other sources. There can be no assurance that the financial
sources described above will be available when needed or at terms commercially
acceptable to us. If adequate funds are not available, we may be required to
delay, further scale back or eliminate certain aspects of our operations or
attempt to obtain funds through arrangements with collaborative partners or
others that may require us to relinquish rights to certain of our technologies,
product candidates, products or potential markets. If adequate funds are not
available, our business, financial condition and results of operations will be
materially and adversely affected.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Financial Reporting Release No. 60 requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. Note 1 to our Consolidated Financial Statements in our
Annual Report on Form 10-K for the year ended December 31, 2002, as amended,
includes a summary of our significant accounting policies and methods used in
the preparation of our Consolidated Financial Statements. The following is a
brief discussion of the more significant accounting policies and methods used by
22
us. The preparation of our Consolidated Financial Statements requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Our actual results could differ materially from
those estimates.
REVENUE RECOGNITION
We recognize revenue from the sale of our products upon shipment, which
is when title and risk of loss passes to our customers. We do not grant price
protection to customers. We recognize Quadramet royalty revenue on Quadramet
sales made by our marketing partner, Berlex, during each period as Berlex sells
the product. The Securities and Exchange Commission has issued Staff Accounting
Bulletin (SAB) No. 101, "Revenue Recognition", which provides guidance on the
recognition of up-front, non-refundable license fees. Accordingly, we defer
up-front license fees and recognize them over the estimated performance period
of the related agreement, when we have continuing involvement. Since the term of
the performance periods is subject to management's estimates, future revenues to
be recognized could be affected by changes in such estimates.
ACCOUNTS RECEIVABLE
Our accounts receivable balances are net of an estimated allowance for
uncollectible accounts. We continuously monitor collections and payments from
our customers and maintain an allowance for uncollectible accounts based upon
our historical experience and any specific customer collection issues that we
have identified. While we believe our reserve estimate to be appropriate, we may
find it necessary to adjust our allowance for uncollectible accounts if the
future bad debt expense exceeds our estimated reserve. We are subject to
concentration risks as a limited number of our customers provide a high percent
of total revenues, and corresponding receivables.
INVENTORIES
Inventories are stated at the lower of cost or market, as determined
using the first-in, first-out method, which most closely reflects the physical
flow of our inventories. Our products and raw materials are subject to
expiration dating. We regularly review quantities on hand to determine the need
for reserves for excess and obsolete inventories based primarily on our
estimated forecast of product sales. Our estimate of future product demand may
prove to be inaccurate, in which case we may have understated or overstated our
reserve for excess and obsolete inventories.
CARRYING VALUE OF FIXED AND INTANGIBLE ASSETS
Our fixed assets and certain of our acquired rights to market our
products have been recorded at cost and are being amortized on a straight-line
basis over the estimated useful life of those assets. If indicators of
impairment exist, we assess the recoverability of the affected long-lived assets
by determining whether the carrying value of such assets can be recovered
through undiscounted future operating cash flows. If impairment is indicated, we
measure the amount of such impairment by comparing the carrying value of the
23
assets to the present value of the expected future cash flows associated with
the use of the asset. Adverse changes regarding future cash flows to be received
from long-lived assets could indicate that an impairment exists, and would
require the write down of the carrying value of the impaired asset at that time.
In October 2002, we entered into a five-year agreement with Matritech
Inc. to be the sole distributor for Matritech's NMP22 BladderChek point-of-care
test to urologists and oncologists in the United States. Retention of
exclusivity rights depends upon meeting certain minimum annual purchases. We
paid Matritech $150,000 upon the execution of the agreement, which was recorded
as other assets in the accompanying consolidated balance sheet for the
respective period and is being amortized over the five year estimated
performance period of the agreement.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not have operations subject to risks of foreign currency
fluctuations, nor do we use derivative financial instruments in our operations
or investment portfolio. As of June 30, 2003, we had $2.3 million of debt
outstanding with a fixed interest rate of 7%. We do not have exposure to market
risks associated with changes in interest rates, as we have no variable interest
rate debt outstanding. Changes in interest rates could expose us to market risk
associated with a fixed interest rate debt. We do not believe that this debt
will have material exposure to market risks associated with interest rates.
ITEM 4 - CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Our management,
with the participation of our chief executive officer and principal accounting
officer, evaluated the effectiveness of our disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June
30, 2003. In designing and evaluating our disclosure controls and procedures,
our management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving their
objectives and management necessarily applied its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. Based on this
evaluation, our chief executive officer and principal accounting officer
concluded that as of June 30, 2003, our disclosure controls and procedures were
(1) designed to ensure that material information relating to us, including our
consolidated subsidiaries, is made known to our chief executive officer and
principal accounting officer by others within those entities, particularly
during the period in which this report was being prepared and (2) effective, in
that they provide reasonable assurance that information required to be disclosed
by us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms.
(b) Changes in internal controls. No change in our internal control
over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) occurred during the fiscal quarter ended June 30, 2003 that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
24
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Financings
JUNE 6, 2003 FINANCING
On June 6, 2003, we entered into a securities purchase agreement with
certain institutional investors pursuant to which we issued and sold 1,052,632
shares of our common stock at $4.75 per share and issued warrants to purchase
315,790 shares of the our common stock with an exercise price of $6.91 per
share. The warrants are exercisable until June 6, 2008. The aggregate net
proceeds received by us was approximately $4.7 million after transaction costs.
We paid a $200,000 finder's fee in connection with this financing. The aggregate
net proceeds received from this financing are expected to be used for general
corporate purposes, marketing and sales initiatives for our oncology products
and development of our prostate specific membrane antigen (PSMA) technology.
In addition, we entered into registration rights agreements with the
investors in this financing. Pursuant to the registration rights agreement, we
filed a registration statement on Form S-3 with the Securities and Exchange
Commission on July 3, 2003 to register all of the shares of our common stock
issued to the investors and all of the shares to be issued to the investors upon
exercise of such warrants. The registration statement has not yet been declared
effective by the Securities and Exchange Commission.
No underwriter was employed by us in connection with the issuance of
the securities described above. We believe that the issuance of the foregoing
securities was exempt from registration under Section 4(2) of the Securities Act
of 1933, as amended, as transactions not involving a public offering. Each of
the recipients acquired the securities for investment purposes only and not with
a view to distribution and had adequate information about us.
JULY 10, 2003 FINANCING
In July 2003, we entered into a securities purchase agreement pursuant
to which we sold 1,172,332 shares of our common stock to certain institutional
investors at $8.53 per share, resulting in net proceeds of approximately $9.4
million. In connection with the sale, we issued to the investors warrants to
purchase 1,172,332 shares of our common stock with an exercise price of $12.80
per share. In addition, we also issued: (i) warrants to purchase 100,000 shares
of our common stock at an exercise price of $12.80 per share to a consultant as
part of its compensation for services rendered in connection with this
financing; and (ii) warrants to purchase an aggregate of 250,000 shares of our
common stock at an exercise price of $10.97 per share to certain of our
stockholders in exchange for them waiving certain rights in connection with this
financing. The warrants are exercisable until July 10, 2008 and become
automatically exercised, in full, if (i) the closing price of the our common
stock (or in case no sales are reported on any given trading day, the average of
the closing bid and asked prices of our common stock on the NASDAQ National
Market for such trading day) is at least 130% of the exercise price then in
effect for 30 consecutive trading days, and (ii) a registration statement to
25
register such shares of common stock to be issued upon such exercise has been
declared effective by the Securities and Exchange Commission. Upon receipt of
written notice by us of such automatic exercise, the holders of the warrants
must purchase all of the shares of common stock underlying their respective
warrants by paying us the exercise price times the number of shares of common
stock issuable upon exercise. Furthermore, we paid a consultant $500,000 as part
of its compensation for consulting services that it rendered in this financing.
On August 1, 2003, $8.0 million of such proceeds received by us from this
financing was used to make an upfront payment to reacquire the marketing rights
to Quadramet from Berlex Laboratories, Inc.
In addition, we entered into registration rights agreements with the
investors in this financing. Pursuant to the registration rights agreement, we
are required to register all of such shares of our common stock issued to the
investors and all of the shares to be issued to the investors upon exercise of
such warrants. We have not yet filed this registration statement with the
Securities and Exchange Commission.
No underwriter was employed by us in connection with the issuance of
the securities described above. We believe that the issuance of the foregoing
securities was exempt from registration under Section 4(2) of the Securities Act
of 1933, as amended, as transactions not involving a public offering. Each of
the recipients acquired the securities for investment purposes only and not with
a view to distribution and had adequate information about us.
WARRANTS ISSUED TO CONSULTANTS
On June 10, 2003, we issued to a consultant a warrant to purchase
50,000 shares of our common stock at an exercise price of $5.65 per share for
financial and strategic consulting services. The warrants are exercisable in 12
equal installments on each one-month anniversary from the date of issuance and
are exercisable through June 10, 2006.
On June 10, 2003, we issued to another consultant a warrant to purchase
50,000 shares of our common stock at an exercise price of $5.65 per share for
scientific consulting services. The warrants are exercisable in 12 equal
installments on each one-month anniversary from the date of issuance and are
exercisable through June 10, 2006.
No underwriter was employed by us in connection with the issuance of
the warrants described above. We believe that the issuance of the foregoing
warrants was exempt from registration under Section 4(2) of the Securities Act
of 1933, as amended, as transactions not involving a public offering. Each of
the recipients acquired the securities for investment purposes only and not with
a view to distribution and had adequate information about us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 10, 2003, we held our annual meeting of stockholders to: (i)
elect eight directors; (ii) consider and vote upon a proposal to amend, as
required, our 1995 Stock Option Plan to increase the maximum aggregate number of
shares of common stock available for issuance thereunder from 450,263 to
650,263, and to reserve an additional 200,000 shares of our common stock for
issuance in connection with such increase; and (iii) transact such other
business as may come before the meeting.
26
There were represented at the our annual meeting, either in person or
by proxy 8,082,162 shares of our common stock out of a total number of 8,813,832
shares of common stock issued and outstanding and entitled to vote at the
meeting.
The following tables set forth information regarding the number of
votes cast for, 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, and
therefore, votes that are withheld have no effect on the outcome of the vote.
Adoption of the proposal relating to our 1995 Stock Option Plan 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.
27
(i) Election of Directors:
BROKER NON-
NOMINEES FOR WITHHELD ABSTENTIONS VOTES
----------------------- --------- ---------- ----------- -----------
James A. Grigsby 7,892,250 189,912 N/A N/A
Michael D. Becker 6,452,622 1,629,540 N/A N/A
John E. Bagalay, Jr. 6,393,758 1,688,404 N/A N/A
Allen Bloom 7,946,916 135,246 N/A N/A
Stephen K. Carter 7,947,411 134,751 N/A N/A
Robert F. Hendrickson 7,946,973 135,189 N/A N/A
Kevin G. Lokay 6,454,962 1,627,200 N/A N/A
H. Joseph Reiser 7,860,936 201,226 N/A N/A
(ii) Proposal to amend our 1995 Stock Option Plan to increase the
maximum number of shares of common stock available for issuance
thereunder from 450,263 to 650,263 shares and to reserve an
additional 200,000 shares of common stock for issuance in
connection with such increase for awards to be granted under the
1995 Stock Option Plan:
BROKER NON-
FOR WITHHELD ABSTENTIONS VOTES
--------- -------- ----------- -----------
7,699,815 347,187 35,160 N/A
ITEM 5. OTHER INFORMATION
One June 10, 2003, we entered into Change of Control Severance
Agreements, in the form we utilize with our executive officers, with each of Ms.
Thu A. Dang, our Vice President, Finance and Ms. Rita Auld, our Vice President,
Human Resources and Administration.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit No. Description
----------- -----------
3.1 Bylaws of Cytogen Corporation, as amended. Filed as an exhibit to
our Quarterly Report on Form 10-Q for the three-months ended
March 31, 2003, as filed with the Securities and Exchange
Commission on May 14, 2003, and incorporated herein by reference.
10.1 Securities Purchase Agreement by and among Cytogen Corporation
and the Purchasers (as defined therein) dated June 6, 2003. Filed
as an exhibit to our Current Report on Form 8-K, dated June 6,
28
Exhibit No. Description
----------- -----------
2003, filed with the Securities and Exchange Commission on June
9, 2003, and incorporated herein by reference.
10.2 Form of Common Stock Purchase Warrant issued by Cytogen
Corporation in favor of each Purchaser (as defined therein) dated
June 6, 2003. Filed as an exhibit to our Current Report on Form
8-K, dated June 6, 2003, filed with the Securities and Exchange
Commission on June 9, 2003, and incorporated herein by reference.
10.3 Registration Rights Agreement by and among Cytogen Corporation
and the Purchasers dated June 6, 2003. Filed as an exhibit to our
Current Report on Form 8-K, dated June 6, 2003, filed with the
Securities and Exchange Commission on June 9, 2003, and
incorporated herein by reference.
10.4 Securities Purchase Agreement by and among Cytogen Corporation
and the Purchasers (as defined therein) dated July 10, 2003.
Filed as an exhibit to our Current Report Form 8-K, dated July
10, 2003, filed with the Securities and Exchange Commission on
July 11, 2003, and incorporated herein by reference.
10.5 Form of Common Stock Purchase Warrant issued by Cytogen
Corporation in favor of each Purchaser (as defined therein) dated
July 10, 2003. Filed as an exhibit to our Current Report Form
8-K, dated July 10, 2003, filed with the Securities and Exchange
Commission on July 11, 2003, and incorporated herein by
reference.
10.6 Registration Rights Agreement by and among Cytogen Corporation
and the Purchasers dated July 10, 2003. Filed as an exhibit to
our Current Report Form 8-K, dated July 10, 2003, filed with the
Securities and Exchange Commission on July 11, 2003, and
incorporated herein by reference.
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002. Filed herewith.
31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002. Filed herewith.
32 Certification pursuant to 18 U.S.C. Section 1350. Filed herewith.
29
(b) Reports on Form 8-K
On April 9, 2003, we filed a Current Report on Form 8-K, dated
April 8, 2003, under Item 5, with respect to the termination of our
License and Distribution Agreement and Product Manufacturing and Supply
Agreement with Draximage Inc., with respect to both of DRAXIS'
BrachySeed(TM) I-125 and BrachySeed(TM) Pd-103 products.
On May 14, 2003, we furnished a Current Report on Form 8-K,
dated May 14, 2003, under Item 9, containing a copy of our earnings
release for the period ended March 31, 2003 (including financial
statements) pursuant to Item 12 (Results of Operations and Financial
Condition).
On June 9, 2003, we filed a Current Report on Form 8-K, dated
June 6, 2003, under Item 5, announcing that we entered into a
securities purchase agreement with certain institutional investors
pursuant to which we issued and sold 1,052,632 shares of our common
stock at $4.75 per share and issued warrants to such investors to
purchase 315,790 shares of our common stock with an exercise price of
$6.91 per share.
On July 3, 2003, we filed a Current Report on Form 8-K, dated
June 18, 2003, under Item 5, announcing that we issued a joint press
release with Advanced Magnetics, Inc. regarding the publication of
clinical data in the New England Journal of Medicine.
On July 11, 2003, we filed a Current Report on Form 8-K, dated
July 10, 2003, under Item 5, announcing that we entered into a
securities purchase agreement with certain institutional investors
pursuant to which we issued and sold an aggregate of 1,172,332 shares
of our common stock at $8.53 per share and also issued warrants to such
investors to purchase an aggregate of 1,172,332 shares of our common
stock with an exercise price of $12.80 per share.
On July 14, 2003, we filed a Current Report on Form 8-K, dated
July 14, 2003, under Item 5, announcing that we reached certain
agreements with Progenics Pharmaceuticals, Inc. regarding our joint
venture with Progenics.
On July 15, 2003, we filed a Current Report on Form 8-K, dated
July 15, 2003, under Item 5, announcing that we issued a joint press
release regarding presentations made at the International Society for
Magnetic Resonance in Medicine's 11th Scientific Meeting, of data
showing that magnetic resonance with Combidex aids in the non-invasive
diagnosis of metastatic lymph nodes.
30
On August 1, 2003, we filed a Current Report on Form 8-K,
dated August 1, 2003, under Item 5, announcing that we reacquired the
marketing rights held by Berlex Laboratories to Quadramet in North and
Latin America, in exchange for an upfront payment of $8.0 million and
royalties based on future sales.
31
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 14, 2003 By: /s/ Michael D. Becker
-------------------- ------------------------------------
Michael D. Becker
President and Chief Executive Officer
Date: August 14 2003 By /s/ Thu A. Dang
------------------- -------------------------------------
Thu A. Dang
Vice President, Finance
(Principal Financial and Accounting Officer)