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, 2004
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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
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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
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 check mark 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, 2004
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Common Stock, $.01 par value 15,509,293
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, 2004 and
December 31, 2003............................................. 2
Consolidated Statements of Operations for the Three Months and
Six Months Ended June 30, 2004 and 2003....................... 3
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2004 and 2003 ................................. 4
Notes to Consolidated Financial Statements........................ 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 27
Item 4. Controls and Procedures........................................... 27
PART II. OTHER INFORMATION..................................................... 27
Item 1. Legal Proceedings................................................. 27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds....... 29
Item 4. Submission of Matters to a Vote of Security Holders............... 29
Item 5. Other Information................................................. 30
Item 6. Exhibits and Reports on Form 8-K.................................. 31
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,
2004 2003
--------- -----------
ASSETS:
Current assets:
Cash and cash equivalents .................................................... $ 20,900 $ 13,630
Short-term investments ....................................................... 23,940 16,585
Accounts receivable, net ..................................................... 1,946 1,445
Inventories .................................................................. 1,432 1,887
Other current assets ......................................................... 1,130 975
--------- ---------
Total current assets ....................................................... 49,348 34,522
Property and equipment, net .................................................... 747 595
Quadramet license fee, net ..................................................... 7,372 7,720
Other assets ................................................................... 456 858
--------- ---------
$ 57,923 $ 43,695
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of long-term liabilities ..................................... $ 58 $ 76
Accounts payable and accrued liabilities ..................................... 4,002 5,125
--------- ---------
Total current liabilities .................................................. 4,060 5,201
--------- ---------
Long-term liabilities .......................................................... 2,457 2,454
--------- ---------
Commitments and Contingencies
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,
15,434,211 and 12,857,488 shares issued and outstanding
at June 30, 2004 and December 31, 2003, respectively ....................... 155 129
Additional paid-in capital ................................................... 425,655 401,649
Accumulated deficit .......................................................... (374,404) (365,738)
--------- ---------
Total stockholders' equity ................................................. 51,406 36,040
--------- ---------
$ 57,923 $ 43,695
========= =========
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,
-------------------- --------------------
2004 2003 2004 2003
-------- -------- -------- --------
REVENUES:
Product related:
Quadramet ..................................... $ 1,616 $ - $ 3,470 $ -
ProstaScint ................................... 2,312 1,599 4,039 3,219
Others ........................................ - 98 1 363
-------- -------- -------- --------
Total product revenues .................. 3,928 1,697 7,510 3,582
Quadramet royalties ........................... - 465 - 914
-------- -------- -------- --------
Total product related revenues .......... 3,928 2,162 7,510 4,496
License and contract .......................... 24 164 43 307
-------- -------- -------- --------
Total revenues .......................... 3,952 2,326 7,553 4,803
-------- -------- -------- --------
OPERATING EXPENSES:
Cost of product related revenues ................ 2,396 900 4,795 1,810
Selling, general and administrative ............. 4,914 2,967 8,805 5,366
Research and development ........................ 541 718 1,345 1,530
Equity in loss of joint venture ................. 542 1,086 1,351 1,966
-------- -------- -------- --------
Total operating expenses ................ 8,393 5,671 16,296 10,672
-------- -------- -------- --------
Operating loss .......................... (4,441) (3,345) (8,743) (5,869)
INTEREST INCOME .................................. 106 23 170 59
INTEREST EXPENSE .................................. (49) (46) (93) (93)
-------- -------- -------- --------
Loss before income taxes ................ (4,384) (3,368) (8,666) (5,903)
INCOME TAX BENEFIT ................................ - - - (584)
-------- -------- -------- --------
NET LOSS .......................................... $ (4,384) $ (3,368) $ (8,666) $ (5,319)
======== ======== ======== ========
BASIC AND DILUTED NET LOSS PER SHARE .............. $ (0.30) $ (0.37) $ ((0.63) $ (0.60)
======== ======== ======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING ........ 14,848 9,051 13,859 8,909
======== ======== ======== ========
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,
-------------------------
2004 2003
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................... $ (8,666) $ (5,319)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization .......................... 534 306
Stock-based compensation expenses ...................... 11 502
Amortization of deferred revenue ....................... - (192)
Non-cash interest income ............................... 28 -
Loss on disposition of assets .......................... 3 -
Write down of property and equipment ................... 100 -
Changes in assets and liabilities:
Receivables, net ..................................... (501) 488
Inventories .......................................... 455 (767)
Other assets ......................................... 247 (293)
Accounts payable, accrued liabilities and
other liabilities ................................... (1,127) (574)
-------- --------
Net cash used in operating activities .................. (8,916) (5,849)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ........................... (371) (2)
Increase in short-term investments ............................ (7,383) -
-------- --------
Net cash used in investing activities .................. (7,754) (2)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ........................ 24,021 4,739
Payment of long-term liabilities .............................. (81) (84)
-------- --------
Net cash provided by financing activities .............. 23,940 4,655
-------- --------
Net increase (decrease) in cash and cash equivalents .......... 7,270 (1,196)
Cash and cash equivalents, beginning of period ................ 13,630 14,725
-------- --------
Cash and cash equivalents, end of period ...................... $ 20,900 $ 13,529
======== ========
Supplemental disclosure of non-cash information:
Capital leases of equipment................................. $ 70 $ -
======== ========
Supplemental disclosure of cash information:
Cash paid for interest...................................... $ 93 $ 93
======== ========
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
Founded in 1980, Cytogen Corporation (the "Company" or "Cytogen") of
Princeton, New Jersey is a product-driven, oncology-focused biopharmaceutical
company that develops and commercializes a balanced portfolio of oncology
products that address the unmet medical needs of patients and the physicians
that serve them. The Company directly markets Quadramet(TM) (samarium Sm-153
lexidronam injection), ProstaScint(R) (capromab pendetide) kit for the
preparation of Indium In-111 capromab pendetide and NMP22(R) BladderChek(R)
(nuclear matrix protein 22) in the United States. The Company has exclusive
United States marketing rights to Combidex(R) (ferumoxtran-10), an
investigational molecular imaging agent consisting of iron oxide nanoparticles
for use in conjunction with magnetic resonance imaging to aid in the
differentiation of cancerous from non-cancerous lymph nodes, which is under
review by the U.S. Food and Drug Administration (the "FDA"). The Company is also
developing therapeutics targeting prostate-specific membrane antigen ("PSMA"), a
protein highly expressed on the surface of prostate cancer cells and the
neovasculature of solid tumors.
Cytogen has had a history of operating losses since its inception. The
Company currently relies on two products, ProstaScint and Quadramet, for
substantially all of its revenues. In addition, the Company has, from time to
time, stopped selling certain products, such as OncoScint(R) CR/OV and the
BrachySeed(TM) products, that the Company previously expected 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, maintaining and
expanding product approvals. In addition, the Company relies on collaborative
partners to a significant degree to, among other things, manufacture its
products, secure raw materials, and 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 financial statements
of Cytogen and its subsidiaries. All intercompany balances and transactions have
been eliminated in consolidation.
BASIS OF PRESENTATION
The consolidated financial statements and notes thereto of Cytogen are
unaudited and include all adjustments, which in the opinion of management, are
necessary to present fairly the financial condition and results of operations as
of and for the periods set forth in the Consolidated Balance Sheets,
Consolidated Statements of Operations and Consolidated Statements of Cash Flows.
All such accounting adjustments are of a normal, recurring nature. The
consolidated financial statements do not include all of the information and
5
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, filed with the Securities and Exchange Commission, which includes
financial statements as of and for the year ended December 31, 2003. 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.
SHORT-TERM INVESTMENTS
Short-term investments at June 30, 2004 and December 31, 2003 were
$23.9 million and $16.6 million, respectively, and consisted of investments in
U.S. government agency notes. The Company has the ability and intent to hold
these investments until maturity. Held-to-maturity investments are recorded at
amortized cost, adjusted for the accretion of discounts or premiums. Discounts
or premiums are accreted into interest income over the life of the related
investment on a straight-line basis. Dividend and interest income are recognized
when earned. These investments mature at various times through April 15, 2005.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," if
indicators of impairment exist, management assesses the recoverability of the
affected long-lived assets by determining whether the carrying value of such
assets can be recovered through undiscounted future operating cash flows and
eventual disposition of the asset. If impairment is indicated, management
measures the amount of such impairment by comparing the carrying value of the
assets to the present value of the expected future cash flows associated with
the use of the asset.
During the second quarter of 2004, the Company recorded a non-cash
charge of $100,000 for equipment impairment associated with the planned closure
of the facilities at the Company's AxCell BioSciences subsidiary in July 2004
(see Note 7, "Subsequent Event"). This charge is included in selling, general
and administrative expenses for the three and six month periods ended June 30,
2004 in the accompanying consolidated statement of operations.
COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES
In accordance with the SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," the Company is required to record a liability
for costs associated with an exit or disposal activity, measured at fair value,
in the period in which the liability is incurred. A liability related to
one-time termination benefits provided to severed employees as a result of the
exit or disposal activity will be recorded when certain criteria have been met
and the employees are notified of the details of the plan. A liability for costs
6
to terminate a lease or other contract before the end of its term shall be
recognized and measured at its fair value when the Company terminates the
contract in accordance with the contract terms. If the contract is an operating
lease, the fair value of the liability at the cease-use date shall be determined
based on the remaining lease rentals, reduced by estimated sublease rentals that
could be reasonably obtained for the property, even if the Company does not
intend to enter into a sublease.
In July 2004, as part of our continuing effort to reduce non-strategic
expenses, the Company initiated a closure of facilities at the Company's AxCell
BioSciences subsidiary, which will be accounted for pursuant to SFAS No. 146
(see Note 7, "Subsequent Event").
INVENTORIES
The Company's inventories are primarily related to ProstaScint.
Inventories are stated at the lower of cost or market using the first-in,
first-out method and consisted of the following (all amounts in thousands):
JUNE 30, 2004 DECEMBER 31, 2003
------------- -----------------
Raw materials........................... $ - $ 11
Work-in-process......................... 1,229 1,089
Finished goods.......................... 203 787
--------- ---------
$ 1,432 $ 1,887
========= =========
NET LOSS PER SHARE
Basic net loss per common share is calculated by dividing net loss by
the weighted average common shares outstanding during each period. Diluted net
loss per common share is the same as basic net loss per share for each of the
three and six month periods ended June 30, 2004 and 2003 because the inclusion
of common stock equivalents, which consist of warrants and options to purchase
shares of the Company's common stock, would be antidilutive due to the Company's
losses.
VARIABLE INTEREST ENTITIES
In December 2003, the Financial Accounting Standards Board ("FASB")
issued FASB Interpretation No. 46 (revised December 2003) ("FIN 46R"),
"Consolidation of Variable Interest Entities" ("VIEs"), which addresses how a
business enterprise should evaluate whether it has a controlling financial
interest in an entity through means other than voting rights and accordingly
should consolidate the entity. FIN 46R replaced FASB Interpretation No. 46 ("FIN
46") which was issued in January 2003. The Company is required to apply FIN 46R
to variable interests in VIEs created after December 31, 2003. For variable
interests in VIEs created before January 1, 2004, FIN 46R applied beginning on
March 31, 2004. For any VIEs that must be consolidated under FIN 46R that were
created before January 1, 2004, the assets, liabilities and noncontrolling
interests of the VIE initially are measured at their carrying amounts with any
difference between the net amount added to the balance sheet and any previously
recognized interest being recognized as the cumulative effect of an accounting
change. If determining the carrying amounts is not practicable, fair value at
7
the date FIN 46R first applies may be used to measure the assets, liabilities
and noncontrolling interest of the VIE.
In June 1999, Cytogen entered into a joint venture with Progenics
Pharmaceuticals Inc. ("Progenics," and collectively with Cytogen, the
"Members"), to form the PSMA Development Company LLC (the "Joint Venture"). The
Joint Venture is currently developing antibody-based and vaccine
immunotherapeutic products utilizing Cytogen's exclusively licensed
prostate-specific membrane antigen ("PSMA") technology. The Joint Venture is
owned equally by the Members (see Note 2, "Equity Loss in the PSMA Development
Company LLC"). Cytogen accounts for the Joint Venture using the equity method of
accounting.
The Company believes it is not required to consolidate the Joint
Venture under the requirements of FIN 46R.
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 SFAS No. 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 as follows (all amounts in thousands, except
per share data):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- ----------------------
2004 2003 2004 2003
---- ---- ---- ----
Net loss, as reported............................. $(4,384) $(3,368) $ (8,666) $ (5,319)
Add: Stock-based employee compensation
expense included in reported net loss ......... - - 11 1
Deduct: Total stock-based employee
compensation expense determined under
fair value-based method for all awards......... (341) (361) (574) (712)
------- ------- -------- --------
Pro forma net loss................................ $(4,725) $(3,729) $ (9,229) $ (6,030)
======= ======= ======== ========
Basic and diluted net loss per
share, as reported............................. $ (0.30) $ (0.37) $ (0.63) $ (0.60)
======= ======= ======== ========
Pro forma basic and diluted net
loss per share................................. $ (0.32) $ (0.41) $ (0.67) $ (0.68)
======= ======= ======== ========
8
RECLASSIFICATION
Certain amounts in prior years' consolidated financial statements have
been reclassified to conform to the current year presentation.
2. EQUITY LOSS IN THE PSMA DEVELOPMENT COMPANY LLC
In June 1999, Cytogen entered into a joint venture with Progenics to
form the PSMA Development Company LLC. The Joint Venture is owned equally by
Cytogen and Progenics. Cytogen accounts for the Joint Venture using the equity
method of accounting. Cytogen has recognized 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 provided an
agreement between the Members is reached on research program goals and budgets
for periods after 2004 and the Joint Venture's operations are funded. In 2004,
the Members each expect to provide $4.2 million in funding for the development
of the PSMA technologies through the Joint Venture. Cytogen has funded $950,000
as of June 30, 2004 and an additional $1.0 million in July 2004 of its $4.2
million commitment. The Members have not committed to fund the Joint Venture
beyond December 31, 2004 at this time, except for obligations under existing
contractual commitments as of that date.
For the three months ended June 30, 2004 and 2003, Cytogen recognized
$542,000 and $1.1 million, respectively, of the Joint Venture's losses. For the
six months ended June 30, 2004 and 2003, Cytogen recognized $1.4 million and
$2.0 million, respectively, of the Joint Venture's losses. As of June 30, 2004
and December 31, 2003, the carrying value of Cytogen's investment in the Joint
Venture was $148,000 and $550,000, respectively, which represents Cytogen's
investment to date in the Joint Venture less its cumulative share of losses and
is recorded in other assets. Selected financial statement information of the
Joint Venture is as follows (all amounts in thousands):
BALANCE SHEET DATA:
JUNE 30, DECEMBER 31,
2004 2003
---------- --------------
Cash ........................................................ $ 523 $ 1,173
Prepaid expenses............................................. 31 -
Accounts receivable from Progenics, a related party.......... - 108
-------- --------
Total assets......................................... $ 554 $ 1,281
======== ========
Accounts payable to Progenics, a related party............... $ 14 $ -
Other accounts payable and accrued expenses.................. 260 199
-------- --------
Total liabilities.................................... 274 199
-------- --------
Capital contributions........................................ 21,298 19,398
Accumulated deficit.......................................... (21,018) (18,316)
-------- --------
Total stockholders' equity........................... 280 1,082
-------- --------
Total liabilities and stockholders' equity........... $ 554 $ 1,281
======== ========
9
INCOME STATEMENT DATA:
THREE SIX
MONTHS ENDED MONTHS ENDED FOR THE PERIOD
JUNE 30, JUNE 30, FROM JUNE 15, 1999
---------------------- ----------------------- (INCEPTION) TO
2004 2003 2004 2003 JUNE 30, 2004
---------- --------- ---------- ---------- ------------------
Interest income.............. $ 2 $ 1 $ 5 $ 1 $ 239
Total expenses............... 1,086 2,173 2,707 3,932 21,257
--------- --------- --------- --------- ---------
Net loss..................... $ (1,084) $ (2,172) $ (2,702) $ (3,931) $ (21,018)
========= ========= ========= ========= =========
3. BRISTOL-MYERS SQUIBB MEDICAL IMAGING, INC.
As a result of the Company's reacquisition of marketing rights to
Quadramet from Berlex Laboratories Inc. ("Berlex") in August 2003, the Company
assumed all of Berlex's obligations under a manufacturing and supply agreement
with Bristol-Myers Squibb Medical Imaging, Inc. ("BMSMI"). Effective January 1,
2004, the Company entered into a new manufacturing and supply agreement with
BMSMI whereby BMSMI manufactures, distributes and provides order processing and
customer services for Cytogen relating to Quadramet. Under the terms of the new
agreement, Cytogen is obligated to pay at least $4.2 million annually through
2008, unless terminated by BMSMI or Cytogen on two years prior written notice.
This agreement will automatically renew for five successive one-year periods
unless terminated by BMSMI or Cytogen on two years prior written notice. During
the three and six month periods ended June 30, 2004, Cytogen incurred $1.0
million and $2.1 million, respectively, of manufacturing costs for Quadramet,
all of which is included in cost of product related revenues. The Company also
pays BMSMI a variable amount per month for each order of Quadramet placed to
cover the costs of customer service, which is included in selling, general and
administrative expenses.
4. LITIGATION AND OTHER RELATED MATTERS
On March 17, 2000, the Company was served with a complaint filed
against us in the United States District Court for the District of New Jersey by
M. David Goldenberg and Immunomedics, Inc. (collectively "Plaintiffs"). The
litigation claims that the Company's ProstaScint product infringes a patent
purportedly owned by Goldenberg and licensed to Immunomedics. 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 the Company's products or technology. The
Company believes that ProstaScint did not infringe this patent, and that the
patent was invalid and unenforceable. 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 District
Court denied both parties' summary judgment motions, with leave to renew those
motions after presenting expert testimony and legal argument based upon that
testimony. The parties subsequently presented expert testimony and submitted
additional briefing. On April 29, 2003, the Company's motion for summary
10
judgment of non-infringement of all asserted claims was granted, Plaintiffs'
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 ("Federal
Circuit"), and subsequently filed their opening brief on July 28, 2003. On
September 22, 2003, Cytogen filed its responsive brief. On October 23, 2003,
Plaintiffs filed their reply brief. The appeal was fully briefed and oral
argument was held on March 2, 2004. The Federal Circuit on June 23, 2004 issued
a ruling on the appeal in which it affirmed the District Court's claim
construction ruling and summary judgment of no literal infringement by the
Company. However, the Federal Circuit determined that there was an issue of
material fact as to infringement under the doctrine of equivalents. As a result,
it reversed the District Court's grant of summary judgment of no infringement
under the doctrine of equivalents and remanded the case to the District Court
for further proceedings on this issue. Given the uncertainty associated with
litigation, the Company cannot give any assurance that the litigation could not
result in a material adverse effect on the Company's financial condition,
results of operations or liquidity.
In connection with a recent review of certain of the Company's
intellectual property, it was determined that the Company was the recipient,
beginning in 1998, of correspondence from legal counsel representing the former
employer of Dr. Julius Horoszewicz, the sole inventor on the principal United
States patent covering ProstaScint. Such correspondence alleged that the patent
rights to Dr. Horoszewicz's discoveries were the property of such former
employer and that Dr. Horoszewicz had no right to assign them to the Company.
The Company vigorously disputed those allegations, and the Company has no record
of the matter having been pursued by such former employer subsequent to August
2000. The Company believes that in view of the marketing of the technology
covered by the patent through the sale of ProstaScint by the Company, the
Company's right to use the underlying technology in its continuing production
and sale of ProstaScint should not be at risk. However, if such claims were
reasserted, and if it were to be concluded that Dr. Horoszewicz in fact had no
right to assign the patent to the Company, a court could determine that the
Company has no right to use the technology covered by the patent or that any
royalties paid by or payable by the Company in respect of the use of the patent
should have been paid in the past, and should in the future be payable, to Dr.
Horoszewicz's former employer in lieu of Dr. Horoszewicz. The amount of any such
payments, and the Company's liability for them, is not presently determinable,
and the Company cannot give any assurance that an adverse determination could
not result in a material expenditure to the Company or have a material adverse
effect on the Company's financial condition, results of operations or liquidity.
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. However,
given the uncertainty associated with litigation, the Company may incur material
expenditures.
11
5. SALE OF COMMON STOCK
In April 2004, the Company issued and sold through a registered
direct offering 2,570,000 shares of its common stock at $10.10 per share,
resulting in net proceeds to the Company of approximately $24.0 million after
the payment of placement agency fees and expenses related to the offering.
6. STOCK INCENTIVE PLANS
At the Company's 2004 Annual Meeting of Stockholders held on June 15,
2004, the stockholders of the Company approved the adoption of the Company's
2004 Stock Incentive Plan (the "2004 Plan") and the Company's 2004 Non-Employee
Director Stock Incentive Plan (the "2004 Director Plan" and together with the
2004 Plan, collectively, the "2004 Incentive Plans"). An aggregate of 1,200,000
and 375,000 shares of the Company's common stock have been reserved for issuance
upon the exercise of option grants or restricted stock awards (as applicable)
under the 2004 Plan and 2004 Director Plan, respectively. The 2004 Plan provides
for the grant of incentive stock options, non-qualified stock options or
restricted stock to the Company's employees, officers, consultants and advisors.
The 2004 Director Plan provides for the grant of non-qualified stock options and
shares of the Company's common stock, in certain circumstances, to members of
the Company's Board of Directors who are not employees of the Company. The
Company intends to file a registration statement on Form S-8 with the Securities
and Exchange Commission to register the shares of the Company's common stock
underlying option grants or other awards under the 2004 Incentive Plans.
Furthermore, upon approval of the 2004 Incentive Plans by our stockholders, no
further option grants or awards were, or will be, made under the Company's
existing 1995 Stock Option Plan or 1999 Non-Employee Director Stock Option Plan.
Any unissued and unallocated options previously reserved under these plans were
released from reserves.
7. SUBSEQUENT EVENT
Planned Closure of AxCell BioSciences Facilities
In July 2004, the Company initiated the closure of the facilities at
its AxCell BioSciences subsidiary as part of the Company's continuing efforts to
reduce non-strategic expenses. As a result of the closure, the Company will
record additional charges in the third quarter of 2004 related to employee
severance costs and the potential charge for future rental payments on leased
facilities that will no longer be used in operations. Research projects through
academic, governmental and corporate collaborators will continue to be supported
and additional applications for the intellectual property and technology at
AxCell are being pursued.
12
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements regarding future events and our future results are
based on current expectations, estimates, forecasts, and projections and the
beliefs and assumptions of our management including, without limitation, our
expectations regarding results of operations, selling, general and
administrative expenses, research and development expenses and the sufficiency
of our cash for future operations. Forward-looking statements may be identified
by the use of forward-looking terminology such as "may," "will," "expect,"
"estimate," "anticipate," "continue," or similar terms, variations of such terms
or the negative of those terms. These forward-looking statements include
statements regarding our intent to hold our investments until maturity,
additional funding of the PSMA technologies, potential charges resulting from
the closure of AxCell Biosciences, growth and market penetration for Quadramet
and ProstaScint, revenues, if any, from NMP22 BladderChek and from our joint
venture with Progenics Pharmaceuticals Inc., increased expenses resulting from
our sales force and marketing expansion, including sales and marketing expenses
for Quadramet, the sufficiency of our capital resources, our need for additional
capital and other statements included in this Quarterly Report on Form 10-Q that
are not historical facts. Such forward-looking statements involve a number of
risks and uncertainties and investors are cautioned not to put any undue
reliance on any forward-looking statement. We cannot guarantee that we will
actually achieve the plans, intentions or expectations disclosed in any such
forward-looking statements. Factors that could cause actual results to differ
materially, include, market acceptance of our products, the results of our
clinical trials, our ability to hire and retain employees, economic and market
conditions generally, our receipt of requisite regulatory approvals for our
products and product candidates, the continued cooperation of our marketing and
other collaborative and strategic partners, our ability to protect our
intellectual property, and the other risks identified in our Annual Report on
Form 10-K for the year ended December 31, 2003 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.
Any forward-looking statements made by us do not reflect the potential
impact of any future acquisitions, mergers, dispositions, joint ventures or
investments we may make. We do not assume, and specifically disclaim, any
obligation to update any forward-looking statements, and these statements
represent our current outlook only as of the date given.
The following discussion and analysis should be read in conjunction
with the consolidated financial statements and related notes thereto contained
elsewhere herein, as well as in our Annual Report on Form 10-K for the year
ended December 31, 2003 and from time to time in our other filings with the
Securities and Exchange Commission.
OVERVIEW
Founded in 1980, Cytogen Corporation of Princeton, New Jersey is a
product-driven, oncology-focused biopharmaceutical company that develops and
commercializes a balanced portfolio of oncology products that address the unmet
13
medical needs of patients and the physicians that serve them. We directly market
Quadramet(TM) (samarium Sm-153 lexidronam injection), ProstaScint(R) (capromab
pendetide) kit for the preparation of Indium In-111 capromab pendetide and
NMP22(R) BladderChek(R) (nuclear matrix protein 22) in the United States. We
have exclusive United States marketing rights to Combidex(R) (ferumoxtran-10),
an investigational molecular imaging agent consisting of iron oxide
nanoparticles for use in conjunction with magnetic resonance imaging to aid in
the differentiation of cancerous from non-cancerous lymph nodes, which is under
review by the U.S. Food and Drug Administration. We are also developing
therapeutics targeting prostate-specific membrane antigen (PSMA), a protein
highly expressed on the surface of prostate cancer cells and the neovasculature
of solid tumors. Full prescribing information for our products is available at
www.cytogen.com or by calling 1-800-833-3533. ProstaScint(R) and OncoScint(R)
are registered United States trademarks of Cytogen Corporation. We are the owner
of a pending United States trademark application, Serial No. 78374967, relating
to Quadramet. All other trade names, trademarks or servicemarks appearing in
this Quarterly Report on Form 10-Q are the property of their respective owners,
and not the property of Cytogen Corporation or any of our subsidiaries.
SIGNIFICANT EVENTS IN 2004
ADDITION TO SENIOR MANAGEMENT
In April 2004, Thomas S. Lytle joined the Company as Senior Vice
President of Sales and Marketing. Mr. Lytle has over 25 years of experience in
the pharmaceutical industry and has held senior level positions at Amgen, Inc.,
Pfizer and Lederle Laboratories. At Cytogen, Mr. Lytle is responsible for
overseeing strategic sales and marketing initiatives for our existing and future
oncology products.
CAPITAL RAISING
In April 2004, we issued and sold 2,570,000 shares of our common stock
for $10.10 per share through a registered direct offering resulting in net
proceeds of approximately $24.0 million after the payment of placement agency
fees and expenses related to the offering. The shares in this transaction were
registered under our existing shelf registration statement on Form S-3, which
was declared effective by the Securities and Exchange Commission on October 30,
2003.
PATENT INFRINGEMENT LITIGATION UPDATE
In June 2004, we announced a ruling by the U.S. Court of Appeals for
the Federal Circuit regarding the recent decision of the U.S. District Court for
the District of New Jersey in a patent infringement suit filed by Immunomedics,
Inc. The U.S. Court of Appeals for the Federal Circuit determined that the
district court correctly construed the claims and, under that construction, our
ProstaScint product was not an "intracellular marker substance," and affirmed
the district court's grant of summary judgment of no literal infringement.
Regarding infringement under the doctrine of equivalents, however, the U.S.
Court of Appeals for the Federal Circuit disagreed with the district court's
conclusion that there is no issue of material fact and reversed the district
court's grant of summary judgment on this point and remanded for further
proceedings on the issue.
14
ADVANCED MAGNETICS SUBMITS RESPONSE TO APPROVABLE LETTER FOR COMBIDEX
In June 2004, Advanced Magnetics, Inc. and Cytogen announced that
Advanced Magnetics submitted a response to the approvable letter received from
the U.S. Food and Drug Administration for Combidex, Advanced Magnetics'
investigational molecular imaging agent to aid in the non-invasive diagnosis of
metastatic lymph nodes that Cytogen will market upon receipt of all appropriate
regulatory approvals. In response to the submission, the FDA requested that
Advanced Magnetics provide certain additional details underlying the existing
supporting data submitted. The FDA subsequently communicated that the data
Advanced Magnetics is in the process of gathering, look encouraging to provide a
complete response to the approvable letter.
PLANNED CLOSURE OF AXCELL BIOSCIENCES FACILITIES
In July 2004, as part of our continuing efforts to reduce non-
strategic expenses, we initiated the closure of facilities at our AxCell
BioSciences subsidiary. As a result of the closure, we will record additional
charges in the third quarter 2004 related to employee severance costs and the
potential charge for future rental payments on leased facilities that will no
longer be used in operations. Research projects through academic, governmental
and corporate collaborators will continue to be supported and additional
applications for the intellectual property and technology at AxCell are being
pursued.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2004 AND 2003
REVENUES
INCREASE/(DECREASE)
2004 2003 $ %
---- ---- --------- -------
(ALL AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)
Quadramet
Product Sales (commenced August 2003)..... $ 1,616 $ - $ 1,616 n/a
Royalties (ceased July 2003).............. - 465 (465) (100)%
ProstaScint................................. 2,312 1,599 713 45%
NMP22 BladderChek........................... - 98 (98) (100)%
License and Contract........................ 24 164 (140) (85)%
-------- -------- --------
$ 3,952 $ 2,326 $ 1,626 70%
======== ======== ========
Total revenues for the second quarter of 2004 were $4.0 million
compared to $2.3 million for the same period in 2003. Product related revenues,
which include product sales and royalties in 2003, accounted for 99% and 93% of
total revenues for the second quarters of 2004 and 2003, respectively. License
and contract revenues accounted for the remainder of revenues.
QUADRAMET. Cytogen recorded Quadramet sales of $1.6 million for the
second quarter of 2004 compared to $465,000 of Quadramet royalty revenue during
the second quarter of 2003. Quadramet sales and royalties accounted for 41% and
22% of product related revenues for the second quarters of 2004 and 2003,
15
respectively. Berlex Laboratories marketed Quadramet in the United States
through July 31, 2003. On August 1, 2003, we reacquired marketing rights to
Quadramet from Berlex and began marketing Quadramet through our internal
specialty sales force. Effective upon the reacquisition of such marketing
rights, we no longer receive royalty revenue from Berlex for Quadramet and we
pay royalties to Berlex on our sales of Quadramet. On August 1, 2003, we began
recognizing product revenue from our sales of Quadramet. Currently, we market
Quadramet only in the United States and have no rights to market Quadramet in
Europe. We believe that the future growth and market penetration of Quadramet is
dependent upon, among other things: (i) new clinical data supporting the
expanded and earlier use of Quadramet in various cancers; (ii) novel research
supporting combination uses with other therapies, such as chemotherapeutics and
bisphosphonates; and (iii) establishing the use of Quadramet at higher doses to
target and treat primary bone cancers. We cannot provide any assurance that we
will be able to successfully market Quadramet or that Quadramet will achieve
greater market penetration on a timely basis or result in significant revenues
for us.
PROSTASCINT. ProstaScint sales were $2.3 million for the second quarter
of 2004, an increase of $713,000 from $1.6 million in the second quarter of
2003. Sales of ProstaScint accounted for 59% and 74% of product related revenues
for the second quarters of 2004 and 2003, respectively. We believe that such
increase in ProstaScint sales is due to a combination of factors. First, we
believe that customer demand for ProstaScint has increased due to our focused
marketing programs and a higher ProstaScint reimbursement value established for
2004 compared to 2003 that appropriately accounts for the cost of the
ProstaScint kit, requisite radioisotope, and compounding costs. Furthermore, we
identified new distribution channels to better accommodate customer needs.
Finally, for the first time in several years, we implemented price increases for
both ProstaScint and Quadramet in late June 2004, while limiting the quantities
of ProstaScint that could be purchased by distributors at the pre-increase
price. ProstaScint has historically been a challenging product for physicians
and technologists to use, in part due to inherent limitations in nuclear
medicine imaging. We believe that future growth and market penetration of
ProstaScint is dependent upon, among other things, the implementation and
continued research relating to advances in imaging technology, new product
applications and the validation of PSMA as an independent prognostic indicator.
We cannot provide any assurance that we will be able to successfully market
ProstaScint, or that ProstaScint will achieve greater market penetration on a
timely basis or result in significant revenues for us.
NMP22 BLADDERCHEK. There were no sales of NMP22 BladderChek during the
second quarter of 2004 compared to $98,000 in the second quarter of 2003. We
began promoting NMP22 BladderChek to both urologists and oncologists in the
United States in November 2002 using our internal sales force. On October 30,
2003, we entered into an amended and restated distribution agreement with
Matritech whereby, effective November 8, 2003, we had the right to
non-exclusively market NMP22 BladderChek to urologists through December 31, 2003
and have the right to exclusively market NMP22 BladderChek to oncologists
through December 31, 2004. We do not expect that sales of NMP22 BladderChek will
result in significant revenues for us.
LICENSE AND CONTRACT REVENUES. License and contract revenues were
$24,000 and $164,000 for the second quarters of 2004 and 2003, respectively.
Under SAB 101, which we adopted in 2000, license revenues from certain up-front,
non-refundable license fees previously recognized were deferred and were being
amortized over the estimated performance period. During the second quarter of
16
2003, we recognized $96,000 of previously deferred license revenue. The deferred
revenue was fully recognized as of December 31, 2003. During the second quarter
of 2004, we recognized $15,000 of contract revenues compared to $53,000 in the
second quarter of 2003 for limited research and development services provided by
us to the PSMA Development Company LLC, our joint venture with Progenics
Pharmaceuticals Inc. We expect that the level of future revenues for the
remainder of 2004, if any, for contract services provided to the joint venture
may vary and will depend upon the extent of research and development services
required by the joint venture.
OPERATING EXPENSES
INCREASE/(DECREASE)
2004 2003 $ %
---- ---- --------- --------
(ALL AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)
Cost of product related revenues............. $ 2,396 $ 900 $ 1,496 166%
Selling, general and administrative.......... 4,914 2,967 1,947 66%
Research and development..................... 541 718 (177) (25)%
Equity in loss of joint venture.............. 542 1,086 (544) (50)%
-------- -------- --------
$ 8,393 $ 5,671 $ 2,722 48%
======== ======== ========
Total operating expenses for the second quarter of 2004 were $8.4
million compared to $5.7 million in the same quarter of 2003.
COST OF PRODUCT RELATED REVENUES. Cost of product related revenues for
the second quarter of 2004 were $2.4 million compared to $900,000 in the same
period of 2003. The increase from the prior year period is due primarily to our
assumption, in August 2003, of the responsibility for manufacturing costs for
Quadramet including contractual increases in 2004 related to our new agreement
with Bristol Myers Squibb Medical Imaging, royalties to Berlex on our sales of
Quadramet and the amortization of the up-front payment to Berlex to reacquire
Quadramet.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses for the second quarter of 2004 were $4.9 million
compared to $3.0 million in the same period of 2003. The increase from the prior
year period is due primarily to the expansion of our sales force and the
implementation of other marketing initiatives for our existing products,
including Quadramet, which we reacquired from Berlex in August 2003. As of
August 1, 2004, we employed 38 people in sales and marketing. The employees in
sales and marketing included 8 Clinical Oncology Specialists and 22 Regional and
Territory Managers. By comparison, we had 31 employees in sales and marketing as
of December 31, 2003. We anticipate that expenditure levels will continue to
increase as we continue this expansion.
RESEARCH AND DEVELOPMENT. Research and development expenses for the
second quarter of 2004 were $541,000 compared to $718,000 in the same period of
2003. The current year expenses reflect the reduction in certain research
activities at AxCell, which were partially offset by our increased product
development efforts in support of new and expanded uses for Quadramet and
ProstaScint. During the second quarter of 2004 and 2003, we incurred $167,000
and $357,000, respectively, in expenses relating to AxCell's operations.
17
EQUITY IN LOSS OF JOINT VENTURE. Our share of the loss of the PSMA
Development Company LLC, our joint venture with Progenics, was $542,000 and $1.1
million during the second quarters of 2004 and 2003, respectively. Such amounts
represented 50% of the joint venture's operating losses. We may incur
significant and increasing costs in the future to fund our share of the
development costs from the joint venture, although we cannot provide any
assurance that any further agreements between us and Progenics will be reached
regarding the joint venture.
INTEREST INCOME/EXPENSE. Interest income for the second quarter of 2004
was $106,000 compared to $23,000 in the same period of 2003. The increase in
2004 from the prior year period was due to higher average cash balances in 2004.
Interest expense for the second quarter of 2004 was $49,000 compared to $46,000
in the same period of 2003. Interest expense includes interest on outstanding
debt and finance charges related to various equipment leases that are accounted
for as capital leases.
NET LOSS. Net loss for the second quarter of 2004 was $4.4 million
compared to $3.4 million reported in the second quarter of 2003. The basic and
diluted net loss per share for the second quarter of 2004 was $0.30 based on
14.8 million weighted average common shares outstanding, compared to a basic and
diluted net loss per share of $0.37 based on 9.1 million weighted average common
shares outstanding for the same period in 2003.
SIX MONTHS ENDED JUNE 30, 2004 AND 2003
REVENUES
INCREASE/(DECREASE)
-----------------------
2004 2003 $ %
---- ---- --------- ---------
(ALL AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)
Quadramet
Product Sales (commenced August 2003)............ $ 3,470 $ - $ 3,470 n/a
Royalties (ceased July 2003)..................... - 914 (914) (100)%
ProstaScint.......................................... 4,039 3,219 820 25%
NMP22 BladderChek.................................... 1 123 (122) (99)%
BrachySeed (ceased January 2003)..................... - 240 (240) (100)%
License and Contract................................. 43 307 (264) (86)%
-------- -------- -------
$ 7,553 $ 4,803 $ 2,750 57%
======== ======== ========
Total revenues for the first half of 2004 were $7.6 million compared
to $4.8 million for the same period in 2003. Product related revenues, which
include product sales and royalties, accounted for 99% and 94% of total revenues
for the first half of 2004 and 2003, respectively. License and contract revenues
accounted for the remainder of revenues.
QUADRAMET. Cytogen recorded Quadramet sales of $3.5 million for the
first half of 2004 compared to $914,000 of Quadramet royalty revenue during the
first half of 2003. Quadramet sales and royalties accounted for 46% and 20% of
product related revenues for such periods, respectively. Berlex Laboratories
marketed Quadramet in the United States through July 31, 2003. On August 1,
2003, we reacquired marketing rights to Quadramet from Berlex and began
marketing Quadramet through our internal specialty sales force. Effective upon
18
the reacquisition of such marketing rights, we no longer receive royalty revenue
from Berlex for Quadramet and we pay royalties to Berlex on our sales of
Quadramet. On August 1, 2003, we began recognizing product revenue from our
sales of Quadramet. Currently, we market Quadramet only in the United States and
have no rights to market Quadramet in Europe. We believe that the future growth
and market penetration of Quadramet is dependent upon, among other things: (i)
new clinical data supporting the expanded and earlier use of Quadramet in
various cancers; (ii) novel research supporting combination uses with other
therapies, such as chemotherapeutics and bisphosphonates; and (iii) establishing
the use of Quadramet at higher doses to target and treat primary bone cancers.
We cannot provide any assurance that we will be able to successfully market
Quadramet or that Quadramet will achieve greater market penetration on a timely
basis or result in significant revenues for us.
PROSTASCINT. ProstaScint sales were $4.0 million for the first half
of 2004, an increase of $820,000 from $3.2 million in the first half of 2003.
Sales of ProstaScint accounted for 54% and 72% of product related revenues for
such periods, respectively. We believe that such increase in ProstaScint sales
is due to a combination of factors. First, we believe that customer demand for
ProstaScint has increased due to our focused marketing programs and a higher
ProstaScint reimbursement value established for 2004 compared to 2003 that
appropriately accounts for the cost of the ProstaScint kit, requisite
radioisotope, and compounding costs. Furthermore, we identified new distribution
channels to better accommodate customer needs. Finally, for the first time in
several years, we implemented price increases for both ProstaScint and Quadramet
in late June 2004, while limiting the quantities of ProstaScint that could be
purchased by distributors at the pre-increase price. ProstaScint has
historically been a challenging product for physicians and technologists to use,
in part due to inherent limitations in nuclear medicine imaging. We believe that
future growth and market penetration of ProstaScint is dependent upon, among
other things, the implementation and continued research relating to advances in
imaging technology, new product applications and the validation of PSMA as an
independent prognostic indicator. We cannot provide any assurance that we will
be able to successfully market ProstaScint, or that ProstaScint will achieve
greater market penetration on a timely basis or result in significant revenues
for us.
NMP22 BLADDERCHEK. NMP22 BladderChek sales during the first half of
2004 were $1,000 compared to $123,000 in the same period in 2003. We began
promoting NMP22 BladderChek to both urologists and oncologists in the United
States in November 2002 using our internal sales force. On October 30, 2003, we
entered into an amended and restated distribution agreement with Matritech
whereby, effective November 8, 2003, we had the right to non-exclusively market
NMP22 BladderChek to urologists through December 31, 2003 and have the right to
exclusively market NMP22 BladderChek to oncologists through December 31, 2004.
We do not expect that sales of NMP22 BladderChek will result in significant
revenues for us.
BRACHYSEED. There were no BrachySeed sales during the first half of
2004 compared to $240,000 during the first half of 2003, which represented 5% of
product related revenues. Effective January 24, 2003, we stopped accepting and
filling new orders for the BrachySeed products.
LICENSE AND CONTRACT REVENUES. License and contract revenues were
$43,000 and $307,000 for the first half of 2004 and 2003, respectively. Under
SAB 101, which we adopted in 2000, license revenues from certain up-front,
19
non-refundable license fees previously recognized were deferred and were being
amortized over the estimated performance period. During the first half of 2003,
we recognized $193,000 of previously deferred license revenue. The deferred
revenue was fully recognized as of December 31, 2003. During the first half of
2004, we recognized $28,000 of contract revenues compared to $100,000 in the
first half of 2003 for limited research and development services provided by us
to the PSMA Development Company LLC, our joint venture with Progenics
Pharmaceuticals Inc. We expect that the level of future revenues for the
remainder of 2004, if any, for contract services provided to the joint venture
may vary and will depend upon the extent of research and development services
required by the joint venture.
OPERATING EXPENSES
INCREASE/(DECREASE)
---------------------
2004 2003 $ %
--------- --------- --------- --------
(ALL AMOUNTS IN THOUSANDS, EXCEPT PERCENTAGE DATA)
Cost of product related revenues............. $ 4,795 $ 1,810 $ 2,985 165%
Selling, general and administrative.......... 8,805 5,366 3,439 64%
Research and development..................... 1,345 1,530 (185) (12)%
Equity in loss of joint venture.............. 1,351 1,966 (615) (31)%
-------- -------- --------
$ 16,296 $ 10,672 $ 5,624 53%
======== ======== ========
Total operating expenses for the first half of 2004 were $16.3 million
compared to $10.7 million in the same period of 2003.
COST OF PRODUCT RELATED REVENUES. Cost of product related revenues for
the first half of 2004 were $4.8 million compared to $1.8 million in the same
period of 2003. The increase from the prior year period is due primarily to our
assumption, in August 2003, of the responsibility for manufacturing costs for
Quadramet including contractual increases in 2004 related to our new agreement
with Bristol Myers Squibb Medical Imaging, royalties to Berlex on our sales of
Quadramet and the amortization of the up-front payment to Berlex to reacquire
Quadramet. The increase is partially offset by lower costs associated with our
discontinuation of BrachySeed products in January 2003.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses for the first half of 2004 were $8.8 million compared to
$5.4 million in the same period of 2003. The increase from the prior year period
is due primarily to the expansion of our sales force and the implementation of
other marketing initiatives for our existing products, including Quadramet,
which we reacquired from Berlex in August 2003. As of August 1, 2004, we
employed 38 people in sales and marketing. The employees in sales and marketing
included 8 Clinical Oncology Specialists and 22 Regional and Territory Managers.
By comparison, we had 31 employees in sales and marketing as of December 31,
2003. We anticipate that expenditure levels will continue to increase as we
continue this expansion.
RESEARCH AND DEVELOPMENT. Research and development expenses for the
first half of 2004 were $1.3 million compared to $1.5 million in the same period
of 2003. The current year expenses reflect the reduction in certain research
activities at AxCell, which were partially offset by our increased product
development efforts in support of new and expanded uses for Quadramet and
20
ProstaScint. During the first half of 2004 and 2003, we incurred $418,000 and
$807,000, respectively, in expenses relating to AxCell's operations.
EQUITY IN LOSS OF JOINT VENTURE. Our share of the loss of the PSMA
Development Company LLC, our joint venture with Progenics, was $1.4 million
during the first half of 2004 compared to $2.0 million in the same period of
2003 and represented 50% of the joint venture's operating losses. We may incur
significant and increasing costs in the future to fund our share of the
development costs from the joint venture, although we cannot provide any
assurance that any further agreements between us and Progenics will be reached
regarding the joint venture.
INTEREST INCOME/EXPENSE. Interest income for the first half of 2004 was
$170,000 compared to $59,000 in the same period of 2003. The increase in 2004
from the prior year period was due to higher average cash balances in 2004.
Interest expense was $93,000 for each of the first halves of 2004 and 2003.
Interest expense includes interest on outstanding debt and finance charges
related to various equipment leases that are accounted for as capital leases.
INCOME TAX BENEFIT. During the first half of 2003, we sold a portion of
our New Jersey state net operating losses and research and development credit
carryforwards, which resulted in the recognition of $584,000 in income tax
benefit. No such sales occurred in the first half of 2004. Assuming the State of
New Jersey continues to fund this program, which is uncertain, the future amount
of net operating losses and research and development credit carryforwards which
we may sell will also depend upon the allocation among qualifying companies of
an annual pool established by the State of New Jersey.
NET LOSS. Net loss for the first half of 2004 was $8.7 million compared
to $5.3 million reported in the first half of 2003. The basic and diluted net
loss per share for the first half of 2004 was $0.63 based on 13.9 million
weighted average common shares outstanding, compared to a basic and diluted net
loss per share of $0.60 based on 8.9 million weighted average common shares
outstanding for the same period in 2003.
21
COMMITMENTS
We have entered into various contractual obligations and commercial
commitments. The following table summarizes our contractual obligations as of
June 30, 2004 (all amounts in thousands):
LESS
THAN 1 TO 3 4 TO 5 MORE THAN
1 YEAR YEARS YEARS 5 YEARS TOTAL
-------- ------- -------- --------- -------
Long-term debt(1) ................................. $ - $ 2,280 $ - $ - $ 2,280
Capital lease obligations.......................... 58 39 16 - 113
Facility leases.................................... 567 849 113 - 1,529
Other.............................................. 10 16 1 - 27
Manufacturing and research and
development contracts(2) ......................... 4,494 4,447 200 750 9,891
Investor relations and consulting services......... 492 - - - 492
Capital contribution to joint venture(3) .......... 3,250 - - - 3,250
Minimum royalty payments(4)........................ 1,314 2,000 2,000 4,333 9,647
------- ------- ------- ------- -------
Total........................................ $10,185 $ 9,631 $ 2,330 $ 5,083 $27,229
======= ======= ======= ======= =======
(1) In August 1998, we received $2.0 million from Elan Corporation, plc in
exchange for a convertible promissory note. The note is convertible
into shares of our common stock at $28 per share, subject to
adjustments, and matures in August 2005. The note bears annual
interest of 7%, compounded semi-annually, however, such interest was
not payable in cash but was added to the principal through August
2000; thereafter, interest is payable in cash. The note contains
certain non-financial covenants, with which we were in compliance as
of June 30, 2004.
(2) As a result of the August 2003 reacquisition of marketing rights to
Quadramet, we assumed all of Berlex's obligations under a manufacturing
and supply agreement with BMSMI, including an obligation to pay
manufacturing costs. Effective January 1, 2004, we entered into a new
manufacturing and supply agreement with BMSMI whereby BMSMI
manufactures, distributes and provides order processing and customer
services for us relating to Quadramet. Under the terms of the new
agreement, we are obligated to pay at least $4.2 million annually
through 2008, unless terminated by BMSMI or us on a two year prior
written notice. This agreement will automatically renew for five
successive one-year periods unless terminated by BMSMI or us on a
two-year prior written notice. Accordingly, we have not included
commitments beyond June 30, 2006.
(3) In 2004, each of Cytogen and Progenics expects to provide $4.2 million
in funding for the development of the PSMA technologies through our
joint venture with Progenics. Cytogen has funded $950,000 as of June
30, 2004 and an additional $1.0 million in July 2004 of its $4.2
million commitment. Cytogen and Progenics have not yet committed to
fund the joint venture beyond December 31, 2004 at this time, except
for obligations under existing contractual commitments as of that date.
We may incur significant and increasing costs in the future to fund our
share of the development costs from the joint venture, although we
cannot be sure that any further agreements between us and Progenics
will be reached regarding the joint venture.
(4) We acquired an exclusive license from The Dow Chemical Company for
Quadramet for the treatment of osteoblastic bone metastases in certain
territories. The agreement requires us to pay Dow royalties based on a
percentage of net sales of Quadramet, or a guaranteed contractual
minimum payment, whichever is greater, and future payments upon
achievement of certain milestones. Future annual minimum royalties due
to Dow are $1.0 million per year in 2004 through 2012 and $833,000 in
2013.
22
In addition to the above, we are obligated to make certain royalty payments
based on sales of the related product and certain milestone payments if our
collaborative partners achieve specific development milestones or commercial
milestones.
LIQUIDITY AND CAPITAL RESOURCES
CONDENSED STATEMENT OF CASH FLOWS:
2004
-------------
(ALL AMOUNTS IN THOUSANDS)
Net loss........................................ $ (8,666)
Adjustment to reconcile net loss to net cash
used in operating activities................ (250)
-----------
Net cash used in operating activities........... (8,916)
Net cash used in investing activities........... (7,754)
Net cash provided by financing activities....... 23,940
-----------
Net increase in cash and cash equivalents....... $ 7,270
===========
OVERVIEW
Our cash and cash equivalents were $20.9 million as of June 30, 2004,
compared to $13.6 million as of December 31, 2003. The increase in cash and cash
equivalents from the December 31, 2003 balance was primarily due to our receipt
of net proceeds of approximately $24.0 million from a registered direct offering
of our common stock in April 2004, offset by increased operating expenditures in
2004, including costs to manufacture, promote and support our existing oncology
products and to expand our internal sales force. During the first half of 2004
and 2003, net cash used for operating activities was $8.9 million and $5.8
million, respectively. In 2004, we expect operating expenditures to increase
over 2003 levels.
As of June 30, 2004, our total cash, cash equivalents and short-term
investments were $44.8 million compared to $30.2 million as of December 31,
2003.
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.
Our financial objectives are to meet our capital and operating
requirements through revenues from existing products and licensing arrangements.
To achieve these objectives, we may enter into research and development
partnerships and acquire, in-license and develop other technologies, products or
services. Certain of these strategies may require payments by us in either cash
or stock in addition to the costs associated with developing and marketing a
product or technology. However, we believe that, if successful, such strategies
may increase long-term revenues. 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.
23
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 2007. 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.
2004 CAPITAL RAISING
In April 2004, we sold 2,570,000 shares of our common stock to certain
institutional investors for $10.10 per share through a registered direct
offering, resulting in net proceeds of approximately $24.0 million after the
payment of placement agency fees and expenses related to the offering.
OTHER LIQUIDITY EVENTS
In 2003, we reacquired the marketing rights to Quadramet from Berlex.
Accordingly, effective August 1, 2003, we began recording all revenue from sales
of Quadramet. Effective upon the reacquisition of such marketing rights, we no
longer receive royalty revenue from Berlex and pay Berlex royalties on our sales
of Quadramet. As a result of the reacquisition, we assumed all of Berlex's
obligations under a manufacturing and supply agreement with BMSMI. Effective
January 1, 2004, we entered into a new manufacturing and supply agreement with
BMSMI whereby BMSMI manufactures, distributes and provides order processing and
24
customer services for us relating to Quadramet. Under the terms of the new
agreement, we are obligated to pay at least $4.2 million annually through 2008,
unless terminated by BMSMI or us on two years prior written notice. For the
first half of 2004, we incurred $2.1 million of manufacturing costs for
Quadramet. This agreement will automatically renew for five successive one-year
periods unless terminated by BMSMI or us on a two year prior written notice. We
also pay BMSMI a variable amount per month for each Quadramet order placed to
cover the costs of customer service. In addition, we expect our Quadramet sales
and marketing expenses to increase in 2004.
Beginning in December 2001, we began to equally share the costs of the
joint venture with Progenics. Cytogen and Progenics each expect to provide
funding of $4.2 million in 2004. Cytogen has funded $950,000 as of June 30, 2004
and an additional $1.0 million in July 2004 of its $4.2 million commitment.
Cytogen and Progenics have not committed to fund the joint venture beyond
December 31, 2004 at this time, except for obligations under existing
contractual commitments as of that date. We may incur significant and increasing
costs in the future to fund our share of the development costs from the joint
venture although we cannot provide any assurance that any further agreements
between us and Progenics will be reached regarding the joint venture. Any
funding amount in subsequent periods may vary dependent upon, among other
things, the results of the clinical trials and research and development
activities, competitive and technological developments, and market
opportunities.
We acquired an exclusive license from The Dow Chemical Company for
Quadramet for the treatment of osteoblastic bone metastases in certain
territories. The agreement requires us to pay Dow royalties based on a
percentage of net sales of Quadramet, or a guaranteed contractual minimum
payment, whichever is greater, and future payments upon achievement of certain
milestones. Future annual minimum royalties due to Dow are $1.0 million per year
in 2004 through 2012 and $833,000 in 2013.
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, 2003 includes a
summary of our significant accounting policies and methods used in the
preparation of our Consolidated Financial Statements. The following is a brief
discussion of the more significant accounting policies and methods used by us.
The preparation of our Consolidated Financial Statements requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Our actual results could differ materially from
those estimates.
REVENUE RECOGNITION
Product related revenues include product sales by Cytogen to its
customers and Quadramet royalties. Product sales are recognized when the
customer takes ownership and assumes risk of loss, and when the collection of
the relevant receivable is probable, persuasive evidence of an agreement exists
25
and the sales price is fixed and determinable. Product sales are recorded net of
discounts, rebates and estimated allowances for product returns based on our
historical experience and any specific product return issues that we may have
identified.
Prior to the reacquisition of marketing rights to Quadramet from our
marketing partner, Berlex Laboratories, in August 2003, we recognized royalty
revenue on Quadramet sales made by Berlex during each period as Berlex sold the
product. As a result of our reacquisition, effective August 1, 2003, we began
recognizing revenue from the sales of Quadramet and no longer receive Quadramet
royalty revenue.
License and contract revenues include milestone payments and fees under
collaborative agreements with third parties, revenues from research services,
and revenues from other miscellaneous sources.
In 2003, Staff Accounting Bulletin No. 104, "Revenue Recognition"
replaced Staff Accounting Bulletin No. 101, "Revenue Recognition In Financial
Statements," which the Company adopted in 2000. The provisions related to
non-refundable, up-front license fees were unchanged in SAB 104 compared to SAB
101. Accordingly, we defer non-refundable, up-front license fees and recognize
them over the estimated performance period of the related agreement, when we
have continuing involvement. Since the term of 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
26
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
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.
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, 2004, 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. However, downward changes in interest rates could expose
us to market risk associated with our fixed interest rate debt.
ITEM 4 - CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Our management,
with the participation of our chief executive officer and chief financial
officer, evaluated the effectiveness of our disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June
30, 2004. 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 chief financial officer concluded
that, as of June 30, 2004, 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
chief financial 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, 2004 that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 17, 2000, we were served with a complaint filed against us in
the United States District Court for the District of New Jersey by M. David
Goldenberg and Immunomedics, Inc. (collectively "Plaintiffs"). The litigation
claims that our ProstaScint product infringes a patent purportedly owned by
27
Goldenberg and licensed to Immunomedics. 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 our products or technology. We believe that ProstaScint did not
infringe this patent, and that the patent was invalid and unenforceable. On
December 17, 2001, we 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 District Court denied both parties' summary judgment motions, with
leave to renew those motions after presenting expert testimony and legal
argument based upon that testimony. The parties subsequently presented expert
testimony and submitted additional briefing. On April 29, 2003, our motion for
summary judgment of non-infringement of all asserted claims was granted,
Plaintiffs' 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
("Federal Circuit"), and subsequently filed their opening brief on July 28,
2003. On September 22, 2003, we filed our responsive brief. On October 23, 2003,
Plaintiffs filed their reply brief. The appeal was fully briefed and oral
argument was held on March 2, 2004. The Federal Circuit on June 23, 2004 issued
a ruling on the appeal in which it affirmed the District Court's claim
construction ruling and summary judgment of no literal infringement by Cytogen.
However, the Federal Circuit determined that there was an issue of material fact
as to infringement under the doctrine of equivalents. As a result, it reversed
the District Court's grant of summary judgment of no infringement under the
doctrine of equivalents and remanded the case to the District Court for further
proceedings on this issue. Given the uncertainty associated with litigation, we
cannot give any assurance that the litigation could not result in a material
adverse effect on the Company's financial condition, results of operations or
liquidity.
In connection with a recent review of certain of our intellectual
property, it was determined that we were the recipient, beginning in 1998, of
correspondence from legal counsel representing the former employer of Dr. Julius
Horoszewicz, the sole inventor on the principal United States patent covering
ProstaScint. Such correspondence alleged that the patent rights to Dr.
Horoszewicz's discoveries were the property of such former employer and that Dr.
Horoszewicz had no right to assign them to us. We vigorously disputed those
allegations, and we have no record of the matter having been pursued by such
former employer subsequent to August 2000. We believe that in view of the
marketing of the technology covered by the patent through the sale of
ProstaScint by us, our right to use the underlying technology in our continuing
production and sale of ProstaScint should not be at risk. However, if such
claims were reasserted, and if it were to be concluded that Dr. Horoszewicz in
fact had no right to assign the patent to us, a court could determine that we
have no right to use the technology covered by the patent or that any royalties
paid by or payable by us in respect of the use of the patent should have been
paid in the past, and should in the future be payable, to Dr. Horoszewicz's
former employer in lieu of Dr. Horoszewicz. The amount of any such payments, and
our liability for them, is not presently determinable, and we cannot give any
assurance that an adverse determination could not result in a material
expenditure to us or have a material adverse effect on our financial condition,
results of operations or liquidity.
In addition, we have 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
28
ProstaScint. However, given the uncertainty associated with litigation, we may
incur material expenditures.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
CHANGES IN SECURITIES
The following information relates to all of the securities sold by us
within the past quarter that were not registered under the securities laws at
the time of grant, issuance and/or sale:
OPTION GRANTS
During the second quarter of 2004, we granted stock options pursuant to
our 2004 Stock Incentive Plan and 2004 Non-Employee Director Stock Incentive
Plan, both of which were approved by our stockholders at our Annual Meeting of
Stockholders on June 15, 2004. Such options were not registered under the
Securities Act of 1933, as amended, or the Securities Act. The Company intends
to file a registration statement on Form S-8 with the Securities and Exchange
Commission to register the shares of the Company's common stock underlying
option grants or other awards under the 2004 Stock Incentive Plan and 2004
Non-Employee Director Stock Incentive Plan. All of such option grants were
granted at the then current fair value of the common stock. The following table
sets forth certain information regarding such grants during the quarter:
Number Weighted Average
Plan of Shares Exercise Price Per Share
---- --------- ------------------------
2004 Stock Incentive Plan.............. 160,000 $11.50
2004 Non-Employee Director Stock
Incentive Plan................... 147,500 $11.51
We did not employ an underwriter in connection with the issuance of the
securities described above. We believe that the issuance of the foregoing
securities was exempt from registration under either (i) Section 4(2) of the
Securities Act as transactions not involving any public offering and such
securities having been acquired for investment and not with a view to
distribution, or (ii) Rule 701 under the Securities Act as transactions made
pursuant to a written compensatory benefit plan or pursuant to a written
contract relating to compensation. All recipients had adequate access to
information about the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 15, 2004, we held our Annual Meeting of Stockholders to: (i)
elect eight directors; (ii) consider and vote upon a proposal to adopt the
Company's 2004 Stock Incentive Plan; (iii) consider and vote upon a proposal to
adopt the Company's 2004 Non-Employee Director Stock Incentive Plan; and (iv)
transact such other business as may come before the meeting.
There were represented at the our annual meeting, either in person or
by proxy 13,552,506 shares of our common stock out of a total number of
15,214,249 shares of common stock issued and outstanding and entitled to vote at
the meeting.
29
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 proposals relating to our 2004 Stock Incentive Plan and 2004
Non-Employee Director Stock Incentive 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.
(i) Election of Directors:
BROKER NON-
NOMINEES FOR WITHHELD ABSTENTIONS VOTES
---------------------- ---------- ----------- ----------- -----------
James A. Grigsby 13,241,502 311,004 N/A N/A
Michael D. Becker 13,298,108 254,398 N/A N/A
John E. Bagalay, Jr. 11,755,093 1,797,413 N/A N/A
Allen Bloom 13,202,905 349,601 N/A N/A
Stephen K. Carter 13,299,637 252,869 N/A N/A
Robert F. Hendrickson 13,209,732 342,774 N/A N/A
Kevin G. Lokay 13,204,050 348,456 N/A N/A
H. Joseph Reiser 13,237,927 314,579 N/A N/A
(ii) Proposal to approve the adoption of our 2004 Stock Incentive Plan:
BROKER NON-
FOR AGAINST ABSTENTIONS VOTES
--------------- ---------------- --------------- --------------
4,052,703 2,708,281 40,910 6,750,612
(iii) Proposal to approve the adoption of our 2004 Non-Employee
Director Stock Incentive Plan:
BROKER NON-
FOR AGAINST ABSTENTIONS VOTES
--------------- ---------------- --------------- --------------
3,896,138 2,864,779 40,977 6,750,612
ITEM 5. OTHER INFORMATION
On April 14, 2004, Thomas S. Lytle joined Cytogen as our Senior Vice
President of Sales and Marketing. On June 15, 2004, we entered into a Change of
Control Severance Agreement, in the form we utilize with our executive officers,
with Mr. Lytle.
30
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit No. Description
----------- -----------
10.1 Cytogen Corporation 2004 Stock Incentive Plan. Filed
herewith.
10.2 Cytogen Corporation 2004 Non-Employee Director Stock
Incentive Plan. Filed herewith.
31.1 Certification of President and Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Filed herewith.
31.2 Certification of Senior Vice President and Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002. Filed herewith.
32.1 Certification of President and Chief Executive Officer
pursuant to 18 U.S.C. Section 1350. Filed herewith.
32.2 Certification of Senior Vice President and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350. Filed herewith.
(b) Reports on Form 8-K
On April 14, 2004, we filed a Current Report on Form 8-K disclosing
correspondence related to the technology underlying our ProstaScint product.
On April 15, 2004, we filed a Current Report on Form 8-K relating to
our sale and issuance of 2,570,000 shares of our common stock to certain
investors.
On May 4, 2004, we furnished a Current Report on Form 8-K dated May
4, 2004, containing a copy of our earnings release for the period ended March
31, 2004 (including financial statements) pursuant to Item 12 (Results of
Operations and Financial Condition).
On June 25, 2004, we filed a Current Report on Form 8-K relating to
Advanced Magnetics, Inc.'s submission of a response to the approvable letter
received from the United States Food and Drug Administration for Combidex.
On August 5, 2004, we furnished a Current Report on Form 8-K dated
August 5, 2004, containing a copy of our earnings release for the period ended
June 30, 2004 (including financial statements) pursuant to Item 12 (Results of
Operations and Financial Condition).
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 9, 2004 By: /s/ Michael D. Becker
--------------------------------------------
Michael D. Becker
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 9, 2004 By: /s/ Christopher P. Schnittker
-------------------------------------------
Christopher P. Schnittker
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)