UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
___________________
FORM
10-K
(Mark One)
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x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
fiscal year ended December 31,
2007
OR
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¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
transition period from _____________ to _____________
Commission File Number
000-14879
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(Exact
Name of Registrant as Specified in Its
Charter)
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Delaware
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22-2322400
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(State
or Other Jurisdiction of
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(I.R.S.
Employer Identification No.)
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Incorporation
or Organization)
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650
College Road East, Suite 3100
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Princeton,
New Jersey
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08540
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(Address
of Principal Executive Offices)
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(Zip
Code)
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Registrant's
telephone number, including area code:
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(609)
750-8200
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Securities
registered pursuant to Section 12(b) of the
Act:
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Title
of Each Class
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Name
of Each Exchange on
which
Registered
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Common
Stock, $0.01 par value per share
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The
NASDAQ
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Stock
Market LLC
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Securities
registered pursuant to Section 12(g) of the
Act:
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Preferred Stock
Purchase Rights, $0.01 par value per
share
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes ¨ No x
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes¨ No x
Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yesx
No¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
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Large
Accelerated Filer
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Accelerated
Filer
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Non-
Accelerated Filer
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Smaller
Reporting Company
x
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
Yes ¨ No x
The
aggregate market value of the registrant's voting shares of Common Stock held by
non-affiliates of the registrant on June 30, 2007, based on $1.95 per share, the
last reported sale price on the NASDAQ Global Market on that date, was
$69,075,531.
The
number of shares of Common Stock, $.01 par value, of the registrant outstanding
as of March 9, 2008 was 35,570,836 shares.
The
following documents are incorporated by reference into this Annual Report on
Form 10-K: portions of the registrant's definitive Proxy Statement for its 2008
Annual Meeting of Stockholders are incorporated by reference into Part III
hereof.
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1B.
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2.
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64
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5.
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65
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6.
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68
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7A.
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91
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8.
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9.
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92
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9A.
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9B.
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108
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F-1
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Cytogen
Corporation, a Delaware corporation, is referred to as “we”, “us” or “our” in
this report.
This
Annual Report contains forward-looking statements, which can be identified by
the use of forward-looking terminology such as, "believe," "expect," "may,"
"plan," "estimate," "intend," "will," "should," "potential" or "anticipate" or
the negative thereof, or other variations thereof, or comparable terminology, or
by discussions of strategy. No assurance can be given that the future
results covered by such forward-looking statements will be
achieved. The matters set forth in Item 1A. Risk Factors
constitute cautionary statements identifying important factors with respect to
such forward-looking statements, including certain risks and uncertainties that
could cause actual results, events or developments to differ materially from
those indicated in such forward-looking statements. All information
in this Annual Report on Form 10-K is as of March 14, 2008. We
undertake no obligation to update this information to reflect events after the
date of this report.
CAPHOSOL®,
QUADRAMET® (samarium
Sm-153 lexidronam injection) and PROSTASCINT® (capromab
pendetide) are registered United States trademarks of Cytogen
Corporation. Other trademarks and trade names used in this Annual
Report are the property of their respective owners.
CAPHOSOL
(supersaturated calcium phosphate rinse) is an advanced electrolyte solution for
the treatment of oral mucositis and dry mouth that is approved in the U.S. as a
prescription medical device.
We are
sponsoring or supporting certain clinical investigations to explore potential
new indications for the use of QUADRAMET and PROSTASCINT. This
Annual Report contains discussions that include investigational clinical
applications that differ from those reported in the package inserts for
QUADRAMET and PROSTASCINT and have not been reviewed or approved by the U.S.
Food and Drug Administration, FDA. QUADRAMET is indicated for the
relief of pain in patients with confirmed osteoblastic metastatic bone lesions
that enhance on a radionuclide bone scan. PROSTASCINT is approved for
marketing in the United States in two clinical settings: (i) as a diagnostic
imaging agent in newly diagnosed patients with biopsy-proven prostate cancer
thought to be clinically localized after standard diagnostic evaluation and who
are at high risk for spread of their disease to pelvic lymph nodes; and (ii) for
use in post-prostatectomy patients with a rising PSA and a negative or equivocal
standard metastatic evaluation in whom there is a high clinical suspicion of
occult metastatic disease.
A copy of
the full prescribing information for CAPHOSOL, QUADRAMET and PROSTASCINT in the
United States may be obtained from us by calling us toll free at 800-833-3533 or
by visiting our website at www.cytogen.com. Our
website is not part of this Annual Report on Form 10-K.
We
maintain www.cytogen.com to provide information to the general public and our
stockholders on our products, as well as general information on Cytogen and its
management, strategy, career opportunities, financial results and press
releases. Copies of our most recent Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, and other reports filed with the Securities and
Exchange Commission, or the SEC, can be obtained, free of charge as soon as
reasonably practicable after such material is electronically filed with, or
furnished to the SEC,
from our
Investor Relations Department by calling 609-750-8213, through the Investor
Relations page on our website at www.cytogen.com or directly from the SEC's
website at www.sec.gov. Our
website and the information contained therein or connected thereto are not
intended to be incorporated into this Annual Report on Form 10-K.
We were
incorporated in Delaware on March 3, 1980 under the name Hybridex, Inc. and
changed our name to Cytogen Corporation on April 1, 1980. Our
executive offices are located at 650 College Road East, Suite 3100, Princeton,
New Jersey, 08540, and our telephone number is 609-750-8200.
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Business
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We are a
specialty pharmaceutical company dedicated to advancing the treatment and care
of cancer patients by building, developing, and commercializing a portfolio of
oncology products for underserved markets where there are unmet
needs. Our product portfolio includes two therapeutic and one
diagnostic products approved by the United States Food and Drug Administration
("FDA"), CAPHOSOL®,
QUADRAMET®, and
PROSTASCINT®, which
are marketed solely by our specialized sales force. We introduced
CAPHOSOL in the first quarter of 2007. CAPHOSOL is an advanced
electrolyte solution for the treatment of oral mucositis and dry mouth that was
approved as a prescription medical device. QUADRAMET is approved for
the treatment of pain in patients whose cancer has spread to the
bone. PROSTASCINT is a
prostate-specific membrane antigen or PSMA, targeting monoclonal antibody-based
agent to image the extent and spread of prostate cancer. Currently,
our clinical development initiatives are focused on: generation of
additional data on the effects of CAPHOSOL in treating patients receiving cancer
therapies known to put them at risk for development of oral mucositis and
xerostomia, generation of data regarding the safety and efficacy of QUADRAMET
when administered in combination with other cancer treatments such as
chemotherapy and radiation therapy and generation of data regarding various
clinical outcomes observed following determination of the location and extent of
prostate cancer based on PROSTASCINT imaging.
In 2003,
we realigned our corporate direction to focus on building a successful oncology
franchise with a specialized commercial infrastructure equipped to deliver
sustainable value. To that end, we have established a commercial
presence in the U.S., which targets both medical and radiation
oncology. We believe marketing proprietary specialty oncology
products directly, as opposed to receiving royalties on sales by licensees, will
enable us to build a growth-oriented oncology business. Because there
is a limited number of leading cancer clinics across the U.S., we believe our
highly trained and focused sales team can effectively market a complementary
product offering to a broad market segment. Our sales and marketing
infrastructure has played a critical role in our ability to add new
commercial-stage products to our portfolio. Further, we believe the
commercial arm of our business is highly scalable and can readily support new
product opportunities through modest capital investments.
Strategy
and Approach
Our
strategy focuses on growing our business organically and through in-licensing
initiatives. It revolves around three key priorities:
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Expanding our near- and
long-term revenues. We have implemented an in-licensing program to
broaden our revenue base with product opportunities that are complementary
to our commercial presence in oncology. In October 2006, we
acquired the commercial rights to CAPHOSOL from InPharma A/S, or
InPharma.
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Maximizing the market
potential of our approved products through data-driven
initiatives. A data-driven strategy is
underway to enhance the market opportunities for our products within their
currently approved indications. During 2007 we launched a
multi-site patient registry designed to evaluate the use of CAPHOSOL in
patients with a variety of cancers receiving treatments that put them at
risk for development of oral mucositis. We are supporting post-marketing
studies for QUADRAMET to optimize its potential as a safe, effective,
non-narcotic option for the palliation of pain from cancers that have
spread to the bone. We are also advancing initiatives to
position PROSTASCINT as an important tool for managing the care of
prostate cancer. Recent progress includes: (i) the
publication of new data in the American Cancer Society's peer-reviewed
journal, Cancer,
demonstrating repeated dosing of QUADRAMET to be a safe and effective
treatment option for patients with recurrent painful bone metastases; (ii)
the expanded inclusion of PROSTASCINT within the National Comprehensive
Cancer Network's, or NCCN clinical practice guidelines to include patients
with recurrent disease; and (iii) the publication of seven-year survival
data in the American Brachytherapy Society's peer-reviewed journal, Brachytherapy,
demonstrating the potential for PROSTASCINT fusion imaging to help
determine patient-specific treatment regimens for prostate cancer patients
undergoing brachytherapy.
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Building long-term
sustainability. We are focused on maintaining a balanced
specialty portfolio through three key imperatives: (i)
evaluating new indications for our marketed products; (ii) accessing
product candidates complementary to our commercial presence; and (iii)
monetizing assets that are no longer a strategic fit and realigning our
investment on projects that are in line with our business
objectives. Our 2007 progress includes the presentation of data
for QUADRAMET in combination with bortezomib for relapsed multiple
myeloma, presentation of Phase 1 data for QUADRAMET in combination with
docetaxel for patients with castrate metastatic prostate cancer and
presentation of QUADRAMET in combination with radiation and chemotherapy
for patients with osteosarcoma.
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On March
11, 2008, the Company announced that it has entered into a definitive merger
agreement with EUSA Pharma Inc., pursuant to which all outstanding shares of the
Company will be converted into $0.62 per share in cash, which represents a
premium of approximately 35% over the closing price of $0.46 on March 10,
2008. EUSA Pharma is a transatlantic specialty pharmaceutical company
focused on oncology, pain control and critical care.
Closing
of the merger is conditioned on, among other things, the receipt of approval by
holders of a majority of the outstanding shares of Cytogen’s common stock, and
the parties entrance into a sublicense agreement for the European and Asian
rights to the Company’s Caphosol product. It is also subject to
certain regulatory review and other customary closing conditions. The
transaction is expected to close in the second quarter of 2008. Upon
closing of the merger, EUSA Pharma intends to apply to delist all of Cytogen’s
issued shares from the NASDAQ Stock Market.
If we are
unable to consummate the merger with EUSA, we will need to raise additional
capital in the second quarter of 2008. If we are unable to raise additional
financing, we will be required to reduce our capital expenditures, scale back
our sales and marketing or research and development plans, reduce our workforce,
license to others products or technologies we would otherwise seek to
commercialize ourselves, sell certain assets, cease operations or declare
bankruptcy. There can be no assurance that we can obtain equity financing, if at
all, on terms acceptable to us. 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 clinical stage and marketed products;
(iii) progress in our product development efforts and the magnitude and
scope of such efforts; (iv) progress with clinical trials;
(v) progress with regulatory affairs activities; (vi) the cost of
filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights; (vii) competing technological and market
developments; and (viii) the expansion of strategic alliances for the
sales, marketing, manufacturing and distribution of our products. To the extent
that the currently available funds and revenues are insufficient to meet current
or planned operating requirements, we will be required to obtain additional
funds through equity or debt financing, strategic alliances with corporate
partners and others, or through other sources. We cannot assure you that the
financial sources described above will be available when needed or at terms
commercially acceptable to us. If adequate funds are not available, we may be
required to delay, further scale back or eliminate certain aspects of our
operations or attempt to obtain funds through arrangements with collaborative
partners or others that may require us to relinquish rights to certain of our
technologies, product candidates, products or potential markets. If adequate
funds are not available, our business, financial condition and results of
operations will be materially and adversely affected.
Marketed
Products
CAPHOSOL
Overview
CAPHOSOL
is an advanced electrolyte solution indicated in the U.S. as an adjunct to
standard oral care in treating oral mucositis caused by radiation or high dose
chemotherapy. It is also indicated for dryness of the mouth or
dryness of the throat regardless of the cause or whether the conditions are
temporary or permanent. CAPHOSOL is approved in the U.S. as a
prescription medical device.
We
acquired the exclusive commercial rights for CAPHOSOL in North America from
InPharma in October 2006 in exchange for aggregate up-front payments totaling
$6.0 million, which includes a $200,000 payment payable in 2008 contingent upon
certain conditions, future royalties on product sales, and sales-based milestone
payments. We are also obligated to pay royalties on net sales to
certain other licensors and a finder's fee based on a percentage of milestone
payments made to InPharma. We also obtained options to acquire the
rights to CAPHOSOL for the European and Asian markets, which we only intend to
exercise in connection with obtaining a commercial partner for those
areas. We will be required to obtain consents from certain other
licensors but not InPharma, if we sublicense the rights to market CAPHOSOL in
Europe and Asia to other parties. In the event we exercise the
options to license marketing rights for CAPHOSOL for the European and Asian
markets, we would be obligated to
pay
InPharma additional fees, including sales-based milestone payments, and
royalties on net sales to certain other licensors for the respective
territories. Pursuant to the merger agreement between EUSA and us
dated March 10, 2008, EUSA will sublicense the marketing rights to Europe and
Asia, subject to the approval of certain other licensors and not
InPharma.
On August
30, 2007, we executed Amendment No. 1 to the license agreement with InPharma
that restructured the amounts payable by us upon the exercise of the option for
European marketing rights. On February 14, 2008, we executed
Amendment No. 2 to the license agreement with InPharma to restructure the
amounts payable by us in connection with the exercise of the options for the
European and Asian marketing rights, as well as the milestone payments and
royalties based on sales levels in North America.
Oral
mucositis
Oral
mucositis is commonly described as one of the most significant and debilitating
acute complications associated with radiation therapy and
chemotherapy. It is estimated to affect more than 400,000 cancer
patients each year occurring in about 40% of patients receiving conventional
chemotherapy, 75% to 85% of bone marrow transplant recipients, and nearly all
patients undergoing radiation therapy for head and neck cancers. Oral
mucositis usually begins seven to 10 days after initiation of cytotoxic therapy,
and remains present for approximately two weeks after cessation of that
therapy.
Oral
mucositis is an oral mucosal change that manifests first by thinning of oral
tissues leading to redness or inflammation of the skin or mucous
membranes. As these tissues continue to thin, ulceration eventually
occurs. In severe cases, oral mucositis can complicate the management
of cancer by leading to interruption or stopping of treatment, which can
negatively impact treatment outcomes.
While
there are a number of agents available for palliating symptoms associated with
oral mucositis, we believe the current market is significantly underserved
thereby presenting us with a promising opportunity to substantially expand our
revenue base.
CAPHOSOL
for oral mucositis
CAPHOSOL
lubricates the mucosa and helps maintain the integrity of the oral cavity
through its mineralizing potential. We believe the distinguishing
feature of CAPHOSOL is its high concentrations of calcium and phosphate ions,
which are hypothesized to exert their beneficial effects by diffusing into
intracellular spaces in the epithelium and permeating the mucosal lesion in
mucositis. Calcium ions may play a crucial role in several aspects of
the inflammatory process, the blood clotting cascade, and tissue
repair. Phosphate ions may be a valuable supplemental source of
phosphates for damaged mucosal surfaces.
In two
single-arm studies evaluating patients receiving hematopoietic stem cell
transplantation or (HSCT) and head and neck radiation therapy, the
CAPHOSOL-based oral health management system was well tolerated and was
associated with an improvement in oral mucositis as compared with previous
controlled studies. These favorable results were the basis for a
prospective, randomized, double-blind, placebo-controlled trial demonstrating
that CAPHOSOL is a significant adjunct in the management of mucositis associated
with high-dose
chemotherapy
and radiation therapy. The trial evaluated 95 patients undergoing
HSCT with the duration and severity of mucositis and requirements for opioid
medications prospectively evaluated. Data demonstrated significant
decreases in days of mucositis (3.72 vs. 7.20 days), maximum (peak) level of
mucositis using the National Institute of Dental and Craniofacial Research or
(NIDCR) scale (median level of 1.0 vs. 3.0), duration of pain (2.86 vs. 7.67
days), dose of morphine (30.46 mg vs. 127.96 mg), and days of morphine (1.26 vs.
4.02 days) for patients receiving CAPHOSOL as compared to those administered a
placebo, respectively. A total of 40% vs. 19% of patients had no
mucositis in the CAPHOSOL and the control arms, respectively. The
lead investigator for the study was Athena Papas, DMD, PhD, Department of Oral
Medicine, Tufts University School of Medicine, Boston MA, and results were
published in the April 2003 issue of the peer-reviewed journal Bone Marrow Transplantation
(Papas et al. Bone Marrow Transplant. 2003 April:31(8):705-12).
During
2007 we launched a multi-site patient registry designed to evaluate the use of
CAPHOSOL in non-transplant patients with a variety of cancers receiving
treatments that put them at risk for development of oral mucositis.
We
believe that CAPHOSOL has all the attributes of the ideal oral mucositis
product: 1) it is relatively inexpensive, 2) it is an easy-to-use oral rinse, 3)
it lacks significant side effects, and 4) it acts locally in the mouth and
therefore has no known systemic effects. Most importantly it has been
demonstrated to significantly reduce the incidence, severity and duration of
painful oral mucositis, unlike most agents which palliate symptoms but do
nothing to limit the underlying causes of oral mucositis. Given these
desirable attributes, we believe CAPHOSOL has potential to become an important
product for the management of cancer-related mucositis.
Dry
mouth
Saliva is
the principle protective mechanism for oral tissues. Any absence of
saliva or alteration in its composition leaves the mouth susceptible to
infection or deterioration. Xerostomia or dry mouth occurs when the
salivary glands do not produce enough saliva. It is a serious oral
health problem that, when left untreated, leads to disease in the oral cavity
and places patients at risk for oral infections. Common complaints
with dry mouth include difficulty in speaking, chewing, and tasting and
swallowing foods. Dry mouth may be caused by a variety of factors,
including cancer treatment with chemotherapy and/or radiation, Sjögren syndrome
and other autoimmune disorders, diabetes, renal dialysis, solid organ and bone
marrow transplant, psychiatric disorders, and use of more than 400
pharmaceutical products known to adversely affect salivary output.
CAPHOSOL
for dry mouth
Saliva is
an important part of the mucosal immune system. CAPHOSOL lubricates
the oral cavity, and its high concentrations of calcium and phosphate ions can
help to maintain the integrity of the teeth. We have initiated
exploratory studies to evaluate the effect of Caphosol on treatment of dry mouth
caused by certain medications used to treat overactive bladder which are known
to be associated with high rates of dry mouth and from which many patients
require reduction in dosage or discontinue treatment entirely primarily as a
result of dry mouth.
Our
products, including CAPHOSOL, are subject to significant regulation by
governmental agencies, including the FDA, as is more fully described below under
the section entitled "Government Regulation". We cannot assure you
that we will be able to successfully market CAPHOSOL for oral mucositis and/or
dry mouth.
QUADRAMET
Overview
QUADRAMET
is an oncology product that pairs the targeting ability of a small molecule,
bone-seeking phosphonate (ethylenediaminetetramethylenephosphonic acid, or
EDTMP) with the therapeutic potential of radiation (samarium
Sm-153). QUADRAMET is indicated for the relief of pain in patients
with confirmed osteoblastic metastatic bone lesions that enhance on a
radionuclide bone scan. We market QUADRAMET to medical and radiation
oncologists in the U.S.
Bone
metastases
It is
estimated that each year more than 100,000 patients in the U.S. develop bone
metastases from spread of their primary cancer. Bone is the third
most common site of metastatic disease after liver and lung, and the spread of
cancer to bone is associated with considerable morbidity. This
includes bone pain and fracture, spinal cord compression, and
hypercalcemia. The incidence of bone metastasis is expected to
increase over the next decade as patient survival improves due to advances in
anticancer therapy. This will make the treatment of this problem more
important in the overall management of the surviving cancer
patient. The majority of skeletal metastases arise from primary
tumors of the thyroid, kidney, lung, prostate, and breast, with the latter two
accounting for about 80% of metastatic bone disease. While all bones
can be affected, the most common site of disease spread is the spine with the
subsequent development of spinal cord compression.
QUADRAMET
for painful bone metastases
Skeletal
invasion by prostate, breast, multiple myeloma, and other cancers often create
an imbalance between the normal process of bone destruction and
formation. QUADRAMET selectively targets such sites of imbalance,
thereby delivering radioactivity directly to areas of the skeleton that have
been invaded by metastatic tumor. QUADRAMET has demonstrated a range
of characteristics that may be advantageous for the treatment of pain arising
from metastatic bone disease. In clinical trials, QUADRAMET
demonstrated significant reductions in pain scores accompanied by reductions in
opioid analgesic use as compared to placebo. Patients who respond to
treatment with QUADRAMET may experience pain relief within the first week
lasting a median of 16 weeks, with maximal relief generally occurring at three
to four weeks after injection. Patients who experience a reduction in
pain may be encouraged to decrease their use of opioid analgesics.
Despite a
favorable safety and efficacy profile, the routine use of QUADRAMET for the
palliation of disseminated painful bone metastases has commonly been reserved
for those patients with end-stage disease when other treatment options have been
exhausted. We believe this practice may have evolved as a result of
experiences with earlier generation
radiopharmaceuticals,
such as strontium-89, which unlike QUADRAMET are associated with prolonged
myelosuppression. In 2007, the American Cancer Society's journal,
Cancer, published new
data from a multi-center Phase 4 study evaluating the safety and efficacy of
repeated doses of QUADRAMET in patients with metastatic bone
pain. This study is the first prospective clinical trial specifically
evaluating the common clinical scenario of patients who initially respond to
QUADRAMET and subsequently become candidates for re-treatment upon the
recurrence of symptoms. More than 200 patients, including more than
50 who received repeated dosing of QUADRAMET participated in the multi-center
study. The results demonstrated that repeated QUADRAMET dosing is a
safe and effective treatment option in patients with painful bone
metastases. The article, "Safety and efficacy of repeat
administration of Samarium Sm-153 lexidoronam to patients with metastatic bone
pain," by A. Oliver Sartor, the lead author and a nationally renowned prostate
cancer specialist with Dana-Farber Cancer Institute's Lank Center for
Genitourinary Oncology, appeared in the February 1, 2007 edition of Cancer 2007; 109:
637-43.
Because
we believe QUADRAMET is underutilized as a pain therapy for patients whose
cancer has spread to the bone, we are advancing numerous clinical and commercial
initiatives to better support QUADRAMET and expand its market potential within
its approved label for pain palliation. In connection with our
reacquisition of the commercial rights to QUADRAMET in 2003, we conducted
detailed market research that formed the foundation of our product growth
strategy. The key components of this strategy are summarized
below.
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·
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Distinguishing the physical
properties of QUADRAMET from earlier generation agents within its
class. We believe the limited use of QUADRAMET for the
palliation of disseminated painful bone metastases has evolved due to the
myelosuppression associated with earlier generation radiopharmaceuticals,
such as strontium-89. While to date, there are no head-to-head
clinical trials comparing QUADRAMET and strontium-89, we believe, there
are several key differentiating features that distinguish QUADRAMET from
strontium-89. First, QUADRAMET's physical half life is 1.9
days, as compared to 50.5 days for strontium-89. A shorter half
life results in a much faster time to deliver the total dose of radiation,
as well as a shorter exposure to radioactivity. In addition,
particle emissions from strontium-89 are significantly higher in energy
compared to QUADRAMET, and higher-energy particles are associated with
larger volumes of marrow exposed to radiation. These key
differences have been highlighted in recent peer-reviewed publications
that our field force can utilize when they present QUADRAMET to health
care providers.
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Empowering and marketing to
key prescribing audiences. We have broadened our
commercial focus and are now introducing QUADRAMET to both medical and
radiation oncologists, as we believe the effective treatment of bone
metastases requires a cooperative effort between the two
specialties. We have retrained and refocused our sales force
with new resources that highlight QUADRAMET's attributes for treating
painful bone metastases, such as its rapid onset and duration of
relief.
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Generating data to support the
role of QUADRAMET in contemporary oncology settings with other commonly
used cancer therapeutics. We are supporting various
clinical development initiatives evaluating QUADRAMET in combination with
chemotherapies and biologics for prostate cancer, multiple myeloma, and
osteosarcoma. These trials are designed with two key
objectives. First, to broaden QUADRAMET's market potential
within its currently approved treatment setting for pain palliation by
evaluating the safety and tolerability of administering QUADRAMET in
combination with other cancer regimens. Second, to support our
longer-term strategy for maximizing the QUADRAMET brand by progressing
QUADRAMET beyond its currently approved treatment setting as a potential
therapeutic for cancer that has spread to the bone as discussed
below.
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Market
expansion for QUADRAMET
We
believe that QUADRAMET's targeted delivery of radiotherapy may also have an
important therapeutic effect beyond palliation of pain. Phase 1
clinical data suggest there may be synergistic effects between QUADRAMET and
other cancer therapies for prostate cancer, multiple myeloma, and
osteosarcoma.
Prostate
cancer
In
February 2007, we reported the presentation of interim data from a Phase 1 study
evaluating QUADRAMET in combination with docetaxel (Taxotere®) for the treatment
of hormone-refractory prostate cancer. Data from 18 patients were
presented at the Prostate Cancer Symposium, a multidisciplinary meeting
co-sponsored by the American Society of Clinical Oncology, the American Society
for Therapeutic Radiology and Oncology, the Prostate Cancer Foundation, and the
Society of Urologic Oncology. In June 2007, we reported updated data
from 28 patients in this study which were presented at the annual meeting of the
American Society of Clinical Oncology. This trial continues to accrue patients
in a Phase 1 extension to explore the optimal dosing schedule for potential
future development.
Multiple
myeloma
In July
2007, we reported the presentation of data from a Phase 1 dose escalation study
evaluating QUADRAMET® in
combination with bortezomib (Velcade®) in patients with relapsed multiple
myeloma. Data from 33 patients administered a total of 60 treatment
cycles were presented at the International Myeloma Working Group
Meeting. A treatment cycle is 8 weeks in duration and consists of
four administrations of bortezomib (on Days 1, 4, 8 and 11) and a single
administration of QUADRAMET (on Day 3). Results indicated the
combination of QUADRAMET and bortezomib was well-tolerated at the doses studied
and resulted in an overall disease response rate of approximately
20%.
In
addition to the aforementioned company-sponsored clinical development
initiatives in prostate cancer, breast cancer, multiple myeloma, and
osteosarcoma, we continue to explore investigator-sponsored studies and studies
with cooperative groups to advance our QUADRAMET combination
strategy.
In March
2007, we reported that the NCI, part of the National Institutes of Health (NIH),
initiated a randomized Phase 2 study to evaluate QUADRAMET in combination with
the NIH's targeted therapeutic vaccine, PSA-TRICOM, for patients with
progressive hormone-refractory prostate cancer who have failed docetaxel-based
regimens. The primary objective of the study is to determine if there
is an improvement in four-month progression-free survival for the combination
regimen versus QUADRAMET therapy alone. The study is expected to
enroll 68 patients. Currently, there is no standard of care for
treating prostate cancer patients who have progressive disease following
docetaxel-based therapy.
Our
products, including QUADRAMET, are subject to significant regulation by
governmental agencies, including the FDA, as is more fully described under the
section entitled "Government Regulation" herein. We cannot assure you
that we will be able to complete any of our market expansion strategies set
forth above.
PROSTASCINT
Overview
Our
PROSTASCINT molecular imaging agent is the first, and currently the only,
commercial product targeting PSMA. PSMA is abundantly expressed on
the surface of prostate cancer cells. In contrast to other
prostate-related antigens such as PSA, prostatic acid phosphatase, and prostate
secretory protein, PSMA is a type II integral membrane glycoprotein that is not
secreted. PSMA expression is increased in high-grade cancers,
metastatic disease, and hormone-refractory prostate cancer. PSMA is
also present at high levels on the newly formed blood vessels, or
neovasculature, needed for the growth and survival of many solid
tumors. This unique expression pattern makes PSMA an excellent
antigenic target for monoclonal antibody diagnostic and therapeutic
options.
PROSTASCINT
consists of our proprietary murine monoclonal antibody, 7E11-C5.3 ("7E11")
directed against PSMA and the radioisotope indium-111. A radioisotope
is an element which, because of nuclear instability, undergoes radioactive decay
and emits gamma radiation. Due to the selective expression of PSMA by
prostate cancer cells, PROSTASCINT can image the extent and spread of prostate
cancer using a common gamma camera.
PROSTASCINT
is approved for marketing in the United States in two clinical settings: (i) as
a diagnostic imaging agent in newly diagnosed patients with biopsy-proven
prostate cancer thought to be clinically localized after standard diagnostic
evaluation and who are at high risk for spread of their disease to pelvic lymph
nodes and (ii) for use in post-prostatectomy patients with a rising PSA and a
negative or equivocal standard metastatic evaluation in whom there is a high
clinical suspicion of occult metastatic disease.
During
the molecular imaging procedure, PROSTASCINT is administered intravenously into
the patient. The 7E11 antibody in PROSTASCINT travels through the
bloodstream and binds to PSMA. The radioactivity from the isotope
that has been attached to the antibody can be detected from outside the body by
a gamma camera. Gamma cameras are found in the nuclear medicine
departments of most hospitals. The image captured by the camera
assists in the identification
of the location of the radiolabeled pharmaceutical thus identifying the sites of
tumors.
Gamma
cameras used in nuclear medicine have advanced in recent years. Some
manufacturers now sell cameras with wider segmented crystals, providing
advantages in medium and high energy imaging of isotopes (e.g., indium-labeled
agents, such as PROSTASCINT) thus enhancing system
sensitivity. System enhancements allow improved image quality or
reduced scan time, which reduces the risks associated with patient
motion. Equipment vendors have introduced advanced single photon
emission computed tomography (SPECT) reconstruction algorithms, as well as three
dimensional iterative reconstruction techniques that potentially increase image
contrast with inherent system gains in image quality. These prominent
new nuclear medicine imaging algorithms enable advances in image quality as
compared to conventional "Filtered Back Projection" techniques. In
addition, PROSTASCINT may now be co-registered with an anatomic image obtained
with either computed tomography (CT) or magnetic resonance (MR) imaging
(PROSTASCINT fusion imaging). Device manufacturers generally offer
two methods to achieve co-registration between metabolic and anatomical
images. Some manufacturers merge information in a single SPECT/CT
system, while others utilize fusion software, which has become more widely
available in the past few years, as computer workstations have become powerful
enough to achieve co-registration.
Prostate
cancer
Prostate
cancer is the most common type of cancer found in American men, other than skin
cancer. In 2007, the American Cancer Society estimates that there
will be about 219,000 new cases of prostate cancer diagnosed in the United
States and that about 27,000 men will die from the disease. It is
estimated that there are more than 2 million American men currently living with
prostate cancer. Prostate-specific antigen (PSA) is a protein
produced by the cells of the prostate gland. Tests to determine the
amount of PSA in the blood, along with a digital rectal exam, is used to help
initially detect prostate cancer and is also used to monitor patients with a
history of prostate cancer to see if the cancer has come back, or recurred;
however, PSA levels cannot directly identify the extent or location of
disease.
PROSTASCINT for prostate
cancer
When
deciding on a course of therapy for newly diagnosed prostate cancer, physicians
must determine the extent and location of disease in the
patient. When disease has not spread beyond the prostate gland,
patients are most likely to benefit from local treatment options, such as
surgical removal of the prostate gland. Patients diagnosed with
distant disease that has spread beyond the prostate gland have a poorer chance
of five-year survival than those with disease confined to the gland and are more
likely to benefit from systemic therapy. In addition, in the United
States, following initial therapy, prostate cancer patients are monitored to
ascertain changes in the level of serum PSA. In this setting, a
consistent rise in PSA is evidence of recurrence of the patient's prostate
cancer. Knowledge of the extent and location of disease recurrence is
important in choosing the most appropriate form of
treatment. PROSTASCINT is a non-invasive way to help determine if the
cancer is confined to the prostate or if it has spread to other areas of the
body.
Prior to the
availability of PROSTASCINT, determining whether newly diagnosed disease was
limited to the prostate or had spread beyond the gland, for instance to lymph
nodes, was based upon statistical inference from the biopsy appearance of the
tumor, the patient's level of serum PSA, and the stage of other primary
tumors. Conventional imaging methods such as
CT or MR
are all relatively insensitive because they rely on identifying significant
changes to normal anatomic structure to indicate the presence of
disease. PROSTASCINT images are based upon expression of PSMA and,
therefore, may identify disease not readily detectable with conventional
procedures, such as CT or MR imaging alone.
In June
2006, data from a series of studies evaluating PROSTASCINT fusion imaging and
advancements in image processing methods were presented at the Society of
Nuclear Medicine's annual meeting. The data demonstrated new
potential for PROSTASCINT fusion imaging to help determine patient-specific
treatment regimens and improve outcomes for prostate cancer
patients.
In
January 2007, we reported that the National Comprehensive Cancer Network (NCCN)
included PROSTASCINT in its updated clinical practice guidelines for recurrent
prostate cancer. We believe the expanded inclusion in the NCCN's
guidelines further reinforces the value of PROSTASCINT for evaluation of
prostate cancer in patients suspected of having locally recurrent
disease. NCCN is a non-profit alliance of 20 of the world's top
cancer centers. The NCCN's Clinical Guidelines in Oncology are a
benchmark for clinical policy in the oncology community. These
guidelines are updated continually and are based upon evaluation of scientific
data integrated with expert judgment by multidisciplinary panels of expert
physicians from NCCN member institutions. We believe the expanded
NCCN guidelines reflect the growing awareness of the advancements in imaging
processing and the value of PROSTASCINT fusion imaging.
In
February 2007, the American Brachytherapy Society's peer-reviewed journal, Brachytherapy published the
results of a seven-year survival study that suggest PROSTASCINT may help predict
which patients are less likely to benefit from brachytherapy for prostate
cancer. The study, "Biochemical disease free survival rates following
definitive low dose rate prostate brachytherapy with dose escalation to biologic
target volumes identified with SPECT/CT Capromab Pendetide," by Ellis et al.
(Brachytherapy
Volume 6,
Issue 1, January-March 2007, Pages 16-25) evaluated the use of
PROSTASCINT fusion imaging to define brachytherapy treatment regimens for 239
newly-diagnosed prostate cancer patients. PROSTASCINT fusion imaging
was used to assess local and distant disease and to alter the radiation dose to
areas of suspected high tumor burden. In a multivariate analysis,
uptake of PROSTASCINT outside of the prostate gland was found to be a
significant and independent predictor of biochemical disease free survival
(bDFS). Using the American Society for Therapeutic Radiation and
Oncology (ASTRO) standard criteria to monitor PSA response for reporting disease
free survival, the cure rate was 90.6% for patients whose fused PROSTASCINT scan
showed local disease (n=217) versus 66.1% (n=22) for patients with distant
disease (p=0.0005). We believe this publication further reinforces
PROSTASCINT's emerging potential as a valuable tool in managing the care of
prostate cancer patients.
In
September 2007, we reported the publication of outcomes data from a large cohort
study demonstrating the value of PROSTASCINT® in
predicting prognosis in prostate cancer. The study which overall
involved 341 patients, evaluated the outcomes of patients whose PROSTASCINT
images showed central abdomen uptake (CAU), a finding suggestive of metastatic
disease, as compared to those without such findings. In the study,
prostate cancer-specific death rates were 10 times higher in patients with CAU
than in patients without CAU (p=0.005). We believe this publication
further reinforces PROSTASCINT's emerging potential as a valuable tool in
managing the care of prostate cancer patients.
Market
Expansion for PROSTASCINT
We
believe the major developments in imaging resolution, emerging clinical data,
and the increasing level of recognition of the value of PROSTASCINT fusion
imaging support an important near- and long-term market opportunity for
PROSTASCINT. We are focused on capitalizing on this opportunity by
generating awareness and expanded usage for PROSTASCINT fusion imaging through a
number of clinical and commercial initiatives. Key highlights from
our strategy are summarized below.
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Positioning PROSTASCINT fusion
imaging as the standard of care for prostate cancer
imaging. PROSTASCINT fusion imaging combines anatomic
and functional information to provide a complete pathology picture in a
single exam. This can help physicians eliminate guesswork and
enable them to better plan and individualize patient
treatment. PROSTASCINT fusion imaging can be accomplished
through software or hardware solutions. Of the approximately
400 sites able to perform PROSTASCINT imaging, there are approximately 200
sites currently proficient in PROSTASCINT fusion imaging. We
are focusing our promotional efforts in hospitals and clinics that are
already utilizing fusion technology and are skilled in the performance of
PROSTASCINT scans. We believe that by focusing promotional
activity in and around these sites that already appreciate the prognostic
value of PROSTASCINT, we can increase the number of prostate cancer
patients being referred in a very cost effective
manner.
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Generating awareness of the
prognostic value of the PSMA antigen. There is a growing
body of clinical data demonstrating that over-expression of PSMA in
prostate cancer patients correlates with other adverse prognostic factors
and can independently predict disease recurrence. We are
focused on generating awareness of PSMA as an important prognostic marker
for prostate cancer and positioning PROSTASCINT as an important tool for
identifying patients who may benefit from more intensive treatment
regimens.
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Leveraging the presentation
and publication of outcomes data. In 2007, outcomes data
from recent and ongoing clinical trials of PROSTASCINT were reported at
major medical meetings and in the peer-reviewed publications, Brachytherapy and
Urology. These data continue to support the potential of
PROSTASCINT fusion imaging
as an important tool to define patients with local or metastatic disease,
help clarify treatment decisions, and prevent or limit treatment-related
side effects.
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Advancing image-guided therapy
applications. The advances in nuclear medicine imaging
SPECT equipment, computer workstation power, as well as software
enhancements allow researchers to utilize cutting-edge imaging technology
to explore novel applications of the enhanced PROSTASCINT
image. With fusion of an enhanced SPECT, the PROSTASCINT image
is registered with CT and/or MR anatomic images; the resulting images have
been applied to clinical research in areas of guided brachytherapy (or
radioactive seeds), guided external beam radiation therapy (EBRT),
intensity modulated radiation therapy (IMRT), and image-guided
biopsy. The potential of this application is described in the
previously discussed 2007 publication reporting seven-year biochemical
outcomes after image-guided brachytherapy using PROSTASCINT fusion
imaging. The publication, "Biochemical disease free survival
rates following definitive low dose rate prostate brachytherapy with dose
escalation to biologic target volumes identified with SPECT/CT Capromab
Pendetide," by Ellis et al. appeared in the American Brachytherapy
Society's peer-reviewed journal, Brachytherapy
(Brachytherapy Volume 6, Issue 1, January-March 2007, Pages
16-25.)
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Our
products, including PROSTASCINT, are subject to significant regulation by
governmental agencies, including the FDA, as is more fully described below under
the section entitled "Government Regulation". We cannot assure you that we will
be able to complete any of our market expansion strategies set forth
above.
SOLTAMOX
Overview
In the
second half of 2006, we introduced SOLTAMOX in the U.S. We acquired
the commercial rights to SOLTAMOX from Savient Pharmaceuticals, Inc. (“Savient”)
in April 2006. SOLTAMOX, a cytostatic estrogen receptor antagonist,
is the first oral liquid hormonal therapy approved in the
U.S. SOLTAMOX is indicated for the treatment of breast cancer in
adjuvant and metastatic settings and to reduce the risk of breast cancer in
women with ductal carcinoma in
situ (DCIS) or with high risk of breast cancer. Due to limited
end-user demand, uncertainty regarding future market penetration and the
decision in the third quarter of 2007 to reallocate sales and marketing
resources to other products, effective January 1, 2008, we ceased selling and
marketing SOLTAMOX.
We
acquired the exclusive U.S. marketing rights for SOLTAMOX in April 2006 from
Savient. We also entered into a supply agreement with Rosemont
Pharmaceuticals Ltd ("Rosemont"), a former subsidiary of Savient, for the
manufacture and supply of SOLTAMOX. Such agreements were subsequently
assigned by Savient to Rosemont. Under the terms of the transaction
we paid Savient an up-front licensing fee of $2.0 million, were obligated to pay
royalties on net sales, which were subject to certain minimum amounts beginning
in 2007 and would have had to pay additional contingent sales-based payments of
up to $4.0 million to Rosemont. We have reached a tentative agreement
with Rosemont to terminate all agreements effective December 31, 2007, including
the minimum royalty obligation.
Research
and Development
Our total
research and development expenses, including our investment in PSMA Development
Company LLC (“PDC”), a preclinical joint venture with Progenics Pharmaceuticals
Inc. that we sold in April 2006, for the years ended
December
31, 2007, 2006, and 2005 were $5.9 million, $7.4 million and $9.3 million,
respectively. These expenses included $120,000 and $3.2 million
related to our equity in the loss of PDC, for the years ended December 31, 2006
and 2005, respectively. We are no longer responsible for funding PDC
and provided no funding during 2007.
Our
ongoing clinical development initiatives consist of expanding the market
potential for our existing products along with development of new product
candidates. Our research and development strategy is mindful of risk
management, and over the past three years we have monetized or discontinued the
vast majority of our investment in research and preclinical stage
programs. Our current clinical development strategy is to focus on
clinical-stage opportunities that are complementary to our commercial presence
and have an identifiable pathway to approval.
Our
proprietary research and development activities in 2007 were focused
on: generation of additional data on the effects of CAPHOSOL in
treating patients receiving cancer therapies known to put them at risk for
development of oral mucositis and xerostomia, generation of data regarding the
safety and efficacy of QUADRAMET when administered in combination with other
cancer treatments such as chemotherapy and radiation therapy and generation of
data regarding various clinical outcomes observed following determination of the
location and extent of prostate cancer based on PROSTASCINT
imaging.
CYT-500
In
February 2007, we announced the initiation of the first human clinical
study of CYT-500, our proprietary radiolabeled monoclonal antibody targeted to
PSMA. The Phase 1 clinical trial will investigate the safety and
tolerability of CYT-500 and determine the optimal antibody mass and therapeutic
dose for further studies. The clinical trial is being conducted at
Memorial Sloan-Kettering Cancer Center under a Cytogen sponsored Investigational
New Drug ("IND") application, which was approved by the FDA in May
2006.
CYT-500
employs the same 7E11 monoclonal antibody as our molecular imaging agent
PROSTASCINT; however, it is linked to lutetium-177 (Lu-177), a particle emitting
therapeutic radionuclide, as opposed to an imaging radionuclide. We
designed this novel product candidate to enable targeted delivery of high doses
of radiation to PSMA-expressing cells.
Discontinued
research and development programs
Since
2004, we have been realigning our research and development investment to focus
on clinical-stage opportunities.
In April
2006, we sold our interest in PDC to Progenics for a cash payment of $13.2
million, potential future regulatory and sales-based milestone payments totaling
up to $52.0
million,
and royalties on any future PDC product sales. PDC was formed in 1999
to develop in vivo
immunotherapeutic products utilizing PSMA.
Technology
Our
strategy includes pursuing strategic opportunities to optimize the value of our
intellectual property and associated proprietary technologies. For
example, in April 2006, we sold our interest in PDC for a cash payment of $13.2
million, and potential future milestone and royalty payments. This
provided us with additional capital to grow our business and
enabled
us to substantially reduce our research and development investment in
early-stage projects. In addition, we have several technology
platforms that are available for out-licensing. These platforms are
focused within the areas that are described below.
Prostate-Specific
Membrane Antigen or PSMA
PSMA is
protein that is highly expressed on the surface of prostate cancer cells and the
neovasculature of solid tumors. In 1987, Dr. Julius S. Horosziewicz
identified the PSMA protein using a monoclonal antibody. The antibody
technology developed by Dr. Horosziewicz was assigned to
Cytogen. Researchers at the Sloan-Kettering Institute for Cancer
Research identified and sequenced the gene encoding PSMA. We have the
exclusive worldwide license to these technologies, which are the foundation of
our proprietary PSMA-targeting monoclonal antibody, 7E11.
Our
PSMA-targeting platform has been successfully applied through the
commercialization of our product PROSTASCINT, the first and only commercial
monoclonal antibody-based agent targeting PSMA to image the extent and spread of
prostate cancer. We are also developing a third-generation
radiolabeled antibody to treat prostate cancer, CYT-500. CYT-500
combines our proprietary PSMA-targeting monoclonal antibody with a high-affinity
chelator and a beta-emitting isotope.
PSMA has
also been found to be present at high levels in the new blood vessels, or
neovasculature, formed in association with most solid tumors, including breast,
lung and colorectal cancers. Such neovasculature is necessary for the
growth and survival of many types of solid tumors. We believe that
due to the unique characteristics of PSMA, technologies targeting this antigen
may yield novel products for the treatment and diagnosis of
cancer. If PSMA-targeting therapies can destroy or prevent formation
of these new blood vessels, we believe that such therapies may prove valuable in
treating a broad range of cancers.
In August
2000, we executed a sublicense agreement with Northwest Biotherapeutics Inc.
(NWBT) pursuant to which we granted NWBT the right to develop and commercialize
ex vivo immunotherapy
products for prostate cancer that are produced by pulsing isolated populations
of a patient's antigen presenting cells, such as dendritic cells, with
PSMA. Following encouraging results from a Phase 1/2 trial to
evaluate the safety and efficacy of using PSMA with NWBT's proprietary dendritic
cell immunotherapy, DCVax®, NWBT advanced DCVax-Prostate to the initiation of
Phase 3 clinical trials. In November 2002, NWBT suspended all
clinical trial activity for its DCVax product candidates and withdrew its IND
for DCVax- Prostate, which resulted in a termination of the license agreement
with us. As a result, we regained the rights to ex vivo prostate cancer
immunotherapy using PSMA in December 2002. In January 2005, NWBT
announced that it received clearance from the FDA to begin assessment of
DCVax-Prostate in a Phase 3 clinical trial. We are awaiting
clarification from NWBT on the status of this PSMA-based program following
termination of the license agreement with us.
AxCell
Biosciences Subsidiary
In 1993,
we licensed from the University of North Carolina at Chapel Hill (UNC-CH)
exclusive worldwide rights to novel reagents and technology for identifying
targeting peptides that were developed under sponsored research funded by
Cytogen. This process utilizes random
peptide
libraries (Genetic Diversity Library, GDL™) expressing an extensive collection
of long peptides that, unlike conventional drugs or short peptides, can mimic
natural proteins in terms of their folding and their corresponding molecular
recognition functions. This is similar in many regards to the ability
of antibody molecules to selectively bind to antigens, or enzymes to bind to
their substrates. This proprietary approach facilitated the screening
of a much more diverse family of compounds than was practical with previous
methods and yielded several novel reagents (totally synthetic affinity reagents,
TSAR's). Originally, we expected to utilize these libraries to
discover specific binding molecules that would represent attractive alternatives
to monoclonal antibodies for diagnostic and therapeutic products.
In 1996,
Cytogen entered into a research and licensing agreement with Elan Corporation,
plc, which marked the Company's first external collaboration in which
GDL-derived products would be utilized for their ability to target drugs to
specific sites within the body. The research program with Elan was
designed to discover GDL-derived peptides that could be used to target
therapeutic agents to receptors expressed within the lining of the intestinal
tract known to be involved in certain cellular uptake and transport
processes. In contrast to most biotechnology drugs that cannot be
administered orally due to the fact that they break down prior to reaching the
bloodstream, such peptides could be administered orally. Under the
agreement, Elan had the option for worldwide licensing rights to any products
developed collaboratively and we would receive royalties based on the sale of
any such products. We subsequently assumed ownership and
responsibility for Elan's pending patent portfolio related to GDL-derived
peptides that could be used to target therapeutic agents to receptors expressed
within the lining of the intestinal tract known to be involved in certain
cellular uptake and transport processes.
In
November 2006, we were issued United States patent number 7,135,457 covering
oral drug delivery agents - random peptide compositions that bind to
gastro-intestinal tract (GIT) transport receptors. The patent
specifically covers compositions of Cytogen's oral delivery agents that are
capable of facilitating transport of an active agent through a human or animal
GIT, and derivatives and analogs thereof, and nucleotide sequences coding for
said proteins and derivatives. The oral delivery agents have use in
facilitating transport of active agents from the lumenal side of the GIT into
the systemic blood system, and/or in targeting active agents to the
GIT.
By
binding (covalently or noncovalently) one of Cytogen's delivery agents to an
orally administered drug or by coating the surface of nanoparticles or liposomes
with the delivery agent, the drug can be targeted to specific receptor sites or
transport pathways which are known to operate in the human gastrointestinal
tract, thus facilitating its systemic absorption into the
bloodstream.
The
binding of Cytogen's delivery agents to these receptors has been confirmed in
preclinical models, and successful in vivo delivery of both
insulin and leuprolide in animal models have been demonstrated. Based
on these results, we are seeking partnerships for oral drug
delivery.
A
subsidiary of Cytogen, AxCell Biosciences was incorporated in 1996 to further
commercialize the GDL technology in the field of accelerated new target
discovery and validation. Based on the prevalence of modular protein
domains, such as Src homology domain 3 and 2 (SH3 and SH2), among many other
important signaling molecules known to mediate
protein-protein
interactions, UNC-CH researchers advanced the use of ligands generated using GDL
as probes to systematically isolate entire repertoires of modular
domain-containing proteins from cloned DNA expression libraries. This
became AxCell's Cloning of Ligand Targets (CLT™) technology.
As an
initial 'proof of concept' for the automation and application of GDL and CLT
technologies to rapidly and efficiently identify protein signaling pathways,
AxCell created a comprehensive network (ProChart™) of domain and ligand
interactions throughout 2001. Because protein signaling pathways play
a role in many diseases, researchers are working to develop drugs that
specifically target these pathways. While some interactions are
likely to have positive clinical results, others can lead to unwanted drug side
effects and toxicity. By referring to a comprehensive network of the
body's protein interactions, researchers may be better able to identify drugs
that target a specific disease related interaction while avoiding those
unspecific interactions associated with unwanted side effects.
AxCell
initially partnered with a leading global provider of bioinformatics software
solutions to make the ProChart database available to subscribing medical and
scientific researchers around the world on a commercial
basis. However, due to the fact that AxCell identified
protein-protein interactions through a high throughput, in vitro system, prospective
customers were reluctant to make a significant subscription commitment in the
absence of in vivo
validation for the AxCell data. The absence of such validation,
combined with a reevaluation of the subscription database business model,
resulted in a realignment of the AxCell business plan in 2002 to focus on
applying its extensive protein interaction data in several major areas of
scientific interest by entering into academic, governmental, and corporate
research collaborations designed to both provide in vivo validation of novel
protein-protein interactions discovered using its in vitro approach and the
discovery of novel drug targets. In most circumstances, AxCell has an
exclusive option to negotiate an exclusive, worldwide, royalty-bearing license
for inventions that result from the research collaboration.
In March
2004, the first in vivo
validation of a novel interaction discovered using AxCell's technology was
published ("Functional association between Wwox tumor suppressor protein and
p73, a p53 homolog." PNAS March 30, 2004: vol. 101; no. 13 pp.
4401–4406). In November 2004, a second demonstration of in vivo validation for a
novel interaction discovered using AxCell's technology was published ("Physical
and functional interactions between the Wwox tumor suppressor protein and the
AP-2gamma transcription factor. "Cancer Res. November 2004: vol. 64;
no. 22 pp. 8256-61).
We
believe the application of our ProChart database technology may accelerate
research and drug development by:
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Discovering
novel signal transduction pathways and their relevant protein-protein
interactions, such as rapidly identifying qualified drug targets and
identifying potential unwanted side
effects.
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Identifying
structure and activity relationship (SAR) information regarding domain and
ligand interactions that can facilitate small molecule drug
design.
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Providing
high throughput screening reagents (e.g., cloned domains and
ligands).
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In view
of recent biological validation and progress through both internal data mining
efforts and external research collaborations along with the oral drug delivery
technology, Cytogen is currently exploring strategic transactions for
AxCell.
Strategic
Agreements
We
frequently enter into alliances with other companies to, among other things,
increase our financial resources, manage risk, and retain an appropriate level
of ownership of products currently in development. In addition,
through alliances with other pharmaceutical and biotechnology companies and
other collaborators, we may obtain funding, expand existing programs, learn of
new technologies and gain additional expertise in developing and marketing
products.
InPharma
AS
In
October 2006, we entered into a license agreement with InPharma granting us
exclusive rights to CAPHOSOL in North America. Under the terms of the
agreement, we are obligated to pay InPharma aggregate up-front fees totaling
$6.0 million, of which $5.8 million was paid to date and $200,000 is contingent
upon certain conditions. In addition, we are obligated to pay
InPharma royalties on net sales and sales-based milestone payments up to an
aggregate of $49.0 million. We are also obligated to pay royalties on
net sales to certain other licensors and a finder's fee based on a percentage of
milestone payments made to InPharma.
We also
obtained options to acquire the rights to CAPHOSOL for the European and Asia
markets that we only intent to exercise in connection with obtaining a
commercial partner for those areas. We will be required to obtain
consents from certain other licensors but not InPharma, if we sublicense the
rights to market CAPHOSOL in Europe and Asia to other parties. In the
event we exercise the options to license the marketing rights for CAPHOSOL for
the European and Asian markets, we would be obligated to pay InPharma additional
fees, including sales-based milestone payments and pay royalties on net sales to
certain other licensors for the respective territories.
On August
30, 2007, the Company and InPharma executed Amendment No.1 to the license
agreement to restructure the amounts payable by the Company upon the exercise of
the option for the European marketing rights. On February 14, 2008,
the Company and InPharma
executed Amendment No. 2 to the license agreement to restructure the amounts
payable by Cytogen in connection with the exercise of the options for the
European and Asian marketing rights, as well as milestone payments and royalties
based on sales levels in North America. Pursuant to the merger
agreement between EUSA and us dated March 10, 2008, EUSA will sublicense the
marketing rights to Europe and Asia, subject to the approval of certain other
licensors and not InPharma.
Rosemont
Pharmaceuticals Limited
In April
2006, we entered into a distribution agreement with Savient granting us
exclusive marketing rights for SOLTAMOX in the United States. In
addition, we entered into a supply agreement with Savient and Rosemont for the
manufacture and supply of SOLTAMOX. Such agreements were subsequently
assigned by Savient to Rosemont. Under the terms of the final
transaction, we paid Savient an up-front licensing fee of $2.0 million and would
have had to
pay
additional contingent sales-based payments of up to a total of $4.0 million to
Rosemont. We were also required to pay Rosemont royalties on net
sales of SOLTAMOX, which were subject to certain minimum amounts beginning in
2007. We have reached a tentative agreement with Rosemont to
terminate all agreements effective December 31, 2007, including minimum royalty
obligation. We ceased selling and marketing SOLTAMOX effective
January 1, 2008.
Bristol-Myers
Squibb Medical Imaging, Inc.
Effective
January 1, 2004, we entered into a manufacturing and supply agreement with
Bristol-Myers Squibb Medical Imaging, Inc. ("BMSMI"), under which BMSMI
manufactures, distributes and provides order processing and customer service for
us for QUADRAMET. Under the terms of the agreement, we are obligated
to pay at least $5.1 million annually, subject to future annual price
adjustment, through 2008, unless we or BMSMI terminates on two years prior
written notice. This agreement will automatically renew for five
successive one-year periods unless we or BMSMI terminates on two years prior
written notice. We also pay BMSMI a variable amount per month for
each QUADRAMET order placed to cover the costs of customer service which is
included in selling, general and administrative expenses.
In
January 2008, BMSMI was acquired by Avista Capital Partners. Since
our agreement requires two years prior written notice to terminate and we have
not received any termination notice from BMSMI, we do not expect any disruption
in BMSMI’s performance of its obligations under our agreement for 2008 and
2009. We currently have no alternative manufacturer or supplier for
QUADRAMET and any of its components.
Laureate
Pharma, L.P.
In
September 2006, we entered into a non-exclusive manufacturing agreement with
Laureate pursuant to which Laureate shall manufacture PROSTASCINT and its
primary raw materials for Cytogen in Laureate's Princeton, New Jersey facility.
The agreement was scheduled to terminate, unless terminated earlier pursuant to
its terms, upon Laureate's completion of the specified production campaign for
PROSTASCINT and shipment of the resulting products from Laureate's
facility. Under the terms of the agreement, we anticipate paying at
least an aggregate of $3.9 million through the end of the term of contract, of
which $3.1 million of an aggregate $3.6
million was incurred in 2007. The original agreement was extended by
amendment through the end of 2007 and subsequently extended through the end of
2008 by an additional amendment.
Holopack
Verpackungstechnik GmbH
In
February 2007, we entered into a non-exclusive manufacturing agreement with
Holopack Verpackungstechnik GmbH for the manufacture of CAPHOSOL. The
agreement has a term of two years and automatically renews for an additional
year. The agreement is terminable by Holopack or us on three months
notice prior to the end of each term period.
The
Dow Chemical Company
We
acquired an exclusive license from The Dow Chemical Company ("Dow") for
QUADRAMET for the treatment of osteoblastic bone metastases in certain
territories. The agreement requires us to pay Dow royalties based on a
percentage of net sales of QUADRAMET, or a guaranteed contractual minimum
payment, whichever is greater, and future payments upon achievement of certain
milestones.
In May
2005, we entered into a license agreement with Dow to create a targeted oncology
product designed to treat prostate and other cancers. The agreement
applies proprietary MeO-DOTA bifunctional chelant technology from Dow to
radiolabel our PSMA antibody with a therapeutic radionuclide. Under
the agreement, proprietary chelation technology and other capabilities, provided
through ChelaMedSM
radiopharmaceutical services from Dow, will be used to attach a therapeutic
radioisotope to the 7E11 monoclonal antibody utilized in our PROSTASCINT
molecular imaging agent. As a result of the agreement, we are
obligated to pay a minimal license fee and aggregate future milestone payments
of $1.9 million for each licensed product, if approved, and royalties based on
sales of related products, if any. Unless terminated earlier, the Dow
agreement terminates at the later of (a) the tenth anniversary of the date of
first commercial sale for each licensed product or (b) the expiration of the
last to expire valid claim that would be infringed by the sale of the licensed
product. We may terminate the license agreement with Dow on 90 days
written notice.
Product
Contribution to Revenues
For the
years ended December 31, 2007, 2006, and 2005, PROSTASCINT and QUADRAMET
accounted for, substantially all of our product revenues. For the
years ended December 31, 2007, 2006 and 2005, revenues related to PROSTASCINT
accounted for approximately 48%, 53% and 46%, respectively, of our total
revenues; and revenues related to QUADRAMET accounted for approximately 46%, 47%
and 52%, respectively, of our total revenues. During the first
quarter of 2007, we introduced CAPHOSOL in the U.S. For the year
ended December 31, 2007, revenues related to CAPHOSOL accounted for
approximately 6% of our total revenues.
Concentration
of Sales
During the
year ended December 31, 2007, we received 63% of our total revenues from our top
three customers, as follows: 43% from Cardinal; 14%
from Mallinckrodt Inc., and 6% from Anazao Health Corporation.
During the year
ended December 31, 2006, we received 64% of our total revenues from our top
three customers, as follows: 41% from Cardinal Health; 14% from Mallinckrodt
Inc.; and 9% from GE Healthcare.
Competition
The biotechnology and pharmaceutical industries are subject to intense competition, including competition from large pharmaceutical companies, biotechnology companies and other companies, universities and research institutions. Our existing therapeutic and imaging/diagnostic products compete with the products of a wide variety of other firms,
including
firms that provide products used in more traditional therapies or procedures,
such as external beam radiation, chemotherapy agents, narcotic analgesics and
other imaging/diagnostics. In addition, our existing and potential
competitors may be able to develop technologies that are as effective as, or
more effective than those offered by us, which would render our products
noncompetitive or obsolete. Moreover, many of our existing and
potential competitors have substantially greater financial, marketing, sales,
manufacturing, distribution and technological resources than we
do. Our existing and potential competitors may be in the process of
seeking FDA or foreign regulatory approval for their respective products or may
also enjoy substantial advantages over us in terms of research and development
expertise, experience in conducting clinical trials, experience in regulatory
matters, manufacturing efficiency, name recognition, sales and marketing
expertise and established distribution channels. We believe that
competition for our products is based upon several factors, including product
efficacy, safety, cost-effectiveness, ease of use, availability, price, patent
position and effective product promotion.
We expect
competition to intensify in the fields in which we are involved, as technical
advances in such fields are made and become more widely known. We
cannot assure you, however, that we or our collaborative partners will be able
to develop our products successfully or that we will obtain patents to provide
protection against competitors. Moreover, we cannot assure you that
our competitors will not succeed in developing therapeutic or imaging/diagnostic
products that circumvent our products or that these competitors will not succeed
in developing technologies or products that are more effective than those
developed by us. In addition, many of these companies may have more
experience in establishing third-party reimbursement for their
products. Accordingly, we cannot assure you that we will be able to
compete effectively against existing or potential competitors or that
competition will not have a material adverse effect on our business, financial
condition and results of operations.
Competition
Related to CAPHOSOL
Currently,
there is limited consensus standard of care for oral mucositis supported by
clinical data, and to date, there has only been one commercially available
prescription
pharmaceutical
product approved by the FDA for oral mucositis, the intravenous growth factor
palifermin. Ice chips, local painkillers and narcotics are also used
to reduce the patient's pain, and doctors routinely prescribe mouthwashes
containing traditional antibacterial and antifungal drugs for the treatment of
oral mucositis, although most clinical trials have shown that they have
suboptimal efficacy. There are also a number of oral rinses that have
been approved as medical devices by FDA for dry mouth; however, CAPHOSOL is the
only approved calcium phosphate oral rinse that is indicated for both oral
mucositis and dry mouth that is supported by significant efficacy data from a
randomized placebo-controlled study.
We
believe there are a number of key differentiating factors that give CAPHOSOL a
competitive advantage including its high concentrations of calcium and phosphate
ions, its intellectual property, and the efficacy data which support its
beneficial effects for relieving oral mucositis.
Competition
Related to QUADRAMET
Current
competitive treatments for bone cancer pain include narcotic analgesics,
external beam radiation therapy, bisphosphonates, and other skeletal targeting
therapeutic radiopharmaceuticals such as strontium-89 chloride.
QUADRAMET
primarily competes with strontium-89 chloride in the radiopharmaceutical pain
palliation market. Strontium-89 chloride is manufactured and marketed
as a branded product by GE Healthcare and as a generic version by Bio-Nucleonics
Pharma, Inc. GE Healthcare manufactures strontium-89 chloride and sells the
product through its wholly owned network of radiopharmacies, direct to end-users
and through other radiopharmacy distributors. The generic version is
distributed directly by the manufacturer, or is sold through radiopharmacy
distributors such as Cardinal Health and Anazao Health (formerly Custom Care
Pharmacy).
To meet
future competitive challenges to QUADRAMET, we continue to, among other things,
focus our efforts on managing radiopharmacy distributor
relationships. We also plan to continue to focus on research
supporting additional applications and by documenting the safe and effective use
of QUADRAMET when used in conjunction with metastatic disease therapies such as
bisphosphonates, chemotherapeutics and hormonal therapy.
Competition
Related to PROSTASCINT
The
spread of prostate cancer may be evaluated using a number of imaging modalities,
including computed tomography, magnetic resonance imaging, or positron emission
tomography.
Manufacturing
and Supply of Raw Materials
We do not
manufacture any of our products. We have contracted with third-party
manufacturers to supply the raw materials and finished products to meet our
needs. Our third-party manufacturers meet the FDA's current Good
Manufacturing Practices or cGMP, regulations, and guidelines. cGMP
regulations require that all manufacturers of pharmaceuticals for sale in the
U.S. achieve and maintain compliance with regulations governing the
manufacturing, processing, packaging, storing and testing of drugs intended for
human use.
Holopack
is the sole manufacturer of CAPHOSOL under a manufacturing supply
agreement. The agreement has a term of two years and automatically
renews for an additional year. Such agreement is terminable by
Holopack or us on three months notice prior to the end of each term
period.
The two
primary components of QUADRAMET, samarium-153 and EDTMP, are provided to BMSMI
by outside suppliers. BMSMI obtains its supply of samarium-153 from a
sole supplier, and EDTMP from another sole supplier. Our manufacturing and
supply agreement with BMSMI, under which BMSMI manufactures, distributes and
provides order processing and customer service for us for QUADRAMET, runs
through 2008, unless we or BMSMI terminates on two years prior written
notice. This agreement will automatically renew for five successive
one-year periods unless we or BMSMI terminates on two years prior written
notice.
In
January 2008, BMSMI was acquired by Avista Capital Partners. Since
our agreement requires two years prior written notice to terminate and we have
not received any termination notice from BMSMI, we do not expect any disruption
in BMSMI’s performance of its obligations under our agreement for 2008 and
2009. We currently have no alternative manufacturer or supplier for
QUADRAMET and any of its components.
Laureate
is the sole manufacturer of PROSTASCINT, the PSMA targeting antibody, 7E11,
which is a component of PROSTASCINT, as well as our clinical compound,
CYT-500. In September 2006, we entered into a non-exclusive
manufacturing agreement with Laureate pursuant to which Laureate shall
manufacture PROSTASCINT and its primary raw materials for Cytogen in Laureate's
Princeton, New Jersey facility. The agreement was scheduled to terminate, unless
terminated earlier pursuant to its terms, upon Laureate's completion of the
specified production campaign for PROSTASCINT and shipment of the resulting
products from Laureate's facility. The original agreement was
extended by amendment through the end of 2007 and subsequently extended through
the end of 2008 by an additional amendment. In September 2005, we
entered into a non-exclusive manufacturing agreement with Laureate for the
scale-up for the cGMP manufacturing of CYT-500. Our agreement with
Laureate for CYT-500 terminated on December 31, 2006.
Alternative
sources for our manufacturing needs may not be readily available, and any
alternate manufacturers and suppliers would have to be identified and qualified,
subject to all applicable regulatory guidelines. If our manufacturers
cannot obtain and/or manufacture sufficient quantities of the components for our
products at commercially reasonable terms, or in a timely manner, it could
result in our inability to manufacture our products at a timely and
cost-effective basis.
Intellectual
Property
We
believe that our success depends, in part, on our ability to protect our
products and technology through patents and trade
secrets. Accordingly, our policy is to pursue a vigorous program of
securing and maintaining patent and trade secret protection to preserve our
right to exploit the results of our research and development activities and, to
the extent it may be necessary or advisable, to exclude others from
appropriating our proprietary technology.
We
aggressively protect our proprietary technology by selectively seeking patent
protection in a worldwide program. In addition to the United States,
we file patent applications in Canada, major European countries, Japan and
additional foreign countries on a selective basis to protect inventions
important to the development of our business. We believe that the
countries in which we have obtained and are seeking patent coverage for our
proprietary technology represent the major focus of the pharmaceutical industry
in which we will market our respective products.
We also
rely upon, and intend to continue to rely upon, trade secrets, unpatented
proprietary know-how and continuing technological innovation to develop and
maintain our competitive position. It is our policy to require our
employees, consultants, licensees, outside
scientific
collaborators, sponsored researchers and other advisors to execute
confidentiality agreements upon the commencement of employment or consulting
relationships with us. These agreements also provide that all
confidential information developed or made known to the individual during the
course of the individual's relationship with us is to be kept confidential and
not disclosed to third parties except in specific circumstances. In
the case of employees, the agreements provide that all inventions conceived by
the individual shall be our exclusive property. We cannot assure you,
however, that these agreements will provide meaningful protection or adequate
remedies for our trade secrets in the event of unauthorized use or disclosure of
such information.
We
believe that our valuable proprietary information is protected to the fullest
extent commercially reasonable; however, we cannot assure you that:
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Additional
patents will be issued to us in any or all appropriate
jurisdictions.
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Litigation
will not be commenced seeking to challenge our patent protection or that
challenges will not be successful.
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Our
processes or products do not or will not infringe upon the patents of
third parties.
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The
scope of patents issued will successfully prevent third parties from
developing similar and competitive
products.
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The
technology applicable to our products is developing rapidly. A
substantial number of patents have been issued to other biotechnology companies
relating to PSMA. In addition, competitors have filed applications
for, have been issued, or may otherwise obtain patents and other proprietary
rights relating to products or processes that are competitive with
ours. In addition, others may have filed patent applications and may
have been issued patents relating to products and technologies potentially
useful to us or necessary to commercialize our products or to achieve our
business goals. We cannot assure you that we will be able to obtain
licenses to such patents on commercially reasonable terms if at
all. The failure to obtain licenses to such patents could prevent us
from commercializing products or services covered by such patents.
We cannot
predict how any patent litigation will affect our efforts to develop,
manufacture or market our products.
Intellectual
Property Position Related to CAPHOSOL
Under our
agreement with InPharma, we are the licensee of two issued U.S.
patents. The patents licensed to us under this agreement are U.S.
Pat. Nos. 5,993,785 and 6,387,352, each of which expires on September 18,
2017. We have the right to prosecute and maintain the patents
included in our license agreement with InPharma.
Intellectual
Property Position Related to QUADRAMET
In May
1993, we obtained an exclusive license from Dow to use QUADRAMET, in North
America, as a therapeutic radiopharmaceutical for metabolic bone disease or
tumor regression for cancer caused by metastatic or primary cancer in bone in
humans, and for the treatment of disease characterized by osteoblastic response
in humans. Our license was
expanded
to include Latin America in 1995, and will remain in effect, unless earlier
terminated, for a period of 20 years from May 30, 1993 or until the last to
expire of the related patents. We currently anticipate such
termination date to be May 30, 2013.
Under our
agreement with Dow, we are the licensee of five issued United States patents and
certain corresponding foreign patents. Dow is responsible, at its own
cost and expense, for prosecuting and maintaining any patents or patent
applications included in our agreement. One of these, U.S. Pat. No.
4,898,724, includes claims directed to the QUADRAMET product and methods for its
use in the treatment of calcific tumors and bone pain. We have
obtained an extension of the term of this U.S. patent, which will now expire on
March 28, 2011. Other patents licensed to us under this agreement
are: (i) U.S. Pat. No. 4,897,254, which expired on January 30, 2007; (ii) U.S.
Pat. No. 4,937,333, which expires August 4, 2009; (iii) U.S. Pat. No. 5,300,279,
which expires on November 19, 2008; and (iv) U.S. Pat. No. 5,066,478 which
expires on November 19, 2008. An additional patent, U.S. Pat. No.
5,714,604, which expires on February 3, 2015, includes claims directed to the
methods for QUADRAMET's preparation and administration. We are the
owner of a registered United States trademark relating to
QUADRAMET.
Upon
execution of our agreement with Dow, we issued warrants to Dow to purchase
shares of our common stock, which have since expired. As of December
31, 2007, we have paid an aggregate of $5.2 million to Dow in milestone
payments. We remain obligated to pay Dow additional milestone
payments as, and if, our sales of QUADRAMET increase and royalties, which are
subject to certain minimum amounts, based on future sales of
QUADRAMET.
Intellectual
Property Position Related to PROSTASCINT
In 1987,
Dr. Julius S. Horosziewicz first identified PSMA in a prostate cancer cell line,
known as LNCaP, by generating a monoclonal antibody against the
protein. That monoclonal antibody, known as 7E11, is conjugated via a
proprietary linker technology to the radioisotope indium-111 to produce the
PROSTASCINT product. Dr. Horosziewicz's original patent claiming the
7E11 antibody, as well as additional patents relating to the PROSTASCINT product
and commercialization rights thereto, were assigned to us in
1989. Under our agreement, we have made, and may continue to make,
certain payments to Dr. Horosziewicz, which obligation will remain in effect
until the expiration of the last related patent in 2010.
As of
December 31, 2007, we were the owner of several issued United States patents and
certain corresponding foreign patents relating to PROSTASCINT. One of
these, U.S. Pat. No. 5,162,504, is the original Horosziewicz patent and includes
claims directed to the monoclonal antibody and the cell line that produces
it. We have obtained an extension of the term for this U.S. patent,
which will now expire October 28, 2010. U.S. Pat. No. 4,671,958 and
U.S. Pat. No. 4,741,900, both of which expired on June 9, 2004, included claims
directed to antibody conjugates such as PROSTASCINT, methods for preparing such
conjugates, methods for using such conjugates for in vivo imaging, testing and
therapeutic treatment, and methods for delivering radioisotopes by linking them
to such antibodies. U.S. Pat. No. 4,867,973, which also expired on
June 9, 2004, included claims directed to antibody conjugates such as
PROSTASCINT, and methods for preparing such conjugates. The foregoing
patents, which will expire in 2010 (or expired in 2004, as noted), provided or
provide the primary patent protection for
PROSTASCINT. We also currently own the trademark
PROSTASCINT. We are responsible for the costs of prosecuting and
maintaining this intellectual property.
On
November 7, 2007, Eastern Virginia Medical School (“EVMS”) filed
a complaint against the Company in the United States District Court for the
Eastern District of Virginia. In the complaint, EVMS purports that
the Company’s PROSTASCINT product infringes a patent owned by EVMS and
previously licensed to the Company under an agreement between EVMS and the
Company entered into in 1991. In February 2008, the parties executed a
non-binding term sheet setting forth mutually acceptable terms for settlement of
the pending litigation between the parties. Pursuant to the term
sheet, Cytogen and EVMS are currently working toward finalizing and executing a
settlement agreement, as well as a new license agreement. Under our
agreement with Dr. Horosziewicz, we may offset our litigation expenses against
payments we make to Dr. Horosziewicz.
Intellectual
Property Position Related to PSMA
In 1993,
we entered into an option and license agreement with the Sloan-Kettering
Institute for Cancer Research (SKICR), and began a development program involving
PSMA and our proprietary monoclonal antibody. In November 1996, we
exercised our option and obtained an exclusive worldwide license to this
technology. Under our agreement with SKICR, we received, or
subsequently obtained, rights to patents and patent applications including: U.S. Pat.
Nos. 5,538,866 (expiring July 23, 2013), 5,935,818 (expiring August 10, 2016),
and 6,569,432 (expiring February 24, 2015), and U.S. Pat. Appln. Nos. 08/403,803
(filed March 17, 1995), 08/466,381 (filed June 6, 1995), 08/470,735 (filed June
6, 1995), 08/481,916 (filed June 7, 1995), 08/894,583 (filed February 23, 1998),
09/724,026 (filed November 28, 2000), 09/990,595 (November 21, 2001), 10/012,169
(filed October 24, 2001), 10/443,694 (filed May 21, 2003), and 10/614,625 (filed
July 2, 2003). The filing, prosecution and maintenance of licensed
patents, as defined in the agreement, are the responsibility of SKICR, but are
at our discretion and expense. In the event that we decide not to
file, prosecute or maintain any part of the licensed patents, SKICR may do so at
its own expense.
The license shall terminate on the date of expiration of the last to
expire of the licensed patents unless it is terminated earlier in accordance
with the terms of the agreement. The license agreement is also
terminable by us upon 60 days notice to SKICR. Upon execution of our
agreement with SKICR, we paid to SKICR an option fee, a license fee and a
reimbursement for patent expenses paid by SKICR. We are obligated to
make certain royalty payments, which are subject to certain minimum amounts and
other annual payments to SKICR for the term of the agreement.
Intellectual
Property Position Related to AxCell Biosciences
In
November 2006, we were issued United States patent number 7,135,457 covering our
oral drug delivery agents – random peptide compositions that bind to
gastro-intestinal tract (GIT) transport receptors. The patent
specifically covers compositions of our oral delivery agents that are capable of
facilitating transport of an active agent through a human or animal
gastro-intestinal tract (GIT), and derivatives and analogs thereof, and
nucleotide sequences coding for said
proteins and derivatives. The oral delivery agents have use in
facilitating transport of active agents from the lumenal side of the GIT into
the systemic blood system, and/or in targeting active agents to the
GIT.
The
patents and patent applications we have licensed from University of North
Carolina at Chapel Hill (UNC) related to novel reagents and technology for
identifying targeting peptides include: U.S. Pat. Nos. 5,498,538 (expiring March
12, 2013), 5,625,033 (expiring April 29, 2014), 5,747,334 (expiring May 5,
2015), 5,844,076 (expiring December 1, 2015), 5,852,167 (expiring December 22,
2015), 5,935,823 (expiring August 10, 2016), 6,011,137 (expiring April 3, 2016),
6,184,205 (expiring July 22, 2014), 6,303,574 (expiring July 22, 2014),
6,309,820 (expiring April 7, 2015), 6,432,920 (expiring July 22, 2014),
6,703,482 (expiring July 22, 2014), and 6,709,821 (expiring April 7, 2015), and
U.S. Pat. Appln. Nos. 10/161,791 (filed May 31, 2002), and 10/185,050 (filed
June 28, 2002). We are responsible for the costs of filing,
prosecuting and maintaining domestic and foreign patents and patent applications
under our agreement with UNC.
Government
Regulation
The
development, manufacture and sale of medical products utilizing our technology
are governed by a variety of federal, state and local statutes and regulations
in the United States and by comparable laws and agency regulations in most
foreign countries. Our three actively marketed products consist of a
biologic (PROSTASCINT®), a drug
(QUADRAMET®) and a
device CAPHOSOL®. Future
applications for these may include expanded indications and could result in
additional drugs, biologics, devices or combination products. Our
product development pipeline contains various other products, the majority of
which will likely be classified as new drugs or biologics.
In the
United States, medical products that we currently market or intend to develop
are regulated by the Food and Drug Administration (FDA) under the Federal Food,
Drug, and Cosmetic Act (FD&C Act) and the Public Health Service Act (PHS
Act), and the rules and regulations promulgated thereunder. These
laws and regulations require, among other things, carefully controlled research
and preclinical and clinical testing of products, government notification,
review and/or approval or clearance prior to investigating or marketing of the
product, inspection of manufacturing and production facilities, adherence to
current Good Manufacturing Practices (cGMP), and compliance with product and
manufacturer specifications or standards, and requirements for reporting,
advertising, promotion, export, packaging, and labeling, and other applicable
regulations.
The
FD&C Act requires that our products be manufactured in FDA registered
facilities subject to inspection. The manufacturer must be in
compliance with cGMP, which imposes certain procedural, substantive, and
recordkeeping requirements upon us and our manufacturing partners with respect
to manufacturing and quality control activities, and, for devices, product
design. To ensure full technical compliance with such regulations, a
manufacturer must spend funds, time and effort in the areas of production and
quality control. These regulations may also apply to
us. Any failure by us or our manufacturing partners to comply with
the requirements of cGMP could have a material adverse effect on our business,
financial condition and results of operations.
FDA
approval of our proposed products, including a review of the manufacturing
processes, controls and facilities used to produce such products, will be
required before such products may be marketed in the United
States. The process required by the FDA before drug, biological or
medical device products may be approved for marketing in the United States
generally involves:
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Preclinical
laboratory and animal tests that are conducted consistent with the FDA's
good laboratory practice
regulations.
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Submission
to the FDA of an Investigational New Drug Application (IND) (for a drug or
biologic) or Investigational Device Exemption (IDE) (for a device), which
must become effective before clinical trials may begin; further, approval
of the investigation by an Institutional Review Board (IRB) must also be
obtained before the investigational product may be given to human
subjects.
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Human
clinical trial(s) to establish the safety and efficacy of the product for
its intended indication.
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Submission
to the FDA of a marketing application-New Drug Application (NDA) for a
drug, Biologics License Application (BLA) for a biologic, and a premarket
approval application (PMA) or premarket notification (510(k)) for a
device.
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FDA
review and approval or clearance of the marketing
application. Radiopharmaceutical drugs are subject to
additional requirements pertaining to the description and support of their
indications for use, and the evaluation of product effectiveness and
safety, including, radiation safety. We cannot assure you that
the FDA review of marketing applications will result in product approval
or clearance on a timely basis, or at
all.
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Clinical
trials for drugs, devices, and biologics typically are performed in three phases
to evaluate the safety and efficacy of the product. In Phase 1, a
product is tested in a small number of healthy subjects or patients primarily
for safety at one or more dosages. Phase 2 evaluates, in addition to
safety, the efficacy of the product against particular diseases in a patient
population that is generally somewhat larger than Phase 1. Clinical
trials of certain diagnostic and cancer therapeutic agents may combine Phase 1
and Phase 2 into a single Phase 1/2 study. In Phase 3, the product is
evaluated in a larger patient population sufficient to generate data to support
a claim of safety and efficacy within the meaning of the FD&C Act or PHS
Act. Permission by the FDA must be obtained before clinical testing
can be initiated within the United States. This permission is
obtained by submission of an IND/IDE application which typically includes, among
other things, the results of in vitro and non-clinical
testing and any previous human testing done elsewhere. The FDA has 30
days to review the information submitted and makes a final decision whether to
permit clinical testing with the drug, biologic or device. However,
this process can take longer if the FDA raises questions or asks for additional
information regarding the IND/IDE application. Unless the FDA
notifies the sponsor that the IND/IDE is subject to a clinical hold during the
30 day review period, the IND/IDE is considered in effect and the trial may
commence.
We cannot assure you that
submission of an IND or IDE will result in the ability to commence clinical
trials. In addition, after a trial begins, the FDA may place it on
hold or terminate it if, among other reasons, it concludes that clinical
subjects are being exposed to an unacceptable health risk. In
addition, clinical trials require IRB approval before the drug
may be
given to subjects and are subject to continuing IRB review. An IRB
may suspend or terminate approval if the IRB's requirements are not followed or
if unexpected serious harm to subjects is associated with the
trial. The FDA may decide not to consider, in support of an
application for approval or clearance, any data that was collected in a trial
without IRB approval and oversight. After completion of in
vitro, non-clinical and clinical testing, authorization to market a drug,
biologic or device must be granted by the FDA. The FDA grants
permission to market through the review and approval or clearance of either an
NDA, BLA, PMA, or 510(k). Historically, monoclonal antibodies have
been regulated through the FDA's Center for Biologics Evaluation and Research
(CBER). As of late 2003, monoclonal antibodies, which include
PROSTASCINT, were transferred to the Center for Drug Evaluation and Research
(CDER), for regulation, review and approval.
An NDA is
an application to the FDA to market a new drug. A BLA is an
application to the FDA to market a biological product. An NDA or BLA,
depending on the submission, must contain, among other things, information on
chemistry, manufacturing controls and potency and purity; nonclinical
pharmacology and toxicology; human pharmacokinetics and bioavailability; and
clinical data. The new drug or biologic may not be approved for
marketing in the United States until the FDA has determined that the NDA product
is safe and effective or that the BLA product is safe, pure, and potent and the
facility in which it is manufactured, processed, packed or held meets standards
designed to assure its continued safety, purity, and potency. For
both NDAs and BLAs, the application will not be approved until the FDA conducts
a manufacturing inspection and approves the applicable manufacturing process for
the drug or biologic. A PMA is an application to the FDA to market
certain medical devices, which must be approved in order for the product to be
marketed. It must be supported by valid scientific evidence, which
typically includes extensive data, including pre-clinical data and clinical data
from well-controlled clinical trials to demonstrate the safety and effectiveness
of the device. Product testing, manufacturing, controls,
specifications and information must also be provided, and a pre-approval
inspection is normally conducted. NDA, BLA, and PMA submissions may
be refused review if they do not meet submission requirements.
Conducting
the studies, preparing these applications and securing approval from the FDA is
expensive and time consuming, and takes several years to
complete. Difficulties or unanticipated costs may be encountered by
us or our licensees in their respective efforts to secure necessary governmental
approval or licenses, which could delay or preclude us or our licensees from
marketing their products. We cannot assure you that approvals of our
proposed products, processes or facilities will be granted on a timely basis, or
at all. Limited indications for use or other conditions could also be
placed on any approvals that could restrict the commercial applications of
products. With respect to patented products or technologies, delays
imposed by the government approval process may materially reduce the period
during which we will have the exclusive right to exploit them, because patent
protection lasts only for a limited time, beginning on the date the patent is
first granted (in the case of United States patent applications filed
prior to June 6, 1995) and when the patent application is first filed (in the
case of patent applications filed in the United States after June 6, 1995, and
applications filed in the European Economic Community). We intend to
seek to maximize the useful lives of our patents under the Patent Term
Restoration Act of 1984 in the United States and under similar laws if available
in other countries.
Our new
drug products may be subject to generic competition. Once a NDA is
approved, the product covered thereby becomes a "listed drug" which can, in
turn, be cited by potential competitors in support of approval of an abbreviated
new drug application (ANDA). An ANDA provides for marketing of a drug
product that has the same active ingredients in the same strengths and dosage
form as the listed drug and has been shown through bioequivalence testing to be
therapeutically equivalent to the listed drug. Federal law provides
for a period of three years of exclusivity following approval of a listed drug
that contains previously approved active ingredients but is approved in a new
dosage, dosage form, route of administration or combination, or for a new use,
the approval of which was required to be supported by new clinical trials
conducted by or for the sponsor. Federal law also provides a period
of five years following approval of a drug containing no previously approved
active ingredients, during which ANDAs for generic versions of those drugs
cannot be submitted unless the submission accompanies a challenge to a listed
patent, in which case the submission may be made four years following the
original product approval. Additionally, in the event that the
sponsor of the listed drug has properly informed the FDA of patents covering its
listed drug, applicants submitting an ANDA referencing that drug are required to
make certifications including that it believes one or more listed patents are
invalid or not infringed. If the ANDA applicant certifies that it
does not intend to market its generic product before some or all listed patents
on the listed drug expire, then the FDA cannot grant effective approval of the
ANDA until those patents expire. The first of the abbreviated new
drug applicant(s) submitting substantially complete applications certifying that
listed patents for a particular product are invalid or not infringed may qualify
for a period of 180 days exclusivity running from when the generic product is
first marketed, during which subsequently submitted ANDAs cannot be granted
effective approval.
Certain
of our future products may be regulated by the FDA as combination
products. Combination products are products comprised of a
combination of two or more different types of components, (e.g., drug/device,
device/biologic, drug/device/biologic), or are comprised of two or more separate
different types of products packaged together for use, or two or more different
types of products packaged separately but labeled for use in combination with
one another. The regulation of a combination product is determined by
the product's primary mode of action. For example, a combination
drug/device that has a primary mode of action as a drug would be regulated by
the Center for Drug Evaluation and Research under an NDA. In some
cases, however, consultative reviews and/or separate approvals by each agency
Center with jurisdiction over a component may be required. The
product designation, approval pathway, and submission requirements for a
combination product may be difficult to predict, and the approval process may be
fraught with unanticipated delays and difficulties. In addition,
post-approval requirements may be more extensive than for single entity
products. Even if products such as PROSTASCINT or QUADRAMET that we
intend to develop for use with other separately regulated products are not
regulated as combination products, they may be subject to similar multi-Center
consultative reviews and additional post-market requirements.
Once the
FDA approves a product, we are required to maintain approval status of the
product by providing certain updated safety and efficacy information at
specified intervals. Most product or labeling changes to drugs or
biologics as well as any change in a manufacturing process or equipment that has
a substantial potential to adversely affect the safety or effectiveness of the
product for a drug or biologic, or, for a device, changes that affect safety and
effectiveness, would necessitate additional FDA review and
approval. Post approval changes in packaging or promotional materials
may also necessitate further FDA review and approval. Additionally,
we are required to meet other requirements specified by the FD&C Act,
including but not limited to, cGMPs, enforced by periodic inspections, adverse
event reporting, requirements governing labeling and promotional materials and,
for drugs, biologics and restricted and PMA devices, requirements regarding
advertising, and the maintenance of records. Failure to comply with
these requirements or the occurrence of unanticipated safety effects from the
products during commercial marketing could result in product marketing
restrictions, product withdrawal or recall and/or public notifications, or other
voluntary or FDA-initiated action, which could delay further marketing until the
products are brought into compliance. Similar laws and regulations
apply in most foreign countries where these products may be
marketed.
Violations
of the FD&C Act, PHS Act, or regulatory requirements at any time during the
product development process, approval process, or after approval may result in
agency enforcement actions, including voluntary or mandatory recall, license
suspension or revocation, new drug approval suspension or withdrawal, pre-market
approval withdrawal, seizure of products, fines, injunction and/or civil or
criminal penalties. Any agency enforcement action could have a
material adverse effect on our business, financial condition and results of
operations.
Fraud
and Abuse
We are
subject to various federal and state laws pertaining to health care fraud and
abuse, including anti-kickback laws, false claims laws and physician
self-referral laws. Violations of these laws are punishable by
criminal, civil and/or administrative sanctions, including, in some instances,
imprisonment and exclusion from participation in federal and state health care
programs, including Medicare, Medicaid and veterans' health
programs. Because of the far-reaching nature of these laws, we cannot
assure you that the occurrence of one or more violations of these laws would not
result in a material adverse effect on our business, financial condition and
results of operations.
Anti-Kickback
Laws
Our
operations are subject to federal and state anti-kickback
laws. Certain provisions of the Social Security Act prohibit entities
such as us from knowingly and willingly offering, paying, soliciting or
receiving any form of remuneration (including any kickbacks, bribes or rebates)
in return for the referral of items or services for which payment may be made
under a federal health care program, or in return for the recommendation,
arrangement, purchase, lease or order of items or services for which payment may
be made under a federal health care program. Violation of the federal
anti-kickback law is a felony, punishable by criminal fines and imprisonment for
up to five years or both. In addition, the Department of Health and
Human Services may impose civil penalties and exclude violators from
participation in federal health
care
programs such as Medicare and Medicaid. Many states have adopted
similar prohibitions against payments intended to induce referrals of products
or services paid by Medicaid or other third party payors.
Physician
Self-Referral Laws
We also
may be subject to federal and/or state physician self-referral
laws. Federal physician self-referral legislation (known as the Stark
law) prohibits, subject to certain exceptions, a physician from referring
Medicare or Medicaid patients to an entity to provide designated health
services, including, among other things, certain radiology and radiation therapy
services and clinical laboratory services in which the physician or a member of
his immediate family has an ownership or investment interest or has entered into
a compensation arrangement. The Stark law also prohibits the entity
receiving the improper referral from billing any good or service furnished
pursuant to the referral. The penalties for violations include a
prohibition on payment by these government programs and civil penalties of as
much as $15,000 for each improper referral and $100,000 for participation in a
circumvention scheme. Various state laws also contain similar
provisions and penalties.
False
Claims
The
federal False Claims Act imposes civil and criminal liability on individuals or
entities who submit (or cause the submission of) false or fraudulent claims for
payment to the government. Violations of the federal False Claims Act
may result in penalties equal to three times the damages which the government
sustained, an assessment of between $5,000 and $10,000 per claim, civil monetary
penalties and exclusion from participation in the Medicare and Medicaid
programs.
The
federal False Claims Act also allows a private individual to bring a qui tam suit on behalf of the
government against an individual or entity for violations of the False Claims
Act. In a qui tam
suit, the private plaintiff is responsible for initiating a lawsuit that
may eventually lead to the government recovering money of which it was
defrauded. In return for bringing the suit on the government's
behalf, the statute provides that the private plaintiff is entitled to receive
up to 30% of the recovered amount from the litigation proceeds if the litigation
is successful plus reasonable expenses and attorneys fees. Recently,
the number of qui tam
suits brought against entities in the health care industry has increased
dramatically. In addition, a number of states have enacted laws
modeled after the False Claims Act that allow those states to recover money
which was fraudulently obtained from the state.
Other Fraud and Abuse
Laws
The
Health Insurance Portability and Accountability Act of 1996 created, in part,
two new federal crimes: (i) Health Care Fraud; and (ii) False Statements
Relating to Health Care Matters. The Health Care Fraud statute
prohibits the knowing and willful execution of a scheme or artifice to defraud
any health care benefit program. A violation of the statute is a
felony and may result in fines and/or imprisonment. The False
Statements statute prohibits knowingly and willfully falsifying, concealing or
covering up a material fact by any trick, scheme or device or making any
materially false, fictitious or fraudulent statement in connection with the
delivery of
or
payment for health care benefits, items or services. A violation of
this statute is a felony and may result in fines and/or imprisonment.
We
currently maintain several programs designed to minimize the likelihood that we
would engage in conduct or enter into contracts in violation of the fraud and
abuse laws. Contracts of the types subject to these laws are reviewed
and approved by legal department personnel. We also maintain various
educational programs designed to keep our managers updated and informed on
developments with respect to the fraud and abuse laws and to reinforce to all
employees the policy of strict compliance in this area. While we
believe that all of our applicable agreements, arrangements and contracts comply
with the various fraud and abuse laws and regulations, we cannot provide
assurance that further administrative or judicial interpretations of existing
laws or legislative enactment of new laws will not have a material adverse
impact on our business.
Other
regulations
In
addition to regulations enforced by the FDA, and federal and state laws
pertaining to health care fraud and abuse, we are also subject to regulation
under the state and local authorities and other federal statutes and agencies
including the Occupational Safety and Health Act, the Environmental Protection
Act, the Toxic Substances Control Act, the Resource Conservation and Recovery
Act and the Nuclear Regulatory Commission.
Foreign
regulatory approval
The
regulatory approval process in Europe has changed over the past few
years. There are two regulatory approval processes in Europe for
products developed by us. Beginning in 1995, the centralized
procedure became mandatory for all biotechnology products. Under this
regulatory scheme, the application is reviewed by two scientific project leaders
referred to as the rapporteur and co-rapporteur. Their roles are to
prepare assessment reports of safety and efficacy and for recommending the
approval for full European Union marketing.
The
second regulatory scheme, referred to as the Mutual Recognition Procedure, is a
process whereby a product's national registration in one member state within the
European Union may be "mutually recognized" by other member states within the
European Union.
Substantial
requirements, comparable in many respects to those imposed under the FD&C
Act, will have to be met before commercial sale is permissible in most
countries. We cannot assure you, however, as to whether or when
governmental approvals, other than those already obtained, will be obtained or
as to the terms or scope of those approvals.
Health
Care Reimbursement
Sales of
our products depend in part on the coverage status of our products and the
availability of reimbursement by various payers, including federal health care
programs, such as Medicare and Medicaid, as well as private health insurance
plans. Whether a product receives favorable coverage depends upon a
number of factors, including the payer's determination that the product is
medically reasonable and necessary for the diagnosis or treatment of the illness
or injury for which it is administered and not otherwise excluded from coverage
by law or regulation. There may be significant delays in obtaining
coverage for newly-approved products,
and
coverage may be limited or expanded outside the purpose(s) for which the product
is approved by the FDA.
Eligibility
for coverage does not imply that any product will be reimbursed in all cases or
at a rate that allows us or any health care provider to make a profit or even
cover costs, including research, development, production, sales, and
distribution costs. Although new laws provide for expedited coverage
for new technology, interim payments for new products, if applicable, may also
not be sufficient to cover our costs and may not be made
permanent. Reimbursement rates may vary according to the approved and
covered use of the product and the place of service in which it is used, may be
based on payments allowed for lower-cost products that are already reimbursed,
may be incorporated into existing payments for other products or services, and
may reflect budgetary constraints and/or imperfections in Medicare or Medicaid
claims data. Net prices for products may be reduced by mandatory
discounts or rebates required by law under government health care programs or by
any future relaxation of laws that restrict imports of certain medical products
from countries where they may be sold at lower prices than in the
U.S.
In
December 2003, the Medicare Prescription Drug, Improvement and Modernization Act
of 2003 were signed into law. This Act includes provisions that
reduced Medicare reimbursement for many drugs and biologicals from a
reimbursement rate of 95% of the average wholesale price to 80% of the average
wholesale price, effective January 1, 2004. As of January 2005, the
general reimbursement methodology for many drugs and biologicals is now based on
"average sales price", as defined by the Act, plus 6%.
Third
party payers often mirror Medicare coverage policy and payment limitations in
setting their own reimbursement payment and coverage policy and may have
sufficient market penetration to demand significant price
reductions. Even if successful, securing reimbursement coverage at
adequate payment levels from government and third party payers can be a time
consuming and costly process that could require us to provide additional
supporting scientific, clinical and cost-effectiveness data to permit payment
and coverage of our products to payers. Our inability to promptly
obtain product coverage and profitable reimbursement rates from
government-funded and private payers could have a material adverse effect on our
business, financial condition and our results of operations.
Although
health care funding has and will continue to be closely monitored by the
government, the ability to diagnose patients quickly and more effectively has
been one of the few areas where the government has increased health care
spending. Approval of payment for new technology has been another
area with required spending outlined in the 2004 legislative requirements.
The
Centers for Medicare and Medicaid Services (CMS) continually monitor and update
product descriptors, coverage policies, product and service codes, payment
methodologies, and reimbursement values. Although it is not possible
to predict or identify all of the risks relating to such changes, we believe
that such risks include, but are not limited to: (i) increasing price pressures
(including those imposed by regulations and practices of managed care groups and
institutional and governmental purchasers); and (ii) judicial decisions and
government laws related to health care reform including radiopharmaceutical,
pharmaceutical and device reimbursement. In
addition, an increasing emphasis on managed care has and will continue to
increase the pressure on pricing of these products and
services.
Our
business, financial condition and results of operations will continue to be
affected by the efforts of governmental and third-party payers to contain or
reduce the costs of health care. There have been, and we expect that
there will continue to be, federal and state proposals to constrain expenditures
for medical products and services, which may affect payments for therapeutic and
diagnostic imaging agents. We rely heavily on the ability to monitor
changes in reimbursement and coverage and proactively influence policy and
legislative changes in the areas of health care that directly impact our
products. We have proven our ability to monitor changes that impact
our products and have worked with the government and private payers to take
advantage of the opportunities offered by legislative and policy changes for our
products. While we cannot predict if legislative or regulatory
proposals will be adopted or the effects managed care may have on our business,
the changes in reimbursement and the adoption of new health care proposals could
have a material adverse effect on our business, financial condition and results
of operations. Further, to the extent that changes in health care
reimbursement have a material adverse effect on other prospective corporate
partners, our ability to establish strategic alliances may be materially and
adversely affected. In certain foreign markets, the pricing and
profitability of our products are generally subject to governmental
controls.
Employees
As of
March 5, 2008, we had 76 full-time employees. Of such 76 persons, 49 were
employed in sales and marketing, 6 in medical affairs, 5 in operations and
regulatory, and 16 in administration and management. We believe that
we have been successful in attracting skilled and experienced
employees. None of our employees are covered by a collective
bargaining agreement. All of our employees have executed
confidentiality agreements. We consider relations with our employees
to be excellent.
Management
considers the retention of skilled employees to be a critical success factor for
the business. There is no guarantee that we can retain our existing
employee base, or that we can successfully attract new employees to the company
going forward.
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Item
1A.
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Risk
Factors
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Investing in our common stock involves a high degree of
risk. You should carefully consider the risks and uncertainties
described below together with other information included or incorporated by
reference in this Annual Report on Form 10-K in your decision as to whether or
not to invest in our common stock. If any of the following risks or
uncertainties actually occur, our business, financial condition or results of
operations would likely suffer. In that case, the trading price of
our common stock could fall, and you may lose all or part of the money you paid
to buy our common stock.
We
will need to raise additional capital which may not be available or only
available on less favorable terms.
Our
operations to date have required significant cash expenditures. Our
cash and cash equivalents were $8.9 million as of December 31, 2007. During
the year ended December 31, 2007, net cash used in operating activities was
$31.1 million. We expect that our existing capital resources at
December 31, 2007, should be adequate to fund our operations and
commitments
into
the second quarter of 2008. We have incurred negative cash flows from operations
since our inception, and have expended, and expect to continue to expend in the
future, substantial funds to implement our planned product development efforts,
including acquisition of complementary clinical stage and marketed products,
research and development, clinical studies and regulatory activities, and to
further our marketing and sales programs. We expect that our existing capital
resources at December 31, 2007, should be adequate to fund our operations and
commitments into the second quarter of 2008. However, 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.
If we are
unable to consummate the merger with EUSA, we will need to raise additional
capital in the second quarter of 2008. If we are unable to raise additional
financing, we will be required to reduce our capital expenditures, scale back
our sales and marketing or research and development plans, reduce our workforce,
license to others products or technologies we would otherwise seek to
commercialize ourselves, sell certain assets, cease operations or declare
bankruptcy. There can be no assurance that we can obtain equity financing, if at
all, on terms acceptable to us. 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 clinical stage and marketed products;
(iii) progress in our product development efforts and the magnitude and
scope of such efforts; (iv) progress with clinical trials;
(v) progress with regulatory affairs activities; (vi) the cost of
filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights; (vii) competing technological and market
developments; and (viii) the expansion of strategic alliances for the
sales, marketing, manufacturing and distribution of our products. To the extent
that the currently available funds and revenues are insufficient to meet current
or planned operating requirements, we will be required to obtain additional
funds through equity or debt financing, strategic alliances with corporate
partners and others, or through other sources. We cannot assure you that the
financial sources described above will be available when needed or at terms
commercially acceptable to us. If adequate funds are not available, we may be
required to delay, further scale back or eliminate certain aspects of our
operations or attempt to obtain funds through arrangements with collaborative
partners or others that may require us to relinquish rights to certain of our
technologies, product candidates, products or potential markets. If adequate
funds are not available, our business, financial condition and results of
operations will be materially and adversely affected.
We
have a history of operating losses and an accumulated deficit and expect to
incur losses in the future.
Given the
high level of expenditures associated with our business and our inability to
generate revenues sufficient to cover such expenditures, we have had a history
of operating losses since our inception. We had net losses of $25.7
million, $15.1 million and $26.3 million for the
years ended December 31, 2007, 2006 and 2005, respectively. We had an
accumulated deficit of $453.4 million as of December 31, 2007. We
expect that our existing capital resources at December 31, 2007, should be
adequate to fund our operations and commitments into the second quarter of
2008.
We will
need to raise additional capital before the available resources at December 31,
2007 are consumed, which is expected to be in the second quarter of
2008. If we are unable to raise additional financing, we could be
required to reduce our capital expenditures, scale back our sales and marketing
or research and development plans, reduce our workforce, license to others
products or technologies we would otherwise seek to
commercialize ourselves, sell certain assets, cease operations or
declare bankruptcy. There can be no assurance that we can obtain
equity financing, if at all, on terms acceptable to us.
In order
to develop and commercialize our technologies and launch and expand our
products, we expect to incur significant increases in our expenses over the next
several years. As a result, we will need to generate significant
additional revenue to become profitable.
To date,
we have taken affirmative steps to address our trend of operating
losses. Such steps include, among other things:
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undergoing
steps to realign and implement our focus as a product-driven
biopharmaceutical company;
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establishing
and maintaining our in-house specialty sales force;
and
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enhancing
our marketed product portfolio through marketing alliances and strategic
arrangements.
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Although
we have taken these affirmative steps, we may never be able to successfully
implement them, and our ability to generate and sustain significant additional
revenues or achieve profitability will depend upon the risk factors discussed
elsewhere in this section entitled, "Risk Factors". As a result, we
may never be able to generate or sustain significant additional revenue or
achieve profitability.
Our
auditors have expressed substantial doubt about our ability to continue as a
going concern.
Our
audited financial statements for the fiscal year ended December 31, 2007, were
prepared under the assumption that we will continue our operations as a going
concern. We were incorporated in 1980, and do not have a history of
earnings. As a result, our registered independent accountants in
their audit report have expressed substantial doubt about our ability to
continue as a going concern. Continued operations are dependent on
our ability to complete equity or debt formation activities or to generate
profitable operations. Such capital formation activities may not be
available or may not be available on reasonable terms. Our financial
statements do not include any adjustments that may result from the outcome of
this uncertainty. If we cannot continue as a viable entity, our
stockholders may lose some or all of their investment in the
Company.
Our
efforts to enhance the value of the Company for our stockholders may not be
successful. There is no guarantee that our stockholders will realize greater
value for, or preserve existing value of, their shares of the
Company.
On
November 5, 2007, we announced that we engaged an investment banking firm to
assist us in identifying and evaluating strategic alternatives intended to
enhance the future growth potential of our pipeline and maximize stockholder
value.
On March
11, 2008, the Company announced that it has entered into a definitive merger
agreement with EUSA Pharma Inc., pursuant to which all outstanding shares of the
Company will be converted into $0.62 per share in cash, which represents a
premium of approximately 35% over the closing price of $0.46 on March 10,
2008. EUSA Pharma is a transatlantic specialty pharmaceutical company
focused on oncology, pain control and critical care.
Closing
of the merger is conditioned on, among other things, the receipt of approval by
holders of a majority of the outstanding shares of Cytogen’s common stock, and
the parties entrance into a sublicense agreement for the European and Asian
rights to the Company’s Caphosol product. It is also subject to
certain regulatory review and other customary closing conditions. The
transaction is expected to close in the second quarter of 2008. Upon
closing of the merger, EUSA Pharma intends to apply to delist all of Cytogen’s
issued shares from the NASDAQ Stock Market.
We
depend on sales of QUADRAMET and PROSTASCINT for substantially all of our
near-term revenues.
We expect
QUADRAMET and PROSTASCINT to account for substantially all of our product
revenues in the near future. For the year ended December 31, 2007,
revenues from QUADRAMET and PROSTASCINT accounted for approximately 46% and 48%,
respectively, of our product revenues. For the year ended December
31, 2006, revenues from QUADRAMET and PROSTASCINT accounted for approximately
47% and 53%, respectively, of our product revenues. For the year
ended December 31, 2005, revenues from QUADRAMET and PROSTASCINT accounted for
approximately 53% and 47%, respectively, of our product revenues. If
QUADRAMET or PROSTASCINT do not achieve broader market acceptance, either
because we fail to effectively market such products or our competitors introduce
competing products, we may not be able to generate sufficient revenue to become
profitable.
We
will depend on market acceptance of CAPHOSOL for future revenues.
On
October 11, 2006, we entered into a license agreement with InPharma granting us
exclusive marketing rights for CAPHOSOL in North America. We
introduced CAPHOSOL late in the first quarter of 2007. Through
December 31, 2007, we have recognized $1.3 million of revenues from
CAPHOSOL. Our future growth and success will depend on market
acceptance of CAPHOSOL by healthcare providers, third-party payors and
patients. Market acceptance will depend, in part, on our ability to
demonstrate to these parties the effectiveness of this product. Sales
of this product will also depend on the availability of favorable coverage and
reimbursement by governmental healthcare programs such as Medicare and Medicaid
as well as private health insurance plans. If CAPHOSOL does not
achieve market acceptance, either
because
we fail to effectively market such product or our competitors introduce
competing products, we may not be able to generate sufficient revenue to become
profitable.
A
small number of customers account for the majority of our sales, and the loss of
one of them, or changes in their purchasing patterns, could result in reduced
sales, thereby adversely affecting our operating results.
We sell
our products to a small number of radiopharmacy networks. During the
year ended December 31, 2007, we received 63% of our total revenues from three
customers, as follows: 43% from Cardinal Health; 14% from Mallinckrodt Inc.; and
6% from Anazao Health Corporation. During the year ended December 31,
2006, we received 64% of our total revenues from three customers, as follows:
41% from Cardinal Health; 14% from Mallinckrodt Inc.; and 9% from GE
Healthcare. During the year ended December 31, 2005, we received 67%
of our total revenues from three customers, as follows: 47% from Cardinal
Health; 11% from Mallinckrodt Inc.; and 9% from GE Healthcare.
The small
number of radiopharmacies, consolidation in this industry or financial
difficulties of these radiopharmacies could result in the combination or
elimination of customers for our products. We anticipate that our
results of operations in any given period will continue to depend to a
significant extent upon sales to a small number of customers. As a
result of this customer concentration, our revenues from quarter to quarter and
business, financial condition and results of operations may be subject to
substantial period-to-period fluctuations. In addition, our business,
financial condition and results of operations could be materially adversely
affected by the failure of customer orders to materialize as and when
anticipated. None of our customers have entered into an agreement
requiring on-going minimum purchases from us. We cannot assure you
that our principal customers will continue to purchase products from us at
current levels, if at all. The loss of one or more major customers
could have a material adverse effect on our business, financial condition and
results of operations.
We
depend on acceptance of our products by the medical community for the
continuation of our revenues.
Our
business, financial condition and results of operations depend on the acceptance
of our marketed products as safe, effective and cost-efficient alternatives to
other available treatment and diagnostic protocols by the medical community,
including:
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health
care providers, such as hospitals and physicians;
and
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third-party
payors, including Medicare, Medicaid, private insurance carriers and
health maintenance organizations.
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With
respect to PROSTASCINT, our customers, including technologists and physicians,
must successfully complete our Partners in Excellence, or PIE, Program, a
proprietary training program designed to promote the correct acquisition and
interpretation of PROSTASCINT images. This product is
technique-dependent and requires a learning commitment by technologists and
physicians and their acceptance of this product as part of their
treatment
practices. With
respect to QUADRAMET, we believe that challenges we may encounter in generating
market acceptance for this product include the need to further educate patients
and physicians about QUADRAMET's properties, approved uses and how QUADRAMET may
be differentiated from other radiopharmaceuticals and used in combination with
other treatments for the palliation of pain due to metastatic bone disease, such
as analgesics, opioids, bisphosphonates, and chemotherapeutics. If we
are unable to educate our existing and future customers about PROSTASCINT and
QUADRAMET, our revenues may decrease. If PROSTASCINT or QUADRAMET do
not achieve broader market acceptance, we may not be able to generate sufficient
revenue to become profitable.
Generating
market acceptance and sales of our products has proven difficult. We
introduced ONCOSCINT® CR/OV in December 1992, PROSTASCINT in October 1996,
QUADRAMET in March 1997, BRACHYSEED™ in February 2001, NMP22 BLADDERCHEK® in
November 2002, SOLTAMOX in August 2006 and CAPHOSOL in March
2007. Revenues for PROSTASCINT grew from $55,000 in 1996 to $9.6
million in 2007. Royalties and sales of QUADRAMET grew from $3.3
million in 1997 to $9.3 million in 2007. We discontinued selling
ONCOSCINT CR/OV in December 2002, brachytherapy products in January 2003, NMP22
BLADDERCHEK in December 2004 and SOLTAMOX in January 2008. Currently,
substantially all of our revenues are derived from sales of PROSTASCINT,
QUADRAMET and CAPHOSOL.
There
are risks associated with the manufacture and supply of our
products.
If we are
to be successful, our products will have to be manufactured by contract
manufacturers in compliance with regulatory requirements and at costs acceptable
to us. If we are unable to successfully arrange for the manufacture of our
products and product candidates, either because potential manufacturers are not
a current Good Manufacturing Practices or cGMP compliant, are not available or
charge excessive amounts, we will not be able to successfully commercialize our
products and our business, financial condition and results of operations will be
significantly and adversely affected.
PROSTASCINT
is currently manufactured at cGMP compliant manufacturing facility operated by
Laureate Pharma, L.P. Although we entered into another agreement with
Laureate in September 2006 which provides for Laureate's manufacture of
PROSTASCINT for us, our failure to maintain a long term supply agreement on
commercially reasonable terms will have a material adverse effect on our
business, financial condition and results of operations. During 2007,
the Company recorded a charge of $765,000 for costs related to a failed
ProstaScint batch. We cannot be certain that future PROSTASCINT
batches produced by Laureate will not have similar problems, which will
then result in products not available for commercial
purposes.
We have an agreement with Bristol-Myers Squibb Medical Imaging, Inc., or BMSMI, to manufacture QUADRAMET for us. Both primary components of QUADRAMET, Samarium-153 and EDTMP, are provided to BMSMI by outside suppliers. Due to radioactive decay, Samarium-153 must be produced on a weekly basis. BMSMI obtains its requirements for Samarium-153 from a sole supplier and EDTMP from another sole supplier. Alternative sources for these components may not be readily available, and any alternative supplier would have to be
identified
and qualified, subject to all applicable regulatory guidelines. If BMSMI cannot
obtain sufficient quantities of the components on commercially reasonable terms,
or in a timely manner, it would be unable to manufacture QUADRAMET on a timely
and cost-effective basis, which would have a material adverse effect on our
business, financial condition and results of operations.
In
January 2008, BMSMI was acquired by Avista Capital Partners. Since
our agreement requires two years prior written notice to terminate and we have
not received any termination notice from BMSMI, we do not expect any disruption
in BMSMI’s performance of its obligations under our agreement for 2008 and
2009. We currently have no alternative manufacturer or supplier for
QUADRAMET and any of its components.
We have a
manufacturing agreement with Holopack to manufacture CAPHOSOL for
us. The agreement has a term of two years and automatically renews
for an additional year. Such agreement is terminable by Holopack or
us on three months notice prior to the end of each term period. Our
failure to maintain a long term supply agreement for CAPHOSOL on commercially
reasonable terms will have a material adverse effect on our business, financial
condition and results of operations.
We, along
with our contract manufacturers and testing laboratories are required to adhere
to FDA regulations setting forth requirements for cGMP, and similar regulations
in other countries, which include extensive testing, control and documentation
requirements. Ongoing compliance with cGMP, labeling and other applicable
regulatory requirements is monitored through periodic inspections and market
surveillance by state and federal agencies, including the FDA, and by comparable
agencies in other countries. Failure of our contract vendors or us to comply
with applicable regulations could result in sanctions being imposed on us,
including fines, injunctions, civil penalties, failure of the government to
grant pre-market clearance or pre-market approval of drugs, delays, suspension
or withdrawal of approvals, seizures or recalls of products, operating
restrictions and criminal prosecutions any of which could significantly and
adversely affect our business, financial condition and results of
operations.
We
rely heavily on our collaborative partners.
Our
success depends largely upon the success and financial stability of our
collaborative partners. We have entered into the following agreements
for the development, sale, marketing, distribution and manufacture of our
products, product candidates and technologies:
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a
license agreement with The Dow Chemical Company relating to the QUADRAMET
technology;
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a
manufacturing and supply agreement for the manufacture of QUADRAMET with
BMSMI;
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a
manufacturing agreement for the manufacture of PROSTASCINT with Laureate
Pharma, L.P.;
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a
distribution services agreement with Cardinal Health 105, Inc. (formerly
CORD Logistics, Inc.) for
PROSTASCINT;
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a
license agreement with The Dow Chemical Company relating to Dow's
proprietary MeO-DOTA bifunctional chelant technology for use with our
CYT-500 program;
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a
purchase and supply agreement with OTN for the distribution of
CAPHOSOL;
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a
license agreement with InPharma AS for the marketing of CAPHOSOL;
and
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a
manufacturing agreement with Holopack for the manufacturing and supply of
CAPHOSOL.
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Because
our collaborative partners are responsible for certain manufacturing and
distribution activities, among others, these activities are outside our direct
control, and we rely on our partners to perform their obligations. In
the event that our collaborative partners are entitled to enter into third party
arrangements that may economically disadvantage us, or do not perform their
obligations as expected under our agreements, our products may not be
commercially successful. As a result, any success may be delayed and
new product development could be inhibited with the result that our business,
financial condition and results of operation could be significantly and
adversely affected.
If our
collaborative agreements expire or are terminated and we cannot renew or replace
them on commercially reasonable terms, our business and financial results may
suffer. If the agreements described above expire or are terminated,
we may not be able to find suitable alternatives to them on a timely basis or on
reasonable terms, if at all. The loss of the right to use these
technologies that we have licensed or the loss of any services provided to us
under these agreements would significantly and adversely affect our business,
financial condition and results of operations.
In
addition to the agreements described above, we currently depend on the following
agreements for our present and future operating results:
Agreement with Dr. Horosziewicz
regarding PROSTASCINT. In 1989, we entered into an agreement
with Dr. Julius S. Horosziewicz. Under this agreement, we were
assigned certain rights to the patent claiming the 7E11 antibody, as well as
additional patents relating to the PROSTASCINT product and commercialization
rights thereto. Under this agreement, we have made, and may continue
to make, certain payments to Dr. Horosziewicz, which obligation will remain in
effect until the expiration of the last related patent on October 28,
2010.
On
November 7, 2007, Eastern Virginia Medical School (“EVMS”) filed
a complaint against the Company in the United States District Court for the
Eastern District of Virginia. In the complaint, EVMS purports that
the Company’s PROSTASCINT product infringes a patent owned by EVMS and
previously licensed to the Company under an agreement between EVMS and the
Company entered into in 1991. In February 2008, the parties executed a
non-binding
term
sheet setting forth mutually acceptable terms for settlement of the pending
litigation between the parties. Pursuant to the term sheet, Cytogen
and EVMS are currently working toward finalizing and executing a settlement
agreement, as well as a new license agreement.
Sloan-Kettering Institute for Cancer
Research. In 1993, we began a development program with SKICR
involving PSMA and our proprietary monoclonal antibody. In November
1996, we exercised an option for, and obtained, an exclusive worldwide license
from the SKICR to its PSMA-related technology. The license will
terminate on the date of expiration of the last to expire of the licensed
patents unless it is terminated earlier.
Our
business depends upon our patents and proprietary rights and the enforcement of
these rights. Our failure to obtain and maintain patent protection may
increase competition and reduce demand for our technology.
As a
result of the substantial length of time and expense associated with developing
products and bringing them to the marketplace in the biotechnology and
agricultural industries, obtaining and maintaining patent and trade secret
protection for technologies, products and processes is of vital
importance. Our success will depend in part on several factors, including,
without limitation:
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our
ability to obtain patent protection for our technologies and
processes;
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our
ability to preserve our trade secrets;
and
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our
ability to operate without infringing the proprietary rights of other
parties both in the United States and in foreign
countries.
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Although
we believe that our technology is unique and will not violate or infringe upon
the proprietary rights of any third party, we cannot assure you that these
claims will not be made or if made, could be successfully defended
against. If we do not obtain and maintain patent protection, we may
face increased competition in the United States and internationally, which would
have a material adverse effect on our business.
Since
patent applications in the U.S. are maintained in secrecy until patents are
issued, and since publication of discoveries in the scientific and patent
literature tend to lag behind actual discoveries by several months, we cannot be
certain that we were the first creator of the inventions covered by our pending
patent applications or that we were the first to file patent applications for
these inventions.
In
addition, among other things, we cannot assure you that:
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our
patent applications will result in the issuance of
patents;
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any
patents issued or licensed to us will be free from challenge and that if
challenged, would be held to be
valid;
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any
patents issued or licensed to us will provide commercially significant
protection for our technology, products and
processes;
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other
companies will not independently develop substantially equivalent
proprietary information which is not covered by our patent
rights;
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other
companies will not obtain access to our
know-how;
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other
companies will not be granted patents that may prevent the
commercialization of our technology;
or
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we
will not require licensing and the payment of significant fees or
royalties to third parties for the use of their intellectual property in
order to enable us to conduct our
business.
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Our
competitors may allege that we are infringing upon their intellectual property
rights, forcing us to incur substantial costs and expenses in resulting
litigation, the outcome of which would be uncertain.
Patent
law is still evolving relative to the scope and enforceability of claims in the
fields in which we operate. We are like most biotechnology companies
in that our patent protection is highly uncertain and involves complex legal and
technical questions for which legal principles are not yet firmly
established. In addition, if issued, our patents may not contain
claims sufficiently broad to protect us against third parties with similar
technologies or products, or provide us with any competitive
advantage.
The U.S.
Patent and Trademark Office, or PTO, and the courts have not established a
consistent policy regarding the breadth of claims allowed in biotechnology
patents. The allowance of broader claims may increase the incidence
and cost of patent interference proceedings and the risk of infringement
litigation. On the other hand, the allowance of narrower claims may
limit the value of our proprietary rights.
The laws
of some foreign countries do not protect proprietary rights to the same extent
as the laws of the United States, and many companies have encountered
significant problems and costs in protecting their proprietary rights in these
foreign countries.
We could
become involved in infringement actions to enforce and/or protect our
patents. Regardless of the outcome, patent litigation is expensive
and time consuming and would distract our management from other
activities. Some of our competitors may be able to sustain the costs
of complex patent litigation more effectively than we could because they have
substantially greater resources. Uncertainties resulting from the
initiation and continuation of any patent litigation could limit our ability to
continue our operations.
If
our technology infringes the intellectual property of our competitors or other
third parties, we may be required to pay license fees or damages.
If any relevant
claims of third-party patents that are adverse to us are upheld as valid and
enforceable, we could be prevented from commercializing our technology or could
be required to obtain licenses from the owners of such patents. We
cannot assure you that such licenses would be available or, if available, would
be on acceptable terms. Some licenses may be non-exclusive
and,
therefore, our competitors may have access to the same technology licensed to
us. In addition, if any parties successfully claim that the creation
or use of our technology infringes upon their intellectual property rights, we
may be forced to pay damages, including treble damages.
On
November 7, 2007, Eastern Virginia Medical School (“EVMS”) filed
a complaint against the Company in the United States District Court for the
Eastern District of Virginia. In the complaint, EVMS purports that
the Company’s PROSTASCINT product infringes a patent owned by EVMS and
previously licensed to the Company under an agreement between EVMS and the
Company entered into in 1991. In February 2008, the parties executed
a non-binding term sheet setting forth mutually acceptable terms for settlement
of the pending litigation between the parties. Pursuant to the term
sheet, Cytogen and EVMS are currently working toward finalizing and executing a
settlement agreement, as well as a new license agreement.
Certain
of our products are in the early stages of development and commercialization,
and we may never achieve the revenue goals set forth in our business
plan.
We began
operations in 1980 and have since been engaged primarily in research directed
toward the development, commercialization and marketing of products to improve
the diagnosis and treatment of cancer.
In April
2006, we executed a distribution agreement with Savient granting us
exclusive marketing rights for SOLTAMOX in the United States. We
introduced SOLTAMOX in the United States in the second half of 2006 and have
only recognized a nominal amount in revenues from SOLTAMOX. Due to
limited end-user demand, uncertainty regarding future market penetration, the
decision in the third quarter of 2007 to reallocate sales and marketing
resources to other products, and inventory dating issues, we assessed the
recoverability of the carrying amount of our SOLTAMOX license and determined an
impairment existed. Accordingly, during the third quarter of 2007, we recorded a
non-cash impairment charge of approximately $1.8 million to write-down this
asset to zero. Effective January 1, 2008, we ceased
selling and marketing SOLTAMOX.
In
October 2006, we entered into a license agreement with InPharma granting us
exclusive marketing rights for CAPHOSOL in North America. We
introduced CAPHOSOL late in the first quarter of 2007.
In May
2006, the U.S. Food and Drug Administration cleared an Investigational New Drug
application for CYT-500, our lead therapeutic candidate targeting
PSMA. In February 2007, we announced the initiation of the first
human clinical study of CYT-500. CYT-500 uses the same monoclonal
antibody from our PROSTASCINT molecular imaging agent, but is linked through a
higher affinity linker than is used for PROSTASCINT to a therapeutic as opposed
to an imaging radionuclide. This PSMA technology is still in the
early stages of development. We cannot assure you that we will be
able to commercialize this product.
Our
business is therefore subject to the risks inherent in an early-stage
biopharmaceutical business enterprise, such as the need:
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to
obtain sufficient capital to support the expenses of developing our
technology and commercializing our
products;
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to
ensure that our products are safe and
effective;
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to
obtain regulatory approval for the use and sale of our
products;
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to
manufacture our products in sufficient quantities and at a reasonable
cost;
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to
develop a sufficient market for our products;
and
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to
attract and retain qualified management, sales, technical and scientific
staff.
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The
problems frequently encountered using new technologies and operating in a
competitive environment also may affect our business, financial condition and
results of operations. If we fail to properly address these risks and
attain our business objectives, our business could be significantly and
adversely affected.
All
of our potential oncology products will be subject to the risks of failure
inherent in the development of diagnostic or therapeutic products based on new
technologies.
Product
development for cancer treatment involves a high degree of risk. The
product candidates we develop, pursue or offer may not prove to be safe and
effective, may not receive the necessary regulatory approvals, may be precluded
by proprietary rights of third parties or may not ultimately achieve market
acceptance. These product candidates will require substantial
additional investment, laboratory development, clinical testing and regulatory
approvals prior to their commercialization. We may experience
difficulties, such as the inability to agree with our collaborative partners on
development, initiate clinical trials or receive timely regulatory approvals,
that could delay or prevent the successful development, introduction and
marketing of new products.
Before we
obtain regulatory approvals for the commercial sale of any of our products under
development, we must demonstrate through preclinical studies and clinical trials
that the product is safe and effective for use in each target
indication. The results from preclinical studies and early-stage
clinical trials may not be predictive of results that will be obtained in
large-scale, later-stage testing. Our clinical trials may not
demonstrate safety and efficacy of a proposed product, and therefore, may not
result in marketable products. A number of companies in our industry
have suffered significant setbacks in advanced clinical trials, even after
promising results in earlier trials. Clinical trials or marketing of
any potential diagnostic or therapeutic products may expose us to liability
claims for the use of these diagnostic or therapeutic products. We
may not be able to maintain product liability insurance or sufficient coverage
may not be available at a reasonable cost. In addition, internal
development of diagnostic or therapeutic products will require significant
investments in product development, marketing, sales and
regulatory
compliance resources. We will also have to establish or contract for
the manufacture of products, including supplies of drugs used in clinical
trials, under the cGMP of the FDA. We cannot assure you that product
issues will not arise following successful clinical trials and FDA
approval.
The rate
of completion of clinical trials also depends on the rate of patient
enrollment. Patient enrollment depends on many factors, including the
size of the patient population, the nature of the protocol, the proximity of
patients to clinical sites and the eligibility criteria for the
study. Delays in planned patient enrollment may result in increased
costs and delays, which could have a harmful effect on our ability to develop
the products in our pipeline. If we are unable to develop and
commercialize products on a timely basis or at all, our business, financial
condition and results of operations could be significantly and adversely
affected.
Competition
in our field is intense and likely to increase.
All of
our products and product candidates are subject to significant competition from
organizations that are pursuing technologies and products that are the same as
or similar to our technology and products. Many of the organizations
competing with us have greater capital resources, research and development
staffs and facilities and marketing capabilities.
We face,
and will continue to face, intense competition from one or more of the following
entities:
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pharmaceutical
companies;
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biotechnology
companies;
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diagnostic
companies;
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medical
device companies;
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radiopharmaceutical
distributors;
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academic
and research institutions; and
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government
agencies.
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QUADRAMET
primarily competes with strontium-89 chloride in the radiopharmaceutical pain
palliation market. Strontium-89 chloride is manufactured and marketed
either as Metastron, by GE HealthCare, or in a generic form by Bio-Nucleonics
Pharma, Inc. GE HealthCare manufactures Metastron and sells the
product through its wholly-owned network of radiopharmacies, direct to end-users
and through other radiopharmacy distributors. The generic version is
distributed directly by the manufacturer or is sold through radiopharmacy
distributors such as Cardinal Health and Anazao Health (formerly Custom Care
Pharmacy).
Competitive
imaging modalities to PROSTASCINT include CT, MR imaging, and position emission
tomography (PET).
Currently,
there is limited consensus standard of care for oral mucositis supported by
clinical data, and to date, there has only been one commercially available
prescription pharmaceutical product approved by the FDA for oral mucositis, the
intravenous growth factor palifermin. Ice chips, local painkillers
and narcotics are also used to reduce the patient's pain, and doctors routinely
prescribe mouthwashes containing traditional antibacterial and antifungal drugs
for the treatment of oral mucositis, although most clinical trials have shown
that they have suboptimal efficacy. There are also a number of oral
rinses that have been approved as medical devices by FDA for dry mouth; however,
CAPHOSOL is the only approved calcium phosphate oral rinse that is indicated for
both oral mucositis and dry mouth.
Before we
recover development expenses for our products and technologies, the products or
technologies may become obsolete as a result of technological developments by
others or us. Our products could also be made obsolete by new
technologies, which are less expensive or more effective. We may not
be able to make the enhancements to our technology necessary to compete
successfully with newly emerging technologies and failure to do so could
significantly and adversely affect our business, financial condition and results
of operations.
We
have limited sales, marketing and distribution capabilities for our
products.
We have
established an internal sales force that is responsible for marketing and
selling CAPHOSOL, QUADRAMET and PROSTASCINT. If our internal sales
force is unable to successfully market CAPHOSOL, QUADRAMET and PROSTASCINT, our
business and financial condition may be adversely affected. If we are
unable to establish and maintain significant sales, marketing and distribution
efforts within the United States, either internally or through arrangements with
third parties, our business may be significantly and adversely
affected. In locations outside of the United States, we have not
established a selling presence. To the extent that our sales force,
from time to time, markets and sells additional products, we cannot be certain
that adequate resources or sales capacity will be available to effectively
accomplish these tasks.
Failure
of third party payors to provide adequate coverage and reimbursement for our
products could limit market acceptance and affect pricing of our products and
affect our revenues.
Sales of
our products depend in part on the availability of favorable coverage and
reimbursement by governmental healthcare programs such as Medicare and Medicaid
as well as private health insurance plans. Each payor has its own
process and standards for determining whether and, if so, to what extent it will
cover and reimburse a particular product or service. Whether and to
what extent a product may be deemed covered by a particular payor depends upon a
number of factors, including the payor's determination that the product is
reasonable and necessary for the diagnosis or treatment of the illness or injury
for which it is administered according to accepted standards of medical
practice, cost effective, not experimental or investigational, not found by the
FDA to be less than effective, and not otherwise excluded from coverage by law,
regulation, or contract. There may be significant delays in obtaining
coverage for
newly-approved products, and coverage may not be available or could be more
limited than the purposes for which the product is approved by the
FDA.
Moreover,
eligibility for coverage does not imply that any product will be reimbursed in
all cases or at a rate that allows us to make a profit or even cover our costs,
which include, for example, research, development, production, sales, and
distribution costs. Interim payments for new products, if applicable,
also may not be sufficient to cover our costs and may not be made
permanent. Reimbursement rates may vary according to the use of the
product and the clinical setting in which it is used, may be based on payments
allowed for lower-cost products that are already reimbursed, may be incorporated
into existing payments for other products or services, and may reflect budgetary
constraints and/or imperfections in Medicare or Medicaid data. Net
prices for products may be reduced by mandatory discounts or rebates required by
government healthcare programs, or other payors, or by any future relaxation of
laws that restrict imports of certain medical products from countries where they
may be sold at lower prices than in the United States.
Third
party payors often follow Medicare coverage policy and payment limitations in
setting their own coverage policies and reimbursement rates, and may have
sufficient market power to demand significant price reductions. Even
if successful, securing coverage at adequate reimbursement rates from government
and third party payors can be a time consuming and costly process that could
require us to provide supporting scientific, clinical and cost-effectiveness
data for the use of our products among other data and materials to each
payor. Our inability to promptly obtain favorable coverage and
profitable reimbursement rates from government-funded and private payors for our
products could have a material adverse effect on our business, financial
condition and results of operations, and our ability to raise capital needed to
commercialize products.
Our
business, financial condition and results of operations will continue to be
affected by the efforts of governmental and third-party payors to contain or
reduce the costs of healthcare. There have been, and we expect that
there will continue to be, a number of federal and state proposals to regulate
expenditures for medical products and services, which may affect payments for
therapeutic and diagnostic imaging agents such as our products. In
addition, an emphasis on managed care increases possible pressure on the pricing
of these products. While we cannot predict whether these legislative
or regulatory proposals will be adopted, or the effects these proposals or
managed care efforts may have on our business, the announcement of these
proposals and the adoption of these proposals or efforts could affect our stock
price or our business. Further, to the extent these proposals or
efforts have an adverse effect on other companies that are our prospective
corporate partners, our ability to establish necessary strategic alliances may
be harmed.
Our
business is subject to various government regulations and, if we are unable to
obtain regulatory approval, we may not be able to continue our
operations.
At
present, the U.S. federal government regulation of biotechnology is divided
among three agencies:
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the
USDA regulates the import, field testing and interstate movement of
specific types of genetic engineering that may be used in the creation of
transgenic plants;
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the
EPA regulates activity related to the invention of plant pesticides and
herbicides, which may include certain kinds of transgenic plants;
and
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the
FDA regulates foods derived from new plant
varieties.
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The FDA
requires that transgenic plants meet the same standards for safety that are
required for all other plants and foods in general. Except in the
case of additives that significantly alter a food's structure, the FDA does not
require any additional standards or specific approval for genetically engineered
foods, but expects transgenic plant developers to consult the FDA before
introducing a new food into the marketplace.
Use of
our technology, if developed for human health applications, will also be subject
to FDA regulation. The FDA must approve any drug or biologic product
before it can be marketed in the United States. In addition, prior to
being sold outside of the U.S., any products resulting from the application of
our human health technology must be approved by the regulatory agencies of
foreign governments. Prior to filing a new drug application or
biologics license application with the FDA, we would have to perform extensive
clinical trials, and prior to beginning any clinical trial, we need to perform
extensive preclinical testing which could take several years and may require
substantial expenditures.
We
believe that our current activities, which to date have been confined to
research and development efforts, do not require licensing or approval by any
governmental regulatory agency. However, federal, state and foreign
regulations relating to crop protection products and human health applications
developed through biotechnology are subject to public concerns and political
circumstances, and, as a result, regulations have changed and may change
substantially in the future. Accordingly, we may become subject to
governmental regulations or approvals or become subject to licensing
requirements in connection with our research and development efforts. We
may also be required to obtain such licensing or approval from the governmental
regulatory agencies described above, or from state agencies, prior to the
commercialization of our genetically transformed plants and human health
technology. In addition, our marketing partners who utilize our
technology or sell products grown with our technology may be subject to
government regulations. If unfavorable governmental regulations are
imposed on our technology or if we fail to obtain licenses or approvals in a
timely manner, we may not be able to continue our operations.
Preclinical
studies and clinical trials of our human health applications may be
unsuccessful, which could delay or prevent regulatory approval.
Preclinical
studies may reveal that our human health technology is ineffective or harmful,
and/or clinical trials may be unsuccessful in demonstrating efficacy and safety
of our human health technology, which would significantly limit the possibility
of obtaining regulatory approval for any drug or biologic product manufactured
with our technology. The FDA requires submission of extensive
preclinical, clinical and manufacturing data to assess the efficacy and safety
of potential products. Furthermore, the success of preliminary studies
does not ensure commercial success, and later-stage clinical trials may fail to
confirm the results of the preliminary studies.
Even
if we receive regulatory approval, consumers may not accept products containing
our technology, which will prevent us from being profitable since we have no
other source of revenue.
We cannot
guarantee that consumers will accept products containing our
technology. Recently, there has been consumer concern and consumer
advocate activism with respect to genetically engineered consumer
products. The adverse consequences from heightened consumer concern
in this regard could affect the markets for products developed with our
technology and could also result in increased government regulation in response
to that concern. If the public or potential customers perceive our
technology to be genetic modification or genetic engineering, agricultural
products grown with our technology may not gain market acceptance.
Increasing
political and social turmoil, such as terrorist and military actions, increase
the difficulty for us and our strategic partners to forecast accurately and plan
future business activities.
Recent
political and social turmoil, including the conflict in Iraq and the current
crisis in the Middle East, can be expected to put further pressure on economic
conditions in the United States and worldwide. These political,
social and economic conditions may make it difficult for us to plan future
business activities.
We
depend on attracting and retaining key personnel.
We are
highly dependent on the principal members of our management and scientific
staff. The loss of their services might significantly delay or prevent the
achievement of development or strategic objectives. Our success depends on our
ability to retain key employees and to attract additional qualified employees.
Competition for personnel is intense, and therefore we may not be able to retain
existing personnel or attract and retain additional highly qualified employees
in the future.
We do not
carry key person life insurance policies and we do not typically enter into
long-term arrangements with our key personnel. If we are unable to
hire and retain personnel in key positions, our business, financial condition
and results of operations could be significantly and
adversely affected unless qualified replacements can be found.
Our
business exposes us to product liability claims that may exceed our financial
resources, including our insurance coverage, and may lead to the curtailment or
termination of our operations.
Our
business is subject to product liability risks inherent in the testing,
manufacturing and marketing of our products, and product liability claims may be
asserted against us, our collaborators or our licensees. While we
currently maintain product liability insurance in the amount of $10 million,
such coverage may not be adequate to protect us against future product liability
claims. In addition, product liability insurance may not be available
to us in the future on commercially reasonable terms, if at
all. Although we have not had a history of claims payments that have
exceeded our insurance coverage or available financial resources, if liability
claims against us exceed our financial resources or coverage amounts, we may
have to curtail or
terminate
our operations. In addition, while we currently maintain directors
and officers liability insurance in the amount of $25 million and an additional
$5 million of personal liability coverage for directors and officers, such
coverage may not be available on commercially reasonable terms or be adequate to
cover any claims that we may be required to satisfy in the
future. Our insurance coverage is subject to industry standard and
certain other limitations.
Our
security measures may not adequately protect our unpatented technology and, if
we are unable to protect the confidentiality of our proprietary information and
know-how, the value of our technology may be adversely affected.
Our
success depends upon know-how, unpatentable trade secrets, and the skills,
knowledge and experience of our scientific and technical
personnel. As a result, we require all employees to agree to a
confidentiality provision that prohibits the disclosure of confidential
information to anyone outside of our company, during the term of employment and
thereafter. We also require all employees to disclose and assign to
us the rights to their ideas, developments, discoveries and
inventions. We also attempt to enter into similar agreements with our
consultants, advisors and research collaborators. We cannot assure
you that adequate protection for our trade secrets, know-how or other
proprietary information against unauthorized use or disclosure will be
available.
We
occasionally provide information to research collaborators in academic
institutions and request the collaborators to conduct certain
tests. We cannot assure you that the academic institutions will not
assert intellectual property rights in the results of the tests conducted by the
research collaborators, or that the academic institutions will grant licenses
under such intellectual property rights to us on acceptable terms, if at
all. If the assertion of intellectual property rights by an academic
institution is substantiated, and the academic institution does not grant
intellectual property rights to us, these events could limit our ability to
commercialize our technology.
Our
capital raising efforts may dilute stockholder interests.
If we raise
additional capital by issuing equity securities or convertible debentures, such
issuance will result in ownership dilution to our existing stockholders, new
investors could have rights superior to those of our existing stockholders and
stock price may decline. The extent of such dilution will vary based
upon the amount of capital raised and the terms on which it is
raised.
We
may need to raise funds other than through the issuance of equity
securities.
If we
raise additional funds through collaborations and licensing arrangements, we may
be required to relinquish rights to certain of our technologies or product
candidates or to grant licenses on unfavorable terms. If we
relinquish rights or grant licenses on unfavorable terms, we may not be able to
develop or market products in a manner that is profitable to us.
Our
stockholders may experience substantial dilution as a result of the exercise of
outstanding options and warrants to purchase our common stock.
As of
December 31, 2007, stock options and warrants to purchase 12,860,797 shares of
our common stock were outstanding. In addition, as of December 31, 2007,
we have 703,278 nonvested shares outstanding and have reserved an additional
989,901 shares of our common stock for future issuance of options granted
pursuant to our 2006 Equity Compensation Plan, 2004 Stock Incentive Plan, 2004
Non-Employee Director Stock Incentive Plan and 2005 Employee Stock Purchase
Plan. The exercise of these options and warrants and vesting of nonvested
shares will result in dilution to our existing stockholders and could have a
material adverse effect on our stock price.
The
following table summarizes information about outstanding warrants to purchase
our common stock at December 31, 2007:
|
Exercise
Price
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Outstanding
Warrants
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Aggregate
Exercise Price
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| $ | 2.23 | 3,256,177 | $ | 7,264,532 | ||||||
| $ | 3.32 | 3,546,107 | $ | 11,773,075 | ||||||
| $ | 4.25 | 1,118,868 | $ | 4,755,189 | ||||||
| $ | 6.00 | 776,096 | $ | 4,656,576 | ||||||
| $ | 6.91 | 315,790 | $ | 2,182,108 | ||||||
| $ | 10.97 | 250,000 | $ | 2,742,500 | ||||||
| $ | 12.80 | 1,272,332 | $ | 16,285,850 | ||||||
The
warrants exercisable at $10.97 per share and $12.80 per share become
automatically exercised, in full, if our common stock trades for 30 consecutive
trading days at 130% of the respective exercise prices.
A
significant portion of our total outstanding shares of common stock may be sold
in the market in the near future, which could cause the market price of our
common stock to drop significantly.
As of
December 31, 2007, we had 35,570,836 shares of our common stock issued and
outstanding, all of which are either eligible to be sold under SEC Rule 144 or
are in the public float or are in the process of being registered with the SEC.
In addition, we have registered shares of our Common Stock underlying
warrants previously issued on numerous Form S-3 registration statements, and we
have also registered shares of our common stock underlying options granted or to
be granted under our stock option plans. Consequently, sales of
substantial amounts of our common stock in the public market, or the perception
that such sales could occur, may have a material adverse effect on our stock
price.
Our
common stock has a limited trading market, which could limit your ability to
resell your shares of common stock at or above your purchase price.
Our
common stock is quoted on the NASDAQ Global Market and currently has a limited
trading market. Because the average daily trading volume of our
common stock on the NASDAQ Global Market is low, liquidity of our common stock
is impaired. As a result, the
price of
our common stock may be lower then it might otherwise be if trading volumes were
greater. The NASDAQ Global Market requires us to meet minimum
financial requirements in order to maintain our listing. On November
5, 2007, we received notification from The NASDAQ Stock Market that the Company
is not in compliance with the $1.00 minimum bid price requirement for continued
inclusion on the NASDAQ Global Market. We cannot assure you that an active
trading market will develop or, if developed, will be maintained. As
a result, our stockholders may find it difficult to dispose of shares of our
common stock and, as a result, may suffer a loss of all or a substantial portion
of their investment.
The
liquidity of our common stock could be adversely affected if we are delisted
from the NASDAQ Global Market.
On
November 5, 2007 we received notification from The NASDAQ Stock Market, or
NASDAQ, that the Company is not in compliance with the $1.00 minimum bid price
requirement for continued inclusion on the NASDAQ Global Market pursuant to
Marketplace Rule 4450(a)(5). The closing price of our common stock
has been below $1.00 per share since September 24, 2007. The letter
states that we have 180 calendar days, or until May 5, 2008, to regain
compliance with the minimum bid price requirement of $1.00 per
share. We can achieve compliance, if at any time before May 5, 2008,
our common stock closes at $1.00 per share or more for at least 10 consecutive
business days.
If
compliance with NASDAQ’s Marketplace Rules is not achieved by May 5, 2008,
NASDAQ will provide notice that our common stock will be delisted from the
NASDAQ Global Market. In the event of such notification, we would
have an opportunity to appeal NASDAQ’s determination. If faced with
delisting, we may submit an application to transfer the listing of our common
stock to the NASDAQ Capital Market. Alternatively, if our common
stock is delisted by NASDAQ, our common stock would be eligible to trade on the
OTC Bulletin Board, another over-the-counter quotation system, or on the pink
sheets where an investor may find it more difficult to dispose of or obtain
accurate quotations as to the market value of our common stock. We
cannot assure you that our common stock if delisted from the NASDAQ Global
Market will be listed on a national securities exchange, a national quotation
service, the OTC Bulletin Board or the pink sheets.
We have
not yet determined what action, if any, we will take in response to the notice
from NASDAQ, although we intend to monitor the closing bid price of our common
stock between now and May 5, 2008, and to consider available options if our
common stock does not trade at a level likely to result in the Company regaining
compliance with the NASDAQ minimum closing bid price requirement.
There can
be no assurance that we will be able to maintain the listing of our common stock
on the NASDAQ Global Market. Delisting from NASDAQ would make trading
our common stock more difficult for investors, potentially leading to further
declines in our share price. Without a NASDAQ listing, stockholders may
have a difficult time getting a quote for the sale or purchase of our stock, the
sale or purchase of our stock would likely be made more difficult and the
trading volume and liquidity of our stock would likely decline. Delisting
from NASDAQ would also result in negative publicity and would also make it more
difficult for us to
raise
additional capital. The absence of such a listing may adversely
affect the acceptance of our common stock as currency or the value accorded it
by other parties. Further, if we are delisted, we would also incur
additional costs under state blue sky laws in connection with any sales of our
securities. These requirements could severely limit the market
liquidity of our common stock and the ability of our stockholders to sell our
common stock in the secondary market.
If we are
delisted from the NASDAQ Global Market and we are not able to transfer the
listing of our common stock to the NASDAQ Capital Market, our common stock
likely will become a "penny stock." In general, regulations of the SEC define a
"penny stock" to be an equity security that is not listed on a national
securities exchange or the NASDAQ Stock Market and that has a market price of
less than $5.00 per share, subject to certain exceptions. If our
common stock becomes a penny stock, additional sales practice requirements would
be imposed on broker-dealers that sell such securities to persons other than
certain qualified investors. For transactions involving a penny
stock, unless exempt, a broker-dealer must make a special suitability
determination for the purchaser and receive the purchaser's written consent to
the transaction prior to the sale. In addition, the rules on penny
stocks require delivery, prior to and after any penny stock transaction, of
disclosures required by the SEC.
If our
common stock were subject to the rules on penny stocks, the market liquidity for
our common stock could be severely and adversely
affected. Accordingly, the ability of holders of our common stock to
sell their shares in the secondary market may also be adversely
affected.
Because
we do not intend to pay, and have not paid, any cash dividends on our shares of
common stock, our stockholders will not be able to receive a return on their
shares unless the value of our common stock appreciates and they sell their
shares.
We have
never paid or declared any cash dividends on our common stock, and we intend to
retain any future earnings to finance the development and expansion of our
business. We do not anticipate paying any cash dividends on our common
stock in the foreseeable future. Therefore, our stockholders will not be
able to receive a return on their investment unless the value of our common
stock appreciates and they sell their shares.
We
could be negatively impacted by future interpretation or implementation of
federal and state fraud and abuse laws, including anti-kickback laws, false
claims laws and federal and state anti-referral laws.
We are
subject to various federal and state laws pertaining to health care fraud and
abuse, including anti-kickback laws, false claims laws and physician
self-referral laws. Violations of these laws are punishable by
criminal and/or civil sanctions, including, in some instances, imprisonment and
exclusion from participation in federal and state health care programs,
including Medicare, Medicaid, and veterans' health programs. We have
not been challenged by a governmental authority under any of these laws and
believe that our operations are in compliance with such laws.
However,
because of the far-reaching nature of these laws, we may be required to alter
one or more of our practices to be in compliance with these
laws. Health care fraud and abuse regulations are complex, and even
minor, inadvertent irregularities can potentially give rise to claims that the
law has been violated. Any violations of these laws could result in a
material adverse effect on our business, financial condition and results of
operations. If there is a change in law, regulation or administrative
or judicial interpretations, we may have to change our business practices or our
existing business practices could be challenged as unlawful, which could have a
material adverse effect on our business, financial condition and results of
operations.
We could
become subject to false claims litigation under federal or state statutes, which
can lead to civil money penalties, criminal fines and imprisonment, and/or
exclusion from participation in federal health care programs. These
false claims statutes include the federal False Claims Act, which allows any
person to bring suit alleging the false or fraudulent submission of claims for
payment under federal programs or other violations of the statute and to share
in any amounts paid by the entity to the government in fines or
settlement. Such suits, known as qui tam actions, have
increased significantly in recent years and have increased the risk that
companies like us may have to defend a false claim action. We could
also become subject to similar false claims litigation under state
statutes. If we are unsuccessful in defending any such action, such
action may have a material adverse effect on our business, financial condition
and results of operations.
The
healthcare fraud and abuse laws to which we are subject include the following,
among others:
Federal and State Anti-Kickback Laws
and Safe Harbor Provisions. The federal anti-kickback law
makes it a felony to knowingly and willfully offer, or pay remuneration "to
induce" a person to refer an individual or to recommend or arrange for the
purchase, lease or ordering of any item or service for which payment may be made
under the Medicare or state healthcare programs. The anti-kickback
prohibitions apply regardless of whether the remuneration is provided directly
or indirectly, in cash or in kind. Interpretations of the law have
been very broad. Under current law, courts and federal regulatory
authorities have stated that this law is violated if even one purpose, as
opposed to the sole or primary purpose, of the arrangement is to induce
referrals. Violations of the anti-kickback law carry potentially
severe penalties including imprisonment of up to five years, criminal fines,
civil money penalties and exclusion from the Medicare and Medicaid
programs.
The U.S.
Department of Health and Human Services Office of Inspector General, or OIG, has
published "safe harbors" that exempt some arrangements from enforcement action
under the anti-kickback statute. These statutory and regulatory safe
harbors protect various bona fide employment relationships, personal service
arrangements, certain discount arrangements, among other things, provided that
certain conditions set forth in the statute and regulations are
satisfied. The safe harbor regulations, however, do not
comprehensively describe all lawful arrangements, and the failure of an
arrangement to satisfy all of the requirements of a particular safe harbor does not
mean that the arrangement is unlawful. Failure to comply with the
safe harbor provisions, however, may mean that the arrangement will be subject
to scrutiny by the OIG.
Many
states have adopted similar prohibitions. Some of these state laws
lack specific "safe harbors" that may be available under federal
law. Sanctions under these state anti-kickback laws may include civil
money penalties, license suspension or revocation, exclusion from Medicare or
Medicaid, and criminal fines or imprisonment.
We
believe that our contracts and arrangements are not in violation of applicable
anti-kickback or related laws. We cannot assure you, however, that
these laws will ultimately be interpreted in a manner consistent with our
practices.
False Claims
Acts. We are subject to state and federal laws that govern the
submission of claims for reimbursement. The Federal Civil False
Claims Act imposes civil liability on individuals or entities that submit, or
"cause" to be submitted, false or fraudulent claims for payment to the
government. Violations of the Civil False Claims Act may result in
treble damages, civil monetary penalties for each false claim submitted and
exclusion from the Medicare and Medicaid programs. In addition, we
could be subject to criminal penalties under a variety of federal statutes to
the extent that we knowingly violate legal requirements under federal health
programs or otherwise present or cause the presentation of false or fraudulent
claims or documentation to the government. In addition, the OIG may
impose extensive and costly corporate integrity requirements upon entities and
individuals subject to a false claims judgment or settlement. These
requirements may include the creation of a formal compliance program, the
appointment of an independent review organization, and the imposition of annual
reporting requirements and audits conducted by an independent review
organization to monitor compliance with the terms of the agreement and relevant
laws and regulations.
The
Federal Civil False Claims Act also allows a private individual to bring a qui tam suit on behalf of the
government for violations of the Civil False Claims Act, and if successful, the
qui tam relator shares
in the government's recovery. A qui tam suit may be brought
by, with only a few exceptions, any private citizen who has material information
of a false claim that has not yet been previously
disclosed. Recently, the number of qui tam suits brought in the
healthcare industry has increased dramatically. In addition, several
states have enacted laws modeled after the Federal Civil False Claims
Act.
Civil Monetary
Penalties. The Civil Monetary Penalties Statute states that
civil penalties ranging between $10,000 and $50,000 per claim or act may be
imposed on any person or entity that knowingly submits, or causes the submission
of, improperly filed claims for federal health benefits, or makes payments to
induce a beneficiary or provider to reduce or limit the use of healthcare
services or to use a particular provider or supplier. Civil monetary
penalties may be imposed for violations of the anti-kickback statute and for the
failure to return known overpayments, among other things.
Prohibition on Employing or
Contracting with Excluded Providers. The Social Security Act
and federal regulations state that individuals or entities that have been
convicted of a criminal offense related to the delivery of an item or service
under the Medicare or Medicaid
programs
or that have been convicted, under state or federal law, of a criminal offense
relating to neglect or abuse of residents in connection with the delivery of a
healthcare item or service cannot participate in any federal healthcare
programs, including Medicare and Medicaid.
Health Insurance Portability and
Accountability Act of 1996. HIPAA created new healthcare
related crimes, and granted authority to the Secretary of the Department of
Health and Human Services, or HHS, to impose certain civil
penalties. Particularly, the Secretary may now exclude from Medicare
any individual with a direct or indirect ownership interest in an entity
convicted of healthcare fraud or excluded from the program. Under
HIPAA and other healthcare laws, it is a crime to knowingly and willfully commit
a healthcare fraud, and knowingly and willfully falsify, or conceal material
information or make any materially false or fraudulent statements in connection
with claims and payment for healthcare services by a healthcare benefit
plan. HIPAA also created new programs to control fraud and abuse, and
requires new investigations, audits and inspections.
We
believe that our operations materially comply with applicable regulatory
requirements. We cannot assure you of the outcome of any inquiry
audit or investigation undertaken by HHS, OIG or DOJ. If we are ever
found to have engaged in improper practices, we could be subjected to civil,
administrative or criminal fines, penalties or restitutionary relief, and
suspension or exclusion of the entity or individuals from participation in
federal and state healthcare programs.
Patient Information and
Privacy. HIPAA also mandates, among other things, the
establishment of regulatory standards addressing the electronic exchange of
health information, standards for the privacy and security of health information
maintained or exchanged electronically, and standards for assigning unique
health identifiers to healthcare providers. Sanctions for failure to
comply with HIPAA standards include civil and criminal penalties. The
Security Standards require us to implement certain security measures to protect
certain individually identifiable health information, called protected health
information, or PHI, in electronic format. The Standards for Privacy
of Individually Identifiable Information restrict use and disclosure of PHI
unless patient authorization for such disclosures are obtained. These
Privacy Standards not only require our compliance with standards restricting the
use and disclosure of PHI, but also require us to obtain satisfactory assurances
that any business associate of ours who has access to our PHI similarly will
safeguard such PHI.
We have
evaluated these rules to determine the effects of the rules on our business, and
we believe that we have taken the appropriate steps to ensure that we will
comply with these standards in all material respects by their respective
compliance deadlines.
Our
business involves environmental risks that may result in liability.
We are
subject to a variety of local, state, federal and foreign government regulations
relating to storage, discharge, handling, emission, generation, manufacture and
disposal of toxic, infectious or other hazardous substances used to manufacture
our products. If we fail to comply with these regulations, we could
be liable for damages, penalties, or other forms of censure and our business
could be significantly and adversely affected. We currently do not
carry insurance for
contamination or injury resulting from the use of such
materials.
PROSTASCINT
and QUADRAMET utilize radioactive materials. PROSTASCINT is not
manufactured or shipped as a radioactive material because the radioactive
component is not added until the product has arrived at its final destination (a
radiopharmacy). Laureate Pharma, our contract manufacturer of
PROSTASCINT, holds a radioactive materials license because such license is
required for certain release and stability tests of the product.
QUADRAMET,
however, is manufactured and shipped as radioactive, and therefore, the
manufacturing and distribution of this product must comply with regulations
promulgated by the U.S. Nuclear Regulatory Commission. BMSMI
manufacturers and distributes QUADRAMET, and is, therefore, subject to these
regulations.
We
have been and, in the future, may be subject to patent litigation.
On March
17, 2000, we were served with a complaint filed against us in the United States
District Court for the District of New Jersey by M. David Goldenberg and
Immunomedics, Inc. The litigation claimed that our PROSTASCINT
product infringes a patent purportedly owned by Goldenberg and licensed to
Immunomedics. We believe that PROSTASCINT did not infringe this
patent, and that the patent was invalid and unenforceable. In June
2004, the U.S. Court of Appeals for the Federal Circuit affirmed the district
court's grant of summary judgment of no literal
infringement. Regarding infringement under the doctrine of
equivalents, however, the U.S. Court of Appeals for the Federal Circuit
disagreed with the district court's conclusion that there was no issue of
material fact and reversed the district court's grant of summary judgment on
this point and remanded for further proceedings on the issue. In
September 2004, we settled the patent infringement suit for an undisclosed
payment, without any admission of fault or liability.
On November
7, 2007, Eastern Virginia Medical School (“EVMS”) filed a complaint against us
in the United States District Court for the Eastern District of
Virginia. In the complaint, EVMS purported that our PROSTASCINT
product infringed a patent owned by EVMS and previously licensed to us under an
agreement entered into in 1991 between EVMS and us. In February 2008, the
parties executed a non-binding term sheet setting forth mutually acceptable
terms for settlement of the pending litigation between the
parties. Pursuant to the term sheet, Cytogen and EVMS are currently
working toward finalizing and executing a settlement agreement, as well as a new
license agreement.
We cannot
give any assurance that we will not become subject to additional patent
litigation in the future, which could result in material expenditures to
us.
Our
stock price has been and may continue to be volatile, and your investment in our
stock could decline in value or fluctuate significantly.
The
market prices for securities of biotechnology and pharmaceutical companies have
historically been highly volatile, and the market has from time to time
experienced significant price and volume fluctuations that are unrelated to the
operating performance of particular companies. The market price of
our common stock has fluctuated over a wide range and may continue
to fluctuate for various reasons, including, but not limited to, announcements
concerning our competitors or us regarding:
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results
of clinical trials;
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technological
innovations or new commercial
products;
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changes
in governmental regulation or the status of our regulatory approvals or
applications;
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changes
in earnings;
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changes
in health care policies and
practices;
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developments
or disputes concerning proprietary
rights;
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litigation
or public concern as to safety of the our potential products;
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changes
in general market conditions.
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These
fluctuations may be exaggerated if the trading volume of our common stock is
low. These fluctuations may or may not be based upon any of our
business or operating results. Our common stock may experience
similar or even more dramatic price and volume fluctuations which may continue
indefinitely.
We
will be obligated to pay liquidated damages if we do not keep certain
registration statement effective for a certain period of time.
In
connection with the sale of Cytogen shares and warrants in November 2006, we
entered into a Registration Rights Agreement with the investors under which we
were obligated to file a registration statement with the SEC for the resale of
Cytogen shares sold to the investors and shares issuable upon exercise of the
warrants within a specified time period. We are also required to use
commercially reasonable efforts to keep the registration statement continuously
effective with the SEC until such time when all of the registered shares are
sold or three years from the closing date, whichever is earlier. In
the event we fail to keep the registration statement effective, we are obligated
to pay the investors liquidated damages equal to 1% of the aggregate purchase
price of $20 million for each 30-day period that the registration statement is
not effective, up to 10%. On December 28, 2006, the SEC declared the
registration statement effective.
In
connection with the sale of Cytogen shares and warrants in July 2007, we entered
into a Registration Rights Agreement with the investors under which we were
obligated to file a registration statement with the SEC for the resale of
Cytogen shares sold to the investors and shares issuable upon exercise of the
warrants within a specified time period. We are also required to use
commercially reasonable efforts to cause the registration to be declared
effective by the SEC and to remain continuously effective until such time when
all of the registered shares are sold or two years from the closing date,
whichever is earlier. In the event we fail to keep the
registration
statement effective, we are obligated to pay the investors liquidated damages
equal to 1% of the aggregate purchase price of $10.1 million for each monthly
period that the registration statement is not effective, up to
10%. On August 22, 2007, the SEC declared the registration statement
effective.
We
have adopted various anti-takeover provisions which may affect the market price
of our common stock and prevent or frustrate attempts by our stockholders to
replace or remove our management team.
Our Board
of Directors has the authority, without further action by the holders of common
stock, to issue from time to time, up to 5,400,000 shares of preferred stock in
one or more classes or series, and to fix the rights and preferences of the
preferred stock. We have implemented a stockholder rights plan by
which one preferred stock purchase right is attached to each share of common
stock, as a means to deter coercive takeover tactics and to prevent an acquirer
from gaining control of us without some mechanism to secure a fair price for all
of our stockholders if an acquisition was completed. These rights
will be exercisable if a person or group acquires beneficial ownership of 20% or
more of our common stock and can be made exercisable by action of our Board of
Directors if a person or group commences a tender offer which would result in
such person or group beneficially owning 20% or more of our common
stock. Each right will entitle the holder to buy one one-thousandth
of a share of a new series of our junior participating preferred stock for
$20. If any person or group becomes the beneficial owner of 20% or
more of our common stock (with certain limited exceptions), then each right not
owned by the 20% stockholder will entitle its holder to purchase, at the right's
then current exercise price, common shares having a market value of twice the
exercise price. In addition, if after any person has become a 20%
stockholder, we are involved in a merger or other business combination
transaction with another person, each right will entitle its holder (other than
the 20% stockholder) to purchase, at the right's then current exercise price,
common shares of the acquiring company having a value of twice the right's then
current exercise price.
We are
subject to provisions of Delaware corporate law which, subject to certain
exceptions, will prohibit us from engaging in any "business combination" with a
person who, together with affiliates and associates, owns 15% or more of our
common stock for a period of three years following the date that the person came
to own 15% or more of our common stock unless the business combination is
approved in a prescribed manner.
These
provisions of the stockholder rights plan, our certificate of incorporation, and
of Delaware law may have the effect of delaying, deterring or preventing a
change in control of Cytogen, may discourage bids for our common stock at a
premium over market price and may adversely affect the market price, and the
voting and other rights of the holders, of our common stock. In
addition, these provisions make it more difficult to replace or remove our
current management team in the event our stockholders believe this would be in
the best interest of the Company and our stockholders.
|
Unresolved
Staff Comments
|
Not
applicable.
|
Item
2.
|
Properties
|
In August 2002, we moved our main offices from 600 College Road East
to 650 College Road East in Princeton, New Jersey. On February 10,
2004, we entered into an amendment to our existing sublease agreement for these
premises to increase the amount of space we occupy from approximately 11,500
square feet to approximately 16,100 square feet. This amendment also
extended the expiration date of our sublease to October 2007, with a two year
option to renew thereafter. In February 2007, we exercised the two
year option to renew our lease and extended the lease term through October 24,
2009. We intend to remain headquartered in Princeton, New Jersey for
the foreseeable future.
We own
substantially all of the equipment used in our offices, and we believe that our
facilities are adequate for our operations at present.
|
Legal
Proceedings
|
In
January 2006, we filed a complaint against Advanced Magnetics in the
Massachusetts Superior Court for breach of contract, fraud, unjust enrichment,
and breach of the implied covenant of good faith and fair dealing in connection
with the parties' 2000 license agreement. The complaint sought
damages along with a request for specific performance requiring Advanced
Magnetics to take all reasonable steps to secure FDA approval of COMBIDEX®
(ferumoxtran-10) in compliance with the terms of the licensing
agreement. In February 2006, Advanced Magnetics filed an answer to
our complaint and asserted various counterclaims, including tortuous
interference, defamation, consumer fraud and abuse of process.
In
February 2007, we settled our lawsuit against Advanced Magnetics, Inc., as well
as Advanced Magnetics' counterclaims against Cytogen, by mutual
agreement. Under the terms of the settlement agreement, Advanced
Magnetics paid us $4 million and released 50,000 shares of Cytogen common stock
which were held in escrow. In addition, both parties agreed to early
termination of the 10-year license and marketing agreement and supply agreement
established in August 2000, as amended, for two imaging agents being developed
by Advanced Magnetics, COMBIDEX and ferumoxytol, previously Code
7228. The license and marketing agreement and supply agreement would
have expired in August 2010.
On November 7, 2007, Eastern Virginia
Medical School (“EVMS”) filed a complaint against us in the United States
District Court for the Eastern District of Virginia. In the
complaint, EVMS purported that our PROSTASCINT product infringed a patent owned
by EVMS and previously licensed to us under an agreement entered into in 1991
between EVMS and us. In February 2008, the parties executed a
non-binding term sheet setting forth mutually acceptable terms for settlement of
the pending litigation between the parties. Pursuant to the term
sheet, Cytogen and EVMS are currently working toward finalizing and executing a
settlement agreement, as well as a new license agreement.
|
Market
for the Company's Common Equity, Related Stockholder Matters and Company
Purchases of Equity Securities
|
Our
common stock is traded on the NASDAQ Global Market (formerly the NASDAQ National
Market) under the trading symbol "CYTO."
The table
below sets forth the high and low bid information for our common stock for each
of the calendar quarters indicated, as reported on the NASDAQ Global
Market. Such quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual
transactions.
|
2007
|
High
|
Low
|
||||||
|
First
Quarter
|
$ | 2.72 | $ | 1.87 | ||||
|
Second
Quarter
|
$ | 2.59 | $ | 1.89 | ||||
|
Third
Quarter
|
$ | 1.70 | $ | 0.76 | ||||
|
Fourth
Quarter
|
$ | 0.80 | $ | 0.43 | ||||
|
2006
|
||||||||
|
First
Quarter
|
$ | 3.62 | $ | 2.75 | ||||
|
Second
Quarter
|
$ | 3.73 | $ | 2.42 | ||||
|
Third
Quarter
|
$ | 2.58 | $ | 1.91 | ||||
|
Fourth
Quarter
|
$ | 6.87 | $ | 2.15 | ||||
As of
March 11, 2008, there were 1,919 holders of record of our common
stock.
We have
never paid any cash dividends on our common stock and we do not anticipate
paying any cash dividends on our common stock in the foreseeable
future. We intend to retain any future earnings to fund the
development and growth of our business. Any future determination to
pay dividends will be at the discretion of our board of directors.
Stock
Performance Graph
The
following graph compares the cumulative total stockholder return on our common
stock with the cumulative total return the NASDAQ Composite Index, the NASDAQ
Biotechnology Index and the NASDAQ Pharmaceutical Index for a five-year period
ended December 31, 2007.
COMPARISION
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among
CYTOGEN Corporation, The NASDAQ Composite Index,
The
NASDAQ Biotechnology Index And The NASDAQ Pharmaceutical Index
*$100
invested on 12/31/02 in stock or index—including reinvestment of
dividends.
Fiscal
year ending December 31.
|
Company/Index
Name
|
12/02 | 12/03 | 12/04 | 12/05 | 12/06 | 12/07 | ||||||||||||||||||
|
CYTOGEN
Corporation
|
100 | 334.77 | 354.46 | 84.31 | 71.69 | 16.31 | ||||||||||||||||||
|
NASDAQ
Composite Index
|
100 | 150.01 | 162.89 | 165.13 | 180.85 | 198.60 | ||||||||||||||||||
|
NASDAQ
Biotechnology Index
|
100 | 146.59 | 156.13 | 171.93 | 168.29 | 176.97 | ||||||||||||||||||
|
NASDAQ
Pharmaceutical Index
|
100 | 145.75 | 154.68 | 159.06 | 160.69 | 168.05 |
The
Performance Graph and related information shall not be deemed "soliciting
material" or to be "filed" with the Securities and Exchange Commission, nor
shall such information be incorporated by reference into any future filing under
the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended,
except to the extent that we specifically incorporate it by reference into such
filing.
The
following selected financial information has been derived from our audited
consolidated financial statements for each of the five years in the period ended
December 31, 2007. The selected financial data set forth below should
be read in conjunction with the consolidated financial statements, including the
notes thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and other information provided elsewhere in this
report.
|
Year
Ended December 31,
|
||||||||||||||||||||
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
|
Statements
of Operations Data:
|
(All
amounts in thousands, except per share data)
|
|||||||||||||||||||
|
Revenues:
|
||||||||||||||||||||
|
Product
revenues
|
$ | 20,212 | $ | 17,296 | $ | 15,757 | $ | 14,480 | $ | 9,823 | ||||||||||
|
Royalties
|
— | — | — | — | 1,105 | |||||||||||||||
|
License
and
contract
|
6 | 11 | 189 | 139 | 2,914 | |||||||||||||||
|
Total
revenues
|
20,218 | 17,307 | 15,946 | 14,619 | 13,842 | |||||||||||||||
|
Operating
Expenses:
|
||||||||||||||||||||
|
Cost
of product related revenue
|
13,053 | 10,150 | 9,523 | 9,223 | 6,268 | |||||||||||||||
|
Selling,
general and administrative
|
39,086 | 30,166 | 25,895 | 20,318 | 11,867 | |||||||||||||||
|
Research
and development
|
5,851 | 7,301 | 6,162 | 3,292 | 2,342 | |||||||||||||||
|
Equity
in loss of joint venture
|
— | 120 | 3,175 | 2,896 | 3,452 | |||||||||||||||
|
Impairment
of intangible assets(1)
|
1,767 | — | — | — | 115 | |||||||||||||||
|
Total
operating expenses
|
59,757 | 47,737 | 44,755 | 35,729 | 24,044 | |||||||||||||||
|
Operating
loss
|
(39,539 | ) | (30,430 | ) | (28,809 | ) | (21,110 | ) | (10,202 | ) | ||||||||||
|
Litigation
settlement,
net
|
3,946 | — | — | — | — | |||||||||||||||
|
Other
income (expense), net
|
1,026 | 1,415 | 598 | 263 | (44 | ) | ||||||||||||||
|
Gain
on sale of equity interest in joint venture
|
— | 12,873 | — | — | — | |||||||||||||||
|
Decrease
in value of warrant liabilities
|
8,875 | 1,039 | 1,666 | — | — | |||||||||||||||
|
Loss
before income
taxes
|
(25,692 | ) | (15,103 | ) | (26,545 | ) | (20,847 | ) | (10,246 | ) | ||||||||||
|
Income
tax
benefit
|
— | — | (256 | ) | (307 | ) | (888 | ) | ||||||||||||
|
Net
loss
|
$ | (25,692 | ) | $ | (15,103 | ) | $ | (26,289 | ) | $ | (20,540 | ) | $ | (9,358 | ) | |||||
|
Basic
and diluted net loss per share
|
$ | ( 0.79 | ) | $ | (0.64 | ) | $ | (1.54 | ) | $ | (1.40 | ) | $ | (0.92 | ) | |||||
|
Weighted-average
common shares outstanding, basic and diluted
|
32,496 | 23,494 | 17,117 | 14,654 | 10,205 | |||||||||||||||
|
December
31,
|
||||||||||||||||||||
|
Consolidated
Balance Sheet Data:
|
2007
|
2006
|
2005
|
2004
|
2003
|
|||||||||||||||
|
(in
thousands)
|
||||||||||||||||||||
|
Cash,
cash equivalents and short-term investments
|
$ | 8,914 | $ | 32,507 | $ | 30,337 | $ | 35,825 | $ | 30,215 | ||||||||||
|
Total
assets
|
29,327 | 54,353 | 44,790 | 50,413 | 43,695 | |||||||||||||||
|
Warrant
liabilities
|
995 | 6,464 | 1,869 | — | — | |||||||||||||||
|
Other
long-term
liabilities
|
66 | 59 | 46 | 47 | 2,454 | |||||||||||||||
|
Accumulated
deficit
|
(453,362 | ) | (427,670 | ) | (412,567 | ) | (386,278 | ) | (365,738 | ) | ||||||||||
|
Stockholders'
equity
|
19,689 | 37,662 | 37,578 | 40,030 | 36,040 | |||||||||||||||
_________
(1)
Reflects a non-cash charge to write off the carrying value of the licensing fees
associated with SOLTAMOX in 2007 and NMP22 BLADDERCHEK in 2003.
|
|
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
Cautionary
Statement
This
Annual Report on Form 10-K contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E
of the Securities Exchange Act of 1934, as amended. These
forward-looking statements regarding future events and our future results are
based on current expectations, estimates, forecasts, and projections and the
beliefs and assumptions of our management including, without limitation, our
expectations regarding results of operations, selling, general and
administrative expenses, research and development expenses and the sufficiency
of our cash for future operations. Forward-looking statements may be
identified by the use of forward-looking terminology such as "may," "will,"
"expect," "estimate," "anticipate," "continue," or similar terms, variations of
such terms or the negative of those terms. These forward-looking
statements include statements regarding the growth and market penetration for
CAPHOSOL, QUADRAMET and PROSTASCINT, our ability to obtain favorable coverage
and reimbursement rates from government-funded and third party payors for our
products, increased expenses resulting from our sales force and marketing
expansion, including sales and marketing expenses for CAPHOSOL, QUADRAMET and
PROSTASCINT, the sufficiency of our capital resources and supply of products for
sale, the continued cooperation of our contractual and collaborative partners,
our need for additional capital and other statements included in this Annual
Report on Form 10-K that are not historical facts. Such
forward-looking statements involve a number of risks and uncertainties and
investors are cautioned not to put any undue reliance on any forward-looking
statement. We cannot guarantee that we will actually achieve the
plans, intentions or expectations disclosed in any such forward-looking
statements. Factors that could cause actual results to differ
materially, include: the risks of not consummating the merger agreement with
EUSA; market acceptance of our products; the results of our clinical trials; our
ability to hire and retain employees; economic and market conditions generally;
our
receipt
of requisite regulatory approvals for our products and product candidates; the
continued cooperation of our marketing and other collaborative and strategic
partners; our ability to protect our intellectual property; and the other risks
identified under Item 1A "Risk Factors" in this Annual Report on Form 10-K, and
those under the caption "Risk Factors," as included in certain of our other
filings, from time to time, with the Securities and Exchange
Commission.
Any
forward-looking statements made by us do not reflect the potential impact of any
future acquisitions, mergers, dispositions, joint ventures or investments we may
make. We do not assume, and specifically disclaim, any obligation to
update any forward-looking statements, and these statements represent our
current outlook only as of the date given.
The
following discussion and analysis should be read in conjunction with the
consolidated financial statements and related notes thereto contained elsewhere
herein, as well as from time to time in our other filings with the Securities
and Exchange Commission.
Overview
We are a
specialty pharmaceutical company dedicated to advancing the treatment and care
of patients by building, developing, and commercializing a portfolio of oncology
products. Our specialized sales force currently markets two
therapeutic products and one diagnostic product to the U.S. oncology
market. CAPHOSOL is an electrolyte solution for the treatment of oral
mucositis and dry mouth that is approved in the U.S. as a prescription medical
device. QUADRAMET is approved for the treatment of pain in patients
whose cancer has spread to the bone. PROSTASCINT is a PSMA-targeting
monoclonal antibody-based agent to image the extent and spread of prostate
cancer.
Our
audited financial statements for the fiscal year ended December 31, 2007, were
prepared under the assumption that we will continue our operations as a going
concern. We incorporated in 1980, and do not have a history of
earnings. As a result, our independent registered accountants in
their audit report have expressed substantial doubt about our ability to
continue as a going concern. Continued operations are dependent on
our ability to complete equity or debt formation activities or to generate
profitable operations. Such capital formation activities may not be
available or may not be available on reasonable terms. Our financial
statements do not include any adjustments that may result from the outcome of
this uncertainty. If we cannot continue as a viable entity, our
stockholders may lose some or all of their investment in the
Company.
Significant
Events in 2007
Settlement Agreement with Advanced
Magnetics
In
February 2007, we announced the settlement of our lawsuit against Advanced
Magnetics, Inc., as well as Advanced Magnetics' counterclaims against Cytogen,
by mutual agreement. Under the terms of the settlement agreement,
Advanced Magnetics paid us $4 million and released 50,000 shares of Cytogen
common stock held in escrow. In addition, both parties agreed to early
termination of the 10-year license and marketing agreement and supply agreement
established in August 2000, as amended, for two imaging agents being developed
by
Advanced
Magnetics, Combidex® (ferumoxtran-10) and ferumoxytol, previously Code 7228. The
license and marketing agreement and supply agreement would have expired in
August 2010.
Introduction
of CAPHOSOL in the United States
In March
2007, we introduced CAPHOSOL, an advanced electrolyte solution indicated in the
U.S. as an adjunct to standard oral care in treating oral mucositis (OM) caused
by radiation or high dose chemotherapy. CAPHOSOL is also indicated for dryness
of the mouth or throat (hyposalivation, xerostomia), regardless of the cause or
whether the conditions are temporary or permanent.
Addition
of Senior Vice President of Sales and Marketing
On June
11, 2007, we announced that we had appointed Stephen A. Ross to the newly
created position of Senior Vice President, Sales and Marketing effective July 9,
2007. Mr. Ross has over 15 years of commercial pharmaceutical
industry experience, as well as numerous key achievements specific to the
oncology space. Mr. Ross joined Cytogen from GlaxoSmithKline (GSK)
where most recently he served as Vice President, Specialist Business Units in
the UK. In that capacity, Mr. Ross led a team of more than 300
employees and together they established new oncology and cervical business units
in the UK. Previously, Mr. Ross served as Vice President and General Manager of
GSK Ireland. His experience at GSK also included managing a portfolio
of eight cytotoxic agents and two anti-emetic agents.
Sale
of Common Stock and Warrants
On June
29, 2007, we entered into purchase agreements with certain institutional
investors for the sale of 5,814,600 shares of our common stock and warrants
to purchase 2,907,301 shares of our common stock, through a private placement
offering. The transaction closed on July 6, 2007. The warrants
have an exercise price of $2.23 per share and are exercisable beginning six
months after their issuance and ending five years after they become
exercisable. In exchange for $1.74, the purchasers received one share
of common stock and a warrant to purchase .5 share of common
stock. The offering provided us with net cash proceeds of
approximately $9.3 million. The placement agents in this transaction
received (i) a fee equal to 6% of the aggregate gross proceeds and (ii) warrants
to purchase 348,876 shares of our common stock having an exercise price of $2.23
per share and exercisable beginning six months after their issuance and ending
five years after they become exercisable. In connection with this sale, we
entered into a Registration Rights Agreement with the investors. On
August 22, 2007, the SEC declared the registration statement
effective. The warrant agreement contains a cash settlement feature,
which is available to the warrant holders at their option, upon an acquisition
in certain circumstances. As a result, the warrants cannot be
classified as permanent equity and are instead classified as a liability at
their fair value in the accompanying consolidated balance sheet.
Engagement
of Investment Banking Firm to Identify and Evaluate Strategic
Alternatives
On
November 5, 2007, we announced that we engaged ThinkEquity Partners LLC to
assist us in identifying and evaluating strategic alternatives intended to
enhance the future growth potential of our pipeline and maximize stockholder
value.
On March
11, 2008, the Company announced that it has entered into a definitive merger
agreement with EUSA Pharma Inc., pursuant to which all outstanding shares of the
Company will be converted into $0.62 per share in cash, which represents a
premium of approximately 35% over the closing price of $0.46 on March 10,
2008. EUSA Pharma is a transatlantic specialty pharmaceutical company
focused on oncology, pain control and critical care.
Closing
of the merger is conditioned on, among other things, the receipt of approval by
holders of a majority of the outstanding shares of Cytogen’s common stock, and
the parties entrance into a sublicense agreement for the European and Asian
rights to the Company’s Caphosol product. It is also subject to
certain regulatory review and other customary closing conditions. The
transaction is expected to close in the second quarter of 2008. Upon
closing of the merger, EUSA Pharma intends to apply to delist all of Cytogen’s
issued shares from the NASDAQ Stock Market.
Receipt of NASDAQ
Notification Related to Minimum Bid Price
On
November 5, 2007, we received notification from The NASDAQ Stock Market, or
NASDAQ, that we are not in compliance with the $1.00 minimum bid price
requirement for continued inclusion on the NASDAQ Global Market pursuant to
Marketplace Rule 4450(a)(5). The closing price of our common stock
has been below $1.00 per share since September 24, 2007. The letter
states that we have 180 calendar days, or until May 5, 2008, to regain
compliance with the minimum bid price requirement of $1.00 per
share. We can achieve compliance, if at any time before May 5, 2008,
our common stock closes at $1.00 per share or more for at least 10 consecutive
business days. If compliance with NASDAQ’s Marketplace Rules is not
achieved by May 5, 2008, NASDAQ will provide notice that our common stock will
be delisted from the NASDAQ Global Market. In the event of such
notification, we would have an opportunity to appeal NASDAQ’s
determination. If faced with delisting, we may submit an application
to transfer the listing of our common stock to the NASDAQ Capital
Market.
Kevin
Lokay appointed as President and Chief Executive Officer
On
November 12, 2007, we announced that Kevin G. Lokay, a current member of
our Board of Directors, was appointed to the position of President
and Chief Executive Officer. Mr. Lokay has served on the our Board of
Directors since January 2001 and will remain a member of the Board. Mr.
Lokay has more than 26 years of pharmaceutical industry experience, including a
strong concentration in the successful sales and marketing of oncology
therapeutics and supportive care products. Mr. Lokay recently served
as Vice President and Business Unit Head, Oncology and Acute Care Business Unit
at GlaxoSmithKline Pharmaceuticals (GSK). While at GSK, he successfully launched
three oncology and two acute care products and grew the business to over $2.3
billion in sales.
RESULTS
OF OPERATIONS
Year
Ended December 31, 2007 as Compared to December 31, 2006
Revenues
|
Increase/(Decrease)
|
||||||||||||||||
|
2007
|
2006
|
$
|
% | |||||||||||||
|
(All
amounts in thousands, except percentage data)
|
||||||||||||||||
|
PROSTASCINT
|
$ | 9,636 | $ | 9,125 | $ | 511 | 6 | % | ||||||||
|
QUADRAMET
|
9,301 | 8,141 | 1,160 | 14 | % | |||||||||||
|
CAPHOSOL
|
1,275 | — | 1,275 | n/a | ||||||||||||
|
Other
product
revenue
|
— | 30 | (30 | ) | (100 | %) | ||||||||||
|
License
and
contract
|
6 | 11 | (5 | ) | (45 | %) | ||||||||||
| $ | 20,218 | $ | 17,307 | $ | 2,911 | 17 | % | |||||||||
Total
revenues for the year ended December 31, 2007 were $20.2 million compared to
$17.3 million for the same period in 2006. Product revenues accounted
for substantially all of total revenues in each of 2007 and
2006. Commencing with the second quarter of 2007, we
began recognizing revenue from CAPHOSOL. We did not recognize any
revenue in 2007 from SOLTAMOX which we introduced to the U.S. market in the
second half of 2006, because shipments of this product did not meet the revenue
recognition criteria under U.S. GAAP. We ceased selling and marketing
SOLTAMOX effective January 1, 2008. If QUADRAMET or PROSTASCINT does
not achieve broader market acceptance, either because we fail to effectively
market such products or our competitors introduce competing products, and if we
fail to successfully grow sales of CAPHOSOL, we may not be able to generate
sufficient revenue to become profitable.
PROSTASCINT. PROSTASCINT
sales were $9.6 million for the year ended December 31, 2007, compared to $9.1
million for 2006. Sales of PROSTASCINT accounted for 48% and 53% of
product revenues for 2007 and 2006, respectively. Unit sales for 2007
decreased 8% from 2006. The sales increase from the prior year period
was attributable to a higher average selling price in 2007 due to price
increases for PROSTASCINT of 9% and 10% on September 1, 2006 and January 1,
2007, respectively. We cannot assure you that we will be able to successfully
market PROSTASCINT, or that PROSTASCINT will achieve greater market penetration
on a timely basis or result in significant revenues for us.
QUADRAMET. QUADRAMET
sales were $9.3 million for the year ended December 31, 2007, compared to $8.1
million for 2006. Sales of QUADRAMET accounted for 46% and 47% of
product revenues for 2007 and 2006, respectively. Unit sales for 2007
increased 2% from 2006. In addition to the volume increase, the sales
increase from the prior year period was also attributable to a higher average
selling price in 2007 due to price increases for QUADRAMET of 5% and 13% on
September 1, 2006 and January 1, 2007, respectively. Currently, we
market QUADRAMET only in the United States and have no rights to
market
QUADRAMET
in Europe. We cannot assure you 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.
CAPHOSOL. CAPHOSOL
sales were $1.3 million for the year ended December 31, 2007. We
introduced CAPHOSOL to the U.S market in March 2007. We began to
recognize CAPHOSOL revenues in the second quarter of 2007, based on a number of
factors including product sales to end-users, on-hand inventory estimates in the
distribution channel, expiry dates, and data on product acceptance in the
marketplace. Starting in the third quarter of 2007, we had sufficient
evidence to reasonably estimate returns and chargebacks and have managed
inventories in the distribution channels to not exceed targeted
levels. As a result, we began to recognize revenues on CAPHOSOL based
on shipments to customers. We cannot assure you that we will be able
to successfully market CAPHOSOL or that CAPHOSOL will achieve greater market
penetration on a timely basis or result in significant revenues for
us.
Other Product
Revenue. We did not recognize any SOLTAMOX revenue in
2007 because shipments of this product did not meet the revenue recognition
criteria under U.S. GAAP. Due to limited end-user demand and
inventory dating issues, substantially all of the SOLTAMOX inventory at
wholesalers was returned to us resulting in our inability to recognize such
shipments as revenue. For the year ended December 31, 2006, we
recognized $30,000 in SOLTAMOX revenue. Effective January 1, 2008, we
ceased selling and marketing SOLTAMOX.
Operating
Expenses
|
Increase/(Decrease)
|
||||||||||||||||
|
2007
|
2006
|
$ | % | |||||||||||||
|
(All
amounts in thousands, except percentage data)
|
||||||||||||||||
|
Cost
of product revenues
|
$ | 13,053 | $ | 10,150 | $ | 2,903 | 29 | % | ||||||||
|
Selling,
general and administrative
|
39,086 | 30,166 | 8,920 | 30 | % | |||||||||||
|
Research
and development
|
5,851 | 7,301 | (1,450 | ) | (20 | %) | ||||||||||
|
Equity
in loss of joint venture
|
— | 120 | (120 | ) | (100 | %) | ||||||||||
|
Impairment
of intangible asset
|
1,767 | — | 1,767 | n/a | ||||||||||||
| $ | 59,757 | $ | 47,737 | $ | 12,020 | 25 | % | |||||||||
Total
operating expenses for the year ended December 31, 2007 were $59.8 million
compared to $47.7 million in 2006.
Cost of Product
Revenues. Cost of product revenues for the year ended
December 31, 2007 and 2006 were $13.1 million and $10.2 million for 2006
and primarily reflects (i) manufacturing and distribution costs for PROSTASCINT,
QUADRAMET and CAPHOSOL; (ii) royalties on our sales of products; and (iii)
amortization of the up-front payments to acquire the marketing rights to
QUADRAMET in 2003, SOLTAMOX in April 2006 and CAPHOSOL in October
2006. The increase from the prior year period is primarily due to
costs aggregating $882,000 and $160,000 associated with CAPHOSOL and SOLTAMOX
which we introduced to the U.S. market in March 2007 and August 2006,
respectively, a tentative settlement amount for
$125,000
to terminate the minimum royalty obligations with Rosemont; a reserve of
$298,000 for excess SOLTAMOX inventory with short expiry dates; a tentative
settlement amount of $100,000 related to PROSTASCINT infringement litigation;
and a write down of $765,000 for costs related to a failed PROSTASCINT
batch.
Selling, General
and Administrative. Selling, general and administrative
expenses for the year ended December 31, 2007 were $39.1 million compared to
$30.2 million for the same period of 2006. The increase from the
prior year period is primarily driven by: (i) a $6.0 million expense increase
associated with the launch of CAPHOSOL late in the first quarter of 2007; (ii)
increased commercial and selling support for all products; (iii) $1.0 million in
managed care activities primarily related to SOLTAMOX and CAPHOSOL; and (iv)
$505,000 of costs related to the evaluation of strategic
alternatives.
Research and
Development. Research and development expenses for the year
ended December 31, 2007 were $5.9 million compared to $7.3 million for the same
period of 2006. The decrease from the prior year period is primarily
due to reduced expenditures for pre-clinical testing and production of clinical
supplies for CYT-500 as compared to those incurred in 2006, partially offset by
increased employment costs.
Equity in Loss of
Joint Venture. Our share of the loss of the PSMA Development
Company LLC (PDC), our former joint venture with Progenics, was $120,000 for the
year ended December 31, 2006. Such amounts represented 50% of the
joint venture's net losses. We equally shared ownership and costs of
the joint venture with Progenics and accounted for the joint venture using the
equity method of accounting until April 20, 2006 when we sold our ownership
interest in PDC to Progenics. Following the sale of our interest in
the joint venture in April 2006, we have no further obligations to the joint
venture.
Impairment of
Intangible Assets. We assess the carrying
value of our intangible assets when circumstances indicate that the carrying
amount of the underlying asset may not be recoverable. Due to limited end-user
demand, uncertainty regarding future market penetration, the decision in the
third quarter of 2007 to reallocate sales and marketing resources to other
products, and inventory dating issues, we assessed the recoverability of the
carrying amount of our SOLTAMOX license and determined an impairment existed.
Accordingly, during the third quarter of 2007, we recorded a non-cash impairment
charge of approximately $1.8 million to write-down this asset to
zero.
Interest
Income/Expense. Interest income for the year ended December
31, 2007 was $1.1 million compared to $1.5 million for the same period of
2006. The decrease from the prior year period was due to higher
average cash balances in 2006. Interest expense for the year ended
December 31, 2007 was $66,000 compared to $36,000 for the same period of
2006. Interest expense includes interest on finance charges related
to various equipment leases that are accounted for as capital leases and
interest on amounts to be escrowed in connection with the license agreement with
InPharma.
Advanced
Magnetics, Inc. Litigation Settlement, Net. In February 2007,
we settled our lawsuit against Advanced Magnetics, Inc., as well as Advanced
Magnetics' counterclaims against us, by mutual agreement. Under the
terms of the settlement agreement, Advanced Magnetics
paid us
$4.0 million and released 50,000 shares of Cytogen common stock held in
escrow. As a result of the settlement, we recorded a gain of $3.9
million, net of transaction costs in 2007.
Gain on Sale of
Equity Interest in Joint Venture. On April 20, 2006, we
entered into a Membership Interest Purchase Agreement with Progenics providing
for the sale to Progenics of our 50% ownership interest in PDC, our joint
venture with Progenics for the development of in vivo cancer
immunotherapies based on PSMA. In addition, we entered into an
Amended and Restated PSMA/PSMP License Agreement with Progenics and PDC pursuant
to which we licensed PDC certain rights in PSMA technology. Under the
terms of such agreements, we sold our 50% interest in PDC for a cash payment of
$13.2 million, potential future milestone payments totaling up to $52.0 million
payable upon regulatory approval and commercialization of PDC products, and
royalties on future PDC product sales, if any. As a result of the
transaction, for the year ended December 31, 2006, we recorded a gain of $12.9
million on the sale of our equity interest in the joint venture. This
amount represents the net proceeds after transaction costs less the
carrying value of our investment in the joint venture at the time of
sale.
Decrease in
Warrant Liabilities. In connection with the sale of our common
stock and warrants in 2005, 2006 and 2007, we recorded the warrants as a
liability at their fair value using the Black-Scholes option-pricing model and
will remeasure them at each reporting date until exercised or
expired. Changes in the fair value of the warrants are reported in
the statements of operations as non-operating income or expense. For
the year ended December 31, 2007, we reported a non-cash unrealized gain of $8.9
million related to the decrease in fair value of these outstanding warrants
during the period, compared to a $1.0 million non-cash unrealized gain for the
same period of 2006. The market price for our common stock has been
and may continue to be volatile. Consequently, future fluctuations in
the price of our common stock may cause significant increases or decreases in
the fair value of these warrants.
Net
Loss. Net loss for the year ended December 31, 2007 was $25.7
million compared to $15.1 million for the same period of 2006. The
basic and diluted net loss per share for 2007 was $0.79 based on 32.5 million
weighted-average common shares outstanding, compared to a basic and diluted net
loss per share of $0.64 based on 23.5 million weighted-average common shares
outstanding for the same period in 2006.
RESULTS
OF OPERATIONS
Year
Ended December 31, 2006 as Compared to December 31, 2005
Revenues
|
Increase/(Decrease)
|
||||||||||||||||
|
2006
|
2005
|
$ | % | |||||||||||||
|
(All
amounts in thousands, except percentage data)
|
||||||||||||||||
|
PROSTASCINT
|
$ | 9,125 | $ | 7,407 | $ | 1,718 | 23 | % | ||||||||
|
QUADRAMET
|
8,141 | 8,350 | (209 | ) | (3 | %) | ||||||||||
|
Other
product
revenue
|
30 | -- | 30 | n/a | ||||||||||||
|
License
and
contract
|
11 | 189 | (178 | ) | (94 | %) | ||||||||||
| $ | 17,307 | $ | 15,946 | $ | 1,361 | 9 | % | |||||||||
Total
revenues for the year ended December 31, 2006 were $17.3 million compared to
$15.9 million for 2005. Product revenues accounted for substantially
all of total revenues in 2006 and 99% of total revenues in
2005. License and contract revenues accounted for the remainder of
revenues.
PROSTASCINT. PROSTASCINT
sales were $9.1 million for the year ended December 31, 2006, compared to $7.4
million for the same period of 2005. Sales of PROSTASCINT accounted
for 53% and 47% of product revenues for 2006 and 2005,
respectively. The increase from the prior year period was due to the
implementation of a 9% price increase for PROSTASCINT on September 1, 2006 and
increased demand associated with our focused marketing
programs.
QUADRAMET. We
recorded QUADRAMET sales of $8.1 million for the year ended December 31, 2006,
compared to $8.4 million for 2005. QUADRAMET sales accounted for 47%
and 53% of product revenues for 2006 and 2005,
respectively. QUADRAMET year-over-year sales were essentially flat
with the exception of a change in the timing of scheduled maintenance shutdowns
for one of our raw material suppliers that negatively impacted product
availability during the fourth quarter of 2006. Currently, we market
QUADRAMET only in the United States and have no rights to market QUADRAMET in
Europe.
Other Product
Revenue. For the year ended December 31, 2006, other product
revenue was comprised of $30,000 of SOLTAMOX sales. We introduced
SOLTAMOX in the second half of 2006 and began supplying the distribution
channels to support initial patient demand. In 2006,
approximately $1.1 million of SOLTAMOX supply was shipped to wholesalers;
however, we did not recognize revenues for SOLTAMOX in our consolidated
statement of operations because shipments of this product did not meet the
revenue recognition criteria under U.S. GAAP. Due to limited end-user
demand and inventory dating issues, substantially all of the SOLTAMOX inventory
at wholesalers was returned to us in 2007, resulting in our inability to
recognize such shipments as revenue.
License and
Contract Revenue. License and contract revenues were $11,000
and $189,000 for the years ended December 31, 2006 and 2005,
respectively. The 2005 revenue includes $185,000 of contract revenue
for limited services provided by us to PDC, our former joint venture with
Progenics Pharmaceuticals, Inc. We did not provide any research
services to the joint venture in 2006.
Operating
Expenses
|
Increase/(Decrease)
|
||||||||||||||||
|
2006
|
2005
|
$ |
%
|
|||||||||||||
|
(All
amounts in thousands, except percentage data)
|
||||||||||||||||
|
Cost
of product revenues
|
$ | 10,150 | $ | 9,523 | $ | 627 | 7 | % | ||||||||
|
Selling,
general and administrative
|
30,166 | 25,895 | 4,271 | 16 | % | |||||||||||
|
Research
and development
|
7,301 | 6,162 | 1,139 | 18 | % | |||||||||||
|
Equity
in loss of joint venture
|
120 | 3,175 | (3,055 | ) | (96 | %) | ||||||||||
| $ | 47,737 | $ | 44,755 | $ | 2,982 | 7 | % | |||||||||
Total
operating expenses for the year ended December 31, 2006 were $47.7 million
compared to $44.8 million for the same period of 2005.
Cost of Product
Revenues. Cost of product revenues for the year ended
December 31, 2006 was $10.2 million compared to $9.5 million for 2005 and
primarily reflects manufacturing costs for PROSTASCINT and QUADRAMET, royalties
on our sales of products and amortization of the up-front payments to acquire
the marketing rights to QUADRAMET in 2003, SOLTAMOX in April 2006 and CAPHOSOL
in October 2006. The increase from the prior year period was due
primarily to higher product revenue and the amortization expenses for SOLTAMOX
and CAPHOSOL in 2006.
Selling, General
and Administrative. Selling, general and administrative
expenses for the year ended December 31, 2006 were $30.2 million compared to
$25.9 million for 2005. The increase in selling, general
and administrative expenses is primarily attributable to $2.1 million of launch
costs associated with SOLTAMOX, which we introduced in the second half of 2006,
pre-launch costs of $752,000 for CAPHOSOL and the recognition of $1.6 million of
share-based compensation in 2006 for options and nonvested shares granted to
employees, partially offset by the $750,000 of pre-launch costs in 2005 for
Combidex.
Research and
Development. Research and development expenses for the year
ended December 31, 2006 were $7.3 million compared to $6.2 million for
2005. The increase in 2006 from the prior year is primarily driven by
costs associated with the clinical development initiatives for both QUADRAMET
and PROSTASCINT and the pre-clinical development program for
CYT-500. The 2006 expenses also include the recognition of $252,000
of share-based compensation in 2006 for options and nonvested shares granted to
employees. The 2005 expenses included a charge of $500,000 related to
the issuance of shares of our common stock in August 2005 to the stockholders
and debtholders of Prostagen Inc. made pursuant to the terms of an addendum to
our Stock Exchange Agreement dated June 15, 1999.
Equity in Loss of
Joint Venture. Our share of the loss of the PSMA Development
Company LLC (PDC), our former joint venture with Progenics, was $120,000 for the
year ended December 31, 2006 compared to $3.2 million in 2005. Such
amounts represented 50% of the joint venture's net losses. We equally
shared ownership and costs of the joint venture with Progenics and accounted for
the joint venture using the equity method of accounting until April 20, 2006
when we sold our ownership interest in PDC to Progenics. Following
the sale of our interest in the joint venture in April 2006, we have no further
obligations to the joint venture.
Interest
Income/Expense. Interest income for the year ended December
31, 2006 was $1.5 million compared to $712,000 for the same period of
2005. The increase from the prior year period was due to higher
average yield on higher average cash balances in 2006. Interest
expense for the year ended December 31, 2006 was $36,000 compared to $114,000
for the same period of 2005. Interest expense includes finance
charges on insurance premiums which were financed and purchases of various
equipment that are accounted for as capital leases. Interest expense
in 2005 also includes interest on outstanding debt which was paid off in August
2005.
Gain on
Sale of Equity
Interest in Joint Venture. On April 20, 2006, we entered into
a Membership Interest Purchase Agreement with Progenics providing for the sale
to Progenics of our 50% ownership interest in PDC, our joint venture with
Progenics for the development of in
vivo cancer immunotherapies based on PSMA. In
addition, we entered into an Amended and Restated PSMA/PSMP License Agreement
with Progenics and PDC pursuant to which we licensed PDC certain rights in PSMA
technology. Under the terms of such agreements, we sold our 50%
interest in PDC for a cash payment of $13.2 million, potential future milestone
payments totaling up to $52.0 million payable upon regulatory approval and
commercialization of PDC products, and royalties on future PDC product sales, if
any. As a result of the transaction, for the year ended December 31,
2006, we recorded $12.9 million in gain on sale of equity interest in the joint
venture, which represents the net proceeds after transaction costs less the
carrying value of our investment in the joint venture at the time of
sale.
Decrease in Value
of Warrant Liabilities. In connection with the sale of our
common stock and warrants in 2005 and 2006, we recorded the warrants as a
liability at their fair value at the dates of issuance using the Black-Scholes
option-pricing model and will remeasure them at each reporting date until they
are exercised or expire. Changes in the fair value of the warrants
are reported in the statements of operations as non-operating income or
expense. For the year ended December 31, 2006, we reported a gain of
$1.0 million related to the decrease in fair value of these warrants since their
issuance dates or December 31, 2005, whichever is later, compared to a $1.7
million gain recorded in the same period of 2005 related to the decrease in fair
value of these
warrants since their issuance dates.
Income Tax
Benefit. During 2005, we
sold a portion of our New Jersey state net operating loss carryforwards, which
resulted in the recognition of $256,000 in income tax benefits. We
did not sell any New Jersey state net operating loss carryforwards in 2006 or
2007.
Net
Loss. Net loss for the year ended December 31, 2006 was $15.1
million compared to $26.3 million for 2005. The basic and diluted net
loss per share for 2006 was $0.64 based on 23.5 million
weighted-average common shares outstanding, compared to a basic and diluted net
loss per
share of $1.54 based on 17.1 million weighted-average common shares outstanding
for 2005.
COMMITMENTS
We have
entered into various contractual and commercial commitments. The
following table summarizes our obligations with respect to these commitments as
of December 31, 2007:
|
Contractual
Obligation
|
Less
than 1 year
|
1
to 3 years
|
4
to 5 years
|
More
than 5 years
|
Total
|
|||||||||||||||
|
(All
amounts in thousands)
|
||||||||||||||||||||
|
Capital
lease obligations
|
$ | 87 | $ | 66 | $ | — | $ | — | $ | 153 | ||||||||||
|
Facility
leases
|
338 | 282 | — | — | 620 | |||||||||||||||
|
Research
and development
|
810 | 150 | 150 | 406 | 1,516 | |||||||||||||||
|
Marketing
and other obligations
|
1,671 | 613 | — | — | 2,284 | |||||||||||||||
|
Manufacturing
contracts(1)
|
5,077 | 5,077 | — | — | 10,154 | |||||||||||||||
|
Minimum
royalty payments(2)
|
1,000 | 2,000 | 2,000 | 833 | 5,833 | |||||||||||||||
|
Total(3)
|
$ | 8,983 | $ | 8,188 | $ | 2,150 | $ | 1,239 | $ | 20,560 | ||||||||||
_________
(1)
Effective January 1, 2004, we entered into a new manufacturing and supply
agreement with BMSMI for QUADRAMET whereby BMSMI manufactures, distributes and
provides order processing and customer services for us relating to
QUADRAMET. Under the terms of our agreement, we are obligated to pay
at least $5.1 million annually, subject to future annual price adjustment,
through 2008, unless terminated by BMSMI or us on a two year prior written
notice. This agreement will automatically renew for five successive
one-year periods unless terminated by BMSMI or us on a two-year prior written
notice. We have neither terminated nor received a termination notice
from BMSMI for this agreement. We have not included commitments
beyond December 31, 2009.
(2) We
acquired an exclusive license from Dow for QUADRAMET for the treatment of
osteoblastic bone metastases in certain territories. The agreement
requires us to pay Dow royalties based on a percentage of net sales of
QUADRAMET, or a guaranteed contractual minimum payment, whichever is greater,
and future payments upon achievement of certain milestones. Future annual
minimum royalties due to Dow are $1.0 million per year in 2008 through 2012 and
$833,000 in 2013.
(3) At
December 31, 2007, we have no uncertain tax positions. We do not
anticipate any events in the next 12-months that would require us to record a
liability related to any uncertain income tax
positions as prescribed by FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes (FIN 48).
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 we achieve
specific development milestones or commercial milestones. We are also
obligated to pay a finder's fee based upon a percentage of milestone payments
made to InPharma in connection with the licensing of CAPHOSOL. We did
not include in the table above any payments that do not represent fixed or
minimum payments but are instead payable only upon the achievement of a
milestone, if the achievement of that milestone is uncertain or the obligation
amount is not determinable.
We acquired the exclusive marketing
rights for SOLTAMOX in the United States under our distribution agreement with
Rosemont. The agreement with Rosemont requires us to pay Rosemont
quarterly minimum royalties based on an agreed upon percentage of total
tamoxifen prescriptions in the United States through June 2018. We
have reached a tentative agreement with Rosemont to terminate all agreements
effective December 31, 2007, including the minimum royalty
obligation. We have recorded a charge of $125,000 in 2007 for the
estimated settlement amount and have not included any further commitment beyond
December 31, 2007.
LIQUIDITY
AND CAPITAL RESOURCES
Our
audited financial statements for the fiscal year ended December 31, 2007, were
prepared under the assumption that we will continue our operations as a going
concern. We were incorporated in 1980, and do not have a history of
earnings. As a result, our registered independent accountants in
their audit report have expressed substantial doubt about our ability to
continue as a going concern. Continued operations are dependent on
our ability to complete equity or debt formation activities or to generate
profitable operations. Such capital formation activities may not be
available or may not be available on reasonable terms. Our financial
statements do not include any adjustments that may result from the outcome of
this uncertainty. If we cannot continue as a viable entity, our
stockholders may lose some or all of their investment in the
Company.
Condensed
Statement of Cash Flows:
|
2007
|
||||
|
(All
amounts in thousands)
|
||||
|
Net
loss
|
$ | (25,692 | ) | |
|
Adjustments
to reconcile net loss to net cash used in
operating
activities
|
(5,437 | ) | ||
|
Net
cash used in operating
activities
|
(31,129 | ) | ||
|
Net
cash used in investing
activities
|
(2,040 | ) | ||
|
Net
cash provided by financing activities
|
9,576 | |||
|
Net
decrease in cash and cash equivalents
|
$ | (23,593 | ) | |
Our
cash and cash equivalents were $8.9 million as of December 31, 2007, compared to
$32.5 million as of December 31, 2006. For the years ended December
31, 2007 and 2006, net cash used in operating activities was $31.1 million and
$22.9 million, respectively. The increase
in
cash usage from the prior year period was primarily due to the support of
marketing initiatives for our marketed products, including the commercial launch
of CAPHOSOL in 2007, partially offset by the receipt of $4.0 million related to
the Advanced Magnetics, Inc. settlement agreement. We also received
net cash proceeds of $9.3 million from our securities purchase agreement with
certain institutional investors in July 2007. We expect that our
existing capital resources at December 31, 2007 should be adequate to fund our
operations and commitments into the second quarter of
2008.
Historically,
our primary sources of cash have been proceeds from the issuance and sale of our
stock through public offerings and private placements, product revenues,
revenues from contract research services, fees paid under license agreements,
sale of assets, and interest earned on cash and short-term
investments.
We have
incurred negative cash flows from operations since our inception, and have
expended, and expect to continue to expend in the future, substantial funds to
implement our planned product development efforts, including acquisition of
products and complementary technologies, research and development, clinical
studies and regulatory activities, and to further our marketing and sales
programs. We expect that our existing capital resources at December
31, 2007 should be adequate to fund our operations and commitments into the
second quarter of 2008. We cannot assure you that our business or
operations will not change in a manner that would consume available resources
more rapidly than anticipated. We expect that we will have additional
requirements for debt or equity capital, irrespective of whether and when we
reach profitability, for further product development costs, product and
technology acquisition costs, and working capital.
On
November 5, 2007, we announced that we had engaged an investment banking firm to
assist us in identifying and evaluating strategic alternatives intended to
enhance the future growth potential of our pipeline and maximize stockholder
value. On March 11, 2008, the Company announced that it has
entered into a definitive merger agreement with EUSA Pharma Inc., pursuant to
which all outstanding shares of the Company will be converted into $0.62 per
share in cash, which represents a premium of approximately 35% over the closing
price of $0.46 on March 10, 2008. EUSA Pharma is a transatlantic
specialty pharmaceutical company focused on oncology, pain control and critical
care.
Closing
of the merger is conditioned on, among other things, the receipt of approval by
holders of a majority of the outstanding shares of Cytogen’s common stock, and
the parties entrance into a sublicense agreement for the European and Asian
rights to the Company’s Caphosol product. It is also subject to
certain regulatory review and other customary closing conditions. The
transaction is expected to close in the second quarter of 2008. Upon
closing of the merger, EUSA Pharma intends to apply to delist all of Cytogen’s
issued shares from the NASDAQ Stock Market.
If we are unable to
consummate the merger with EUSA, we will need to raise additional capital in the
second quarter of 2008. If we are unable to raise additional financing, we will
be required to reduce our capital expenditures, scale back our sales and
marketing or research and development plans, reduce our workforce, license to
others products or technologies we would
otherwise
seek to commercialize ourselves, sell certain assets, cease operations or
declare bankruptcy. There can be no assurance that we can obtain equity
financing, if at all, on terms acceptable to us. 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 clinical stage and marketed
products; (iii) progress in our product development efforts and the
magnitude and scope of such efforts; (iv) progress with clinical trials;
(v) progress with regulatory affairs activities; (vi) the cost of
filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights; (vii) competing technological and market
developments; and (viii) the expansion of strategic alliances for the
sales, marketing, manufacturing and distribution of our products. To the extent
that the currently available funds and revenues are insufficient to meet current
or planned operating requirements, we will be required to obtain additional
funds through equity or debt financing, strategic alliances with corporate
partners and others, or through other sources. We cannot assure you that the
financial sources described above will be available when needed or at terms
commercially acceptable to us. If adequate funds are not available, we may be
required to delay, further scale back or eliminate certain aspects of our
operations or attempt to obtain funds through arrangements with collaborative
partners or others that may require us to relinquish rights to certain of our
technologies, product candidates, products or potential markets. If adequate
funds are not available, our business, financial condition and results of
operations will be materially and adversely affected.
On
November 5, 2007, we received notification from The NASDAQ Stock Market, or
NASDAQ, that we are not in compliance with the $1.00 minimum bid price
requirement for continued inclusion on the NASDAQ Global Market pursuant to
Marketplace Rule 4450(a)(5). The closing price of our common stock
has been below $1.00 per share since September 24, 2007. The letter
states that we have 180 calendar days, or until May 5, 2008, to regain
compliance with the minimum bid price requirement of $1.00 per
share. We can achieve compliance, if at any time before May 5, 2008,
our common stock closes at $1.00 per share or more for at least 10 consecutive
business days. If compliance with NASDAQ’s Marketplace Rules is not
achieved by May 5, 2008, NASDAQ will provide notice that our common stock will
be delisted from the NASDAQ Global Market. In the event of such
notification, we would have an opportunity to appeal NASDAQ’s
determination. If faced with delisting, we may submit an application
to transfer the listing of our common stock to the NASDAQ Capital
Market.
Additionally,
if we are unable to consummate the merger with EUSA, our common stock may be
delisted by NASDAQ. If delisted from the NASDAQ Global Market and unable to
transfer to the NASDAQ Capital Market, our common stock would be eligible to
trade on the OTC Bulletin Board maintained by NASDAQ, another over-the-counter
quotation system, or on the pink sheets where an investor may find it more
difficult to dispose of or obtain accurate quotations as to the market value of
our common stock. In addition, we would be subject to “penny stock” regulations
promulgated by the Securities and Exchange Commission that, if we fail to meet
criteria set forth in such regulations, imposes various practice requirements on
broker-dealers who sell securities governed by the regulations to persons other
than established customers and accredited investors. Consequently, such
regulations may deter broker-dealers from recommending or selling our common
stock, which may further affect the liquidity of our common stock. There can be
no assurance that we will be able to maintain the listing of our common stock on
NASDAQ. Delisting from NASDAQ would make trading our common stock
more
difficult for investors, potentially leading to further declines in our share
price. It would also make it more difficult for us to raise additional capital.
Further, if we are delisted, we would also incur additional costs under state
blue sky laws in connection with any sales of our securities. These requirements
could severely limit the market liquidity of our common stock and the ability of
our shareholders to sell our common stock in the secondary market.
We have
not yet determined what action, if any, we will take in response to the notice
from NASDAQ, although we intend to monitor the closing bid price of our common
stock between now and May 5, 2008, and to consider available options if our
common stock does not trade at a level likely to result in the Company regaining
compliance with the NASDAQ minimum closing bid price requirement.
There can
be no assurance that we will be able to maintain the listing of our common stock
on the NASDAQ Global Market. Delisting from NASDAQ would make trading
our common stock more difficult for investors, potentially leading to further
declines in our share price. It would also make it more difficult for
us to raise additional capital. Further, if we are delisted, we would
also incur additional costs under state blue sky laws in connection with any
sales of our securities. These requirements could severely limit the
market liquidity of our common stock and the ability of our stockholders to sell
our common stock in the secondary market.
Other
Liquidity Events
On June
29, 2007, we entered into purchase agreements with certain institutional
investors for the sale of 5,814,600 shares of our common stock and warrants to
purchase 2,907,301 shares of our common stock, through a private placement
offering. The warrants have an exercise price of $2.23 per share and
are exercisable beginning six months after their issuance and ending five years
after they become exercisable. The warrant agreement contains a cash
settlement feature, which is available to the warrant holders at their option,
upon an acquisition in certain circumstances. In exchange for $1.74,
the purchasers received one share of common stock and a warrant to purchase .5
share of common stock. The transaction closed on July 6, 2007. The
offering provided us net cash proceeds of approximately $9.3
million. The placement agents in this transaction received (i) a cash
fee equal to 6% of the aggregate gross proceeds and (ii) warrants to purchase
348,876 shares of our common stock having an exercise price of $2.23 per share
and exercisable beginning six months after their issuance and ending five years
after they become exercisable. In connection with this sale, we
entered into a Registration Rights Agreement with the investors under which we
were obligated to file a registration statement with the SEC for the resale of
the shares sold to the investors and shares issuable upon exercise of the
warrants within a specified time period. We are also required to use
commercially reasonable efforts to cause the registration to be declared
effective by the SEC and to remain continuously effective until such time when
all of the registered shares are sold or two years from the closing date,
whichever is earlier. In the event we fail to keep the registration
statement effective, we are obligated to pay the investors liquidated damages
equal to 1% of the aggregate purchase price of $10.1 million for each monthly
period that the registration statement is not effective, up to
10%. On August 22, 2007, the registration statement was declared
effective by the SEC.
We
concluded that the contingent obligation was not probable, and therefore no
contingent liability was recorded as of December 31, 2007.
On
November 10, 2006, we sold to certain institutional investors 7,092,203
shares of our common stock and 3,546,107 warrants to purchase shares
of our common stock. The warrants have an exercise price of $3.32 per
share and are exercisable beginning six months and ending five years after their
issuance. The warrant agreement contains a cash settlement feature,
which is available to the warrant holders at their option, upon an acquisition
in certain circumstances. In connection with this sale, we entered
into a Registration Rights Agreement with the investors under which, we were
obligated to file a registration statement with the SEC for the resale of the
shares sold to the investors and shares issuable upon exercise of the warrants
within a specified time period. We are also required to use
commercially reasonable efforts to keep the registration statement continuously
effective with the SEC until such time when all of the registered shares are
sold or three years from the closing date, whichever is earlier. In
the event we fail to keep the registration statement effective, we are obligated
to pay the investors liquidated damages equal to 1% of the aggregate purchase
price of $20 million for each 30-day period that the registration statement is
not effective, up to 10%. On December 28, 2006, the SEC declared the
registration statement effective. We concluded that the contingent
obligation was not probable, and therefore no contingent liability was recorded
as of December 31, 2007.
On
October 11, 2006, we entered into a license agreement with InPharma granting us
exclusive rights for CAPHOSOL in North America and options to license the
marketing rights for CAPHOSOL in Europe and Asia. In accordance with
the terms of the Agreement, we paid InPharma $1.2 million in 2007 and are
obligated to pay an additional $200,000 in October 2008 contingent upon certain
conditions. We are also obligated to pay InPharma royalties based on
a percentage of net sales and future milestone payments of up to an aggregate of
$49.0 million. We are also obligated to pay royalties on net sales to
certain other licensors and a finder's fee based upon a percentage of milestone
payments made to InPharma. For the year ended December 31, 2007, we
recorded $185,000 of royalties for CAPHOSOL. On August 30, 2007, we
executed Amendment No. 1 to the license agreement with InPharma that
restructured the amounts payable by us upon the exercise of the option for
European marketing rights. On February 14, 2008, we executed
Amendment No. 2 to the license agreement with InPharma to restructure the
amounts payable by us in connection with the exercise of the options for the
European and Asian marketing rights, including milestone payments and royalties
based on sales levels in North America. Pursuant to the merger
agreement between EUSA and us dated March 10, 2008, EUSA will sublicense the
marketing rights to Europe and Asia, subject to the approval from certain other
licensors and not InPharma.
In the
event we exercise the options to license marketing rights for CAPHOSOL in Europe
and Asia, we are obligated to pay InPharma additional fees and payments,
including sales-based milestone payments for the respective
territories. We also shall pay InPharma a portion of any up-front
license fees and milestone payments, but not royalties, received by us in
consideration of the grant by us to other parties of the right to market
CAPHOSOL in Europe or Asia. For Asia, such amounts are only payable
to the extent such up-front license fees and milestone payments are in excess of
the amount paid by us to InPharma for the marketing rights
in
Asia. We are also obligated to pay certain licensors, other than
InPharma royalties based on net sales of CAPHOSOL in North America and Europe
and Asia, if exercised.
In
September 2006, we entered into a non-exclusive manufacturing agreement with
Laureate pursuant to which Laureate shall manufacture PROSTASCINT and its
primary raw materials for Cytogen in Laureate's Princeton, New Jersey facility.
The agreement was scheduled to terminate, unless terminated earlier pursuant to
its terms, upon Laureate's completion of the specified production campaign for
PROSTASCINT and shipment of the resulting products from Laureate's
facility. Under the terms of the agreement, we anticipate paying at
least an aggregate of $3.9 million through the end of the term of contract, of
which $3.1 million of an aggregate $3.6 million was incurred in
2007. The original agreement was extended by amendment through the
end of 2007 and subsequently extended through the end of 2008 by an additional
amendment.
On April
21, 2006, we entered into a distribution agreement with Savient granting us
exclusive marketing rights for SOLTAMOX in the United States. In
addition, we entered into a supply agreement with Savient and Rosemont for the
manufacture and supply of SOLTAMOX. Our agreements with Savient were
subsequently assigned to Rosemont by Savient. Under the terms of the
agreements, we would have had to pay contingent sales-based payments of up to a
total of $4.0 million to Rosemont. We were also required to pay
Rosemont royalties on net sales of SOLTAMOX. Beginning in 2007, we
were obligated to pay Rosemont quarterly minimum royalties based on an agreed
upon percentage of total tamoxifen prescriptions in the United
States. For the year ended December 31, 2007, we recorded $209,000 in
royalties to Rosemont. As a result of limited end-user
demand and the reallocation of resources to our other products, effective
January 1, 2008, we ceased selling and marketing SOLTAMOX. We have
subsequently reached a tentative agreement with Rosemont to terminate the
distribution and supply agreements effective December 31, 2007, including the
minimum royalty obligations. For the year ended December 31, 2007, we
recorded a charge of $125,000 in cost of product revenue, which
represents the estimated settlement amount.
On May 6,
2005, we entered into a license agreement with The Dow Chemical Company to
create a targeted oncology product designed to treat prostate and other
cancers. The agreement applies proprietary MeO-DOTA bifunctional
chelant technology from Dow to radiolabel our PSMA antibody with a therapeutic
radionuclide. Under the agreement, proprietary chelation technology
and other capabilities, provided through ChelaMedSM
radiopharmaceutical services from Dow, will be used to attach a therapeutic
radioisotope to the 7E11-C5 monoclonal antibody utilized in our PROSTASCINT
molecular imaging agent. As a result of the agreement, we are
obligated to pay a minimal license fee and aggregate future milestone payments
of $1.9 million for each licensed product and royalties based on sales of
related products, if any. Unless terminated earlier, the Dow
agreement terminates at the later of (a) the tenth anniversary of the date of
first commercial sale for each licensed product or (b) the expiration of the
last to expire valid claim that would be infringed by the sale of the licensed
product. We may terminate the license agreement with Dow on 90 days
written notice.
Effective
January 1, 2004, we entered into a manufacturing and supply agreement with BMSMI
whereby BMSMI manufactures, distributes and provides order processing and
customer services for us relating to QUADRAMET. Under the terms of
the new agreement, we are obligated to pay at least $5.1 million annually,
subject to future annual price adjustment, through
2008, unless
terminated by BMSMI or us on two years prior written notice. For the
year ended December 31, 2007, we incurred $4.8 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 January 2008, BMSMI was acquired by Avista Capital
Partners. Since our agreement requires two years prior written notice
to terminate and we have not received any termination notice from BMSMI, we do
not expect any disruption in BMSMI’s performance of its obligations under our
agreement for 2008 and 2009. We currently have no alternative
manufacturer or supplier for QUADRAMET and any of its
components.
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 2007 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, 2007 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
revenues include product sales by us to our customers. We recognize revenues in
accordance with SEC Staff Accounting Bulletin No. 104 ("SAB 104"), "Revenue
Recognition". We recognize product sales when substantially all the
risks and rewards of ownership have transferred to the customer, which generally
occurs on the date of shipment. Our revenue recognition policy has a
substantial impact on our reported results and relies on certain estimates that
require subjective judgments on the part of management. We recognize product
sales net of allowances for estimated returns, rebates and
discounts. We estimate allowances based primarily on our
past experience and other available information pertinent to the use and
marketing of the product.
For new
products launches such as CAPHOSOL and SOLTAMOX, which we introduced in March
2007 and August 2006, respectively, our policy is to recognize revenue based on
a number of factors, including product sales to end-users, on-hand inventory
estimates in the distribution channel, and the data to determine product
acceptance in the marketplace to estimate product returns. When
inventories in the distribution channel do not exceed targeted levels, and we
have the ability to estimate product returns and discounts, we will recognize
product sales upon shipment, net of discounts, returns and
allowances.
Starting
in the third quarter of 2007, we have had sufficient evidence to reasonably
estimate returns and chargebacks for CAPHOSOL and have monitored inventories in
the distribution channels to not exceed targeted levels. As a result
we began recognizing CAPHOSOL revenues based on shipments to
customers.
Provisions for Estimated
Reductions to Gross Sales
At the
time product sales are made, we reduce gross sales through accruals for product
returns, rebates and volume discounts. We account for these reductions in
accordance with Emerging Issues Task Force Issue No. 01-9 Accounting for
Consideration Given by a Vendor to a Customer (Including a Reseller of the
Vendor's Products) ("EITF 01-9"), and Statement of Financial Accounting Standard
No. 48, Revenue Recognition When Right of Return Exists ("SFAS 48"), as
applicable.
Returns
QUADRAMET
is a short half-life radioactive product that is indicated for the relief of
pain due to metastatic bone disease arising from various types of cancer. Due to
its rapid rate of radioactive decay, QUADRAMET has a shelf life of only about 72
hours. For this reason, QUADRAMET is ordered for a specific patient
on a pre-scheduled visit, and, as such, our customers are unable to maintain
stock inventories of this product. In addition, because the product
is ordered for pre-scheduled visits for specific patients, product returns are
very low. Our methodology to estimate sales returns is based on
historical experience that demonstrates that the vast majority of the returns
occur within one month of when product was shipped. At the time of
sale, we estimate the quantity and value of QUADRAMET that may ultimately be
returned. We generally have the exact number of returns related to prior month
sales in the current month, so the provision for returns is trued up to actual
quickly.
We do not
allow product returns for PROSTASCINT.
We
estimate returns on CAPHOSOL based on historical experience. To date,
returns have been minimal since the product has a three-year shelf life, a
majority of our customers do not stock the product due to its size and the
inventory in the distribution channels has been carefully monitored to not
exceed targeted levels.
Returns
from SOLTAMOX, were more difficult to assess. Since we have no
historical return experience with these products, we could not reliably estimate
expected returns of this new product. Therefore, we deferred
recognition of revenue until the right of return no longer
exists or
until we had developed sufficient historical experience to estimate sales
returns. Due to continued limited end-user demand and inventory
dating issues, substantially all of the SOLTAMOX inventory at wholesalers was
returned. These returns will have no financial impact on the results
of our financial statements.
Volume
Discounts
We
provide volume discounts to certain customers based on sales levels of
given products during each calendar month. We recognize revenue net of these
volume discounts at the end of each month. There are no volume
discounts based on cumulative sales over more than a one month
period. Accordingly, there is no current need to estimate volume
discounts.
Rebates
From time
to time, we may offer rebates to our customers. We establish a rebate
accrual based on the specific terms in each agreement, in an amount equal to our
reasonable estimate of the expected rebate claims attributable to the sales in
the current period and adjust the accrual each reporting period to reflect the
actual experience. If the amount of future rebates cannot be
reasonably estimated, a liability will be recognized for the maximum potential
amount of the rebates.
License and Contract
Revenues
License
and contract revenues include milestone payments and fees under collaborative
agreements with third parties, revenues from research services, and revenues
from other miscellaneous sources. We defer non-refundable up-front
license fees and recognize them over the estimated performance period of the
related agreement, when we have continuing involvement. Since the
term of the performance periods is subject to management's estimates, future
revenues to be recognized could be affected by changes in such
estimates.
Accounts
Receivable
Our
accounts receivable balances are net of an estimated allowance for uncollectible
accounts. We continuously monitor collections and payments from our
customers and maintain an allowance for uncollectible accounts based upon our
historical experience and any specific customer collection issues that we have
identified. While we believe our reserve estimate to be appropriate,
we may find it necessary to adjust our allowance for uncollectible accounts if
the future bad debt expense exceeds our estimated reserve. We are
subject to concentration risks as a limited number of our customers provide a
high percent of total revenues, and corresponding receivables.
Inventories
Inventories
are stated at the lower of cost or market, as determined using the first-in,
first-out method, which most closely reflects the physical flow of our
inventories. Our products and raw materials are subject to expiration
dating. We regularly review quantities on hand to determine the need
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. We also acquired an option to
purchase marketing rights to CAPHOSOL in Europe which was recorded as other
assets and will transfer the costs to the appropriate asset account, when and if
exercised. If indicators of impairment exist, we assess the
recoverability of the affected long-lived assets by determining whether the
carrying value of such assets can be recovered through undiscounted future
operating cash flows. Regarding the option to purchase marketing
rights to CAPHOSOL in Europe, we also assess our intent and ability to exercise
the option, the option expiry date and market and product
competitiveness. If impairment is indicated, we measure the amount of
such impairment by comparing the carrying value of the assets to the present
value of the expected future cash flows associated with the use of the
asset. Adverse changes regarding future cash flows to be received
from long-lived assets could indicate that an impairment exists, and would
require the write down of the carrying value of the impaired asset at that
time.
Warrant
Liability
We follow
Emerging Issues Task Force (EITF) No. 00-19, "Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company's Own
Stock" which provides guidance for distinguishing between permanent equity,
temporary equity and assets and liabilities. Under EITF 00-19, to
qualify as permanent equity, the warrants must permit us to settle in
unregistered shares. We do not have that ability under the securities
purchase agreement for the warrants issued in July and August 2005, and
therefore, the warrants are classified as a liability in the accompanying
consolidated balance sheet. Our warrants issued in November 2006 and
July 2007, which permit net cash settlement at the option of the warrant
holders, also require classification as a liability in accordance with EITF
00-19.
We record
the warrant liability at its fair value using the Black-Scholes option-pricing
model and remeasure it at each reporting date until the warrants are exercised
or expire. Changes in the fair value of the warrants are reported in the
consolidated statements of operations as non-operating income or
expense. The fair value of the warrants is subject to significant
fluctuation based on changes in our stock price, expected volatility, expected
life, the risk-free interest rate and dividend yield. The market
price for our common stock has been and may continue to be
volatile. Consequently, future fluctuations in the price of our
common stock may cause significant increases or decreases in the fair value of
the warrants issued.
We follow
EITF No. 00-19-2, "Accounting for Registration Payment Arrangement", which
specifies that registration payment arrangements should play no part in
determining the initial classification and subsequent accounting for the
securities they relate to. The Staff position requires the contingent
obligation in a registration payment arrangement to be separately
analyzed
under FASB Statement No. 5, "Accounting for Contingencies", and FASB
Interpretation No. 14, "Reasonable Estimation of the Amount of a
Loss". Consequently, if payment in a registration payment arrangement
in connection with the warrants issued in November 2006 and July 2007 is
probable and can be reasonably estimated, a liability will be
recorded. No liability was recorded as of December 31, 2007 or
2006.
Share-Based
Compensation
We
account for share-based compensation in accordance with SFAS No. 123(R),
"Share-Based Payment". Under the fair value recognition provision of
this statement, the share-based compensation, which is generally based on the
fair value of the awards calculated using the Black-Scholes option pricing model
on the date of grant, is recognized on a straight-line basis over the requisite
service period, generally the vesting period, for grants on or after January 1,
2006. For nonvested shares, we use the fair value of the underlying
common stock on the date of grant. Determining the fair value of
share-based awards at the grant date requires judgment, including estimating
expected dividend yield, expected forfeiture rates, expected volatility, the
expected term and expected risk-free interest rates. If we were to
use different estimates or a different valuation model, our share-based
compensation expense and our results of operations could be materially
impacted.
New
Accounting Pronouncements
Advance
Payments for Goods or Services
In June
2007, the Financial Accounting Standards Board ("FASB") issued Emerging Issues
Task Force ("EITF") Issue No. 07-03, "Accounting for Advance Payments for Goods
or Services To Be Used in Future Research and Development" (EITF 07-03), which
is effective for calendar year companies on January 1, 2008. The Task
Force concluded that nonrefundable advance payment for goods or services that
will be used or rendered for future research and development activities should
be deferred and capitalized. Such amounts should be recognized as an
expense as the related goods are delivered or the services are performed, or
when the goods or services are no longer expected to be provided. We
are currently assessing the potential impacts on our consolidated financial
statements upon adoption of EITF 07-03.
Fair
Value Option
In
February 2007, the Financial Accounting Standards Board ("FASB") issued SFAS No.
159, "The Fair Value Option for Financial Assets and Financial Liabilities,
Including an Amendment of FASB Statement No. 115" (SFAS 159), which will become
effective for fiscal years beginning after November 15, 2007. SFAS
159 permits entities to measure eligible financial assets and financial
liabilities at fair value, on an instrument-by-instrument basis, that are
otherwise not permitted to be accounted for at fair value under other generally
accepted accounting principles. The fair value measurement election is
irrevocable, and subsequent changes in fair value must be recorded in
earnings. We will adopt SFAS 159 in fiscal year 2008 and are
evaluating if we will elect the fair value option for any of our eligible
financial instruments.
Fair
Value Measurement
In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" (SFAS
157), which will become effective in fiscal year 2008. This Statement
defines fair value, establishes a framework for measuring fair value and expands
disclosure about fair value measurements; however, it does not require any new
fair value measurements. The provisions of SFAS 157 will be applied
prospectively to fair value measurements and disclosures for financial assets
and liabilities beginning in the first quarter of 2008 and for non-financial
assets and liabilities starting in 2009 and is not expected to have a material
effect on our consolidated financial statements.
Income
Taxes
Effective
January 1, 2007, we adopted FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109" ("FIN
48"). FIN 48 prescribes how a company should recognize, measure,
present and disclose uncertain income tax position. A "tax position"
is a position taken on a previously filed tax return, or expected to be taken in
a future tax return that is reflected in the measurement of current and deferred
tax assets or liabilities for interim or annual periods. A tax position can
result in a permanent reduction of income taxes payable, a deferral of income
taxes to future periods, or a change in the expected ability to realize deferred
tax assets. A change in net assets that results from adoption of FIN
48 is recorded as an adjustment to retained earnings in the period of
adoption. The adoption of FIN 48 did not have any impact on our
consolidated financial statements.
Quantitative and Qualitative
Disclosures About Market Risk
Except
for purchases of CAPHOSOL which is manufactured in Europe and paid for in Euros,
we do not have operations subject to risks of foreign currency fluctuations, nor
do we use derivative financial instruments in our operations. Our
exposure to market risk is principally confined to interest rate
sensitivity. Our cash equivalents are conservative in nature, with a
focus on preservation of capital. Due to the short-term nature of our
investments and our investment policies and procedures, we have determined that
the risks associated with interest rate fluctuations related to these financial
instruments are not material to our business.
We are
exposed to certain risks arising from changes in the price of our common stock,
primarily due to the potential effect of changes in fair value of the warrant
liabilities related to the warrants issued in 2005, 2006 and
2007. The warrant liabilities are measured at fair value using the
Black-Scholes option-pricing model at each reporting date and are subject to
significant increases or decreases in value and a corresponding loss or gain in
the statement of operations due to the effects of changes in the price of common
stock at period end and the related calculation of volatility.
|
Financial
Statements and Supplementary Data
|
The financial statements required to be disclosed under this Item
are submitted as a separate section of this Annual Report on Form
10-K.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
Not applicable.
|
Controls
and Procedures
|
|
|
(a)
|
Disclosure
Controls and Procedures
|
Our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of our disclosure controls and
procedures as of December 31, 2007. The term "disclosure controls and
procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, means controls and other procedures of a company that are
designed to ensure that information required to be disclosed by the Company in
the reports that it files or submits under the Securities Exchange Act of 1934
is recorded, processed, summarized and reported, within the time periods
specified in the SEC's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by a company in the reports
that it files or submits under the Securities Exchange Act of 1934 is
accumulated and communicated to the company's management, including its
principal executive and principal financial officers, as appropriate to allow
timely decisions regarding required disclosure. Management recognized
that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving their objectives and management
necessarily applied its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that, as of December 31,
2007, our disclosure controls and procedures were effective.
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(b)
|
Internal
Controls Over Financial Reporting
|
|
|
(1)
|
Management's
Annual Report on Internal Control Over Financial
Reporting
|
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Rule 13a-15(f) of
the Exchange Act. Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
we conducted an evaluation of the effectiveness of our internal control over
financial reporting based upon the framework in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on that evaluation, our management concluded that our
internal control over financial reporting was effective as of December 31,
2007.
(2) Attestation
Report of the Independent Registered Public Accounting Firm
KPMG LLP,
the Company's independent registered public accounting firm has issued its
report on the effectiveness of the Company's internal
control over financial reporting. This report appears on page 95 of
this Annual Report on Form 10-K.
(3) Changes
in Internal Control Over Financial Reporting
No change
in our internal control over financial reporting (as defined in Rules 13a-15(f)
under the Exchange Act) occurred during the fiscal quarter ended as of December
31, 2007 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
Report
of Independent Registered Public Accounting Firm
The Board
of Directors and Stockholders
Cytogen
Corporation:
We have
audited Cytogen Corporation’s internal control over financial reporting as of
December 31, 2007, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Cytogen Corporation's management is responsible
for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management's Annual Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on
the Company's internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our
audit also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.
A
company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our
opinion, Cytogen Corporation maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2007, based on
criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Cytogen
Corporation and subsidiaries as of December 31, 2007 and 2006, and the related
consolidated statements of operations, stockholders' equity and comprehensive
loss, and cash flows for each of the years in the three-year period ended
December 31, 2007, and our report dated March 14, 2008 expressed an unqualified
opinion on those consolidated financial statements which included an explanatory
paragraph regarding the Company’s ability to continue as a going
concern.
/s/ KPMG
LLP
Philadelphia,
Pennsylvania
March 14,
2008
|
Item
9B.
|
Other
Information
|
Not applicable.
|
Directors,
Executive Officers and Corporate
Governance
|
The information relating to our directors, nominees for election as
directors and executive officers under the headings "Election of Directors",
"Executive Officers and Key Employees", “Audit and Finance Committee of Board of
Directors” and "Section 16(a) Beneficial Ownership Reporting Compliance" in our
definitive proxy statement for the 2008 Annual Meeting of Stockholders is
incorporated herein by reference to such proxy statement.
We have
adopted a written code of business conduct and ethics that applies to our
directors, officers and employees, including our principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions. We have made our code of
business conduct and ethics available free of charge through our website which
is located at www.cytogen.com, which is not part of this Annual Report on Form
10-K. We intend to disclose any amendments to, or waivers from, our
code of business conduct and ethics that are required to be publicly disclosed
pursuant to rules of the Securities and Exchange Commission and NASDAQ by filing
such amendment or waiver with the Securities and Exchange Commission and by
posting it on our website.
|
Executive
Compensation
|
The
discussion under the headings "Executive Compensation" and “Compensation
Discussion and Analysis” in our definitive proxy statement for the 2008 Annual
Meeting of Stockholders is incorporated herein by reference to such proxy
statement.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
The
discussion under the heading "Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters" in our definitive proxy
statement for the 2008 Annual Meeting of Stockholders is incorporated herein by
reference to such proxy statement.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The
discussion under the heading "Certain Relationships and Related Transactions and
Director Independence" in our definitive proxy statement for the 2008 Annual
Meeting of Stockholders is incorporated herein by reference to such proxy
statement.
|
Principal
Accountant Fees and Services
|
|
Exhibits
and Financial Statement Schedules.
|
(a)
Documents filed as a part of the Report:
(1) and
(2) The response to this portion of Item 15 is submitted as a separate section
of this Annual Report on Form 10-K, beginning on page F-1.
(3)
Exhibits –
|
3.1.1
|
Restated
Certificate of Incorporation of Cytogen Corporation, as
amended. Filed as an exhibit to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1996, filed with the
Commission on August 2, 1996, and incorporated herein by
reference.
|
|
|
3.1.2
|
Certificate
of Amendment to the Restated Certificate of Incorporation of Cytogen
Corporation, as amended. Filed as an exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, filed
with the Commission on August 11, 2000, and incorporated herein by
reference.
|
|
|
3.1.3
|
Certificate
of Amendment to the Restated Certificate of Incorporation, as amended, as
filed with the Secretary of State of the State of Delaware on October 25,
2002. Filed as an exhibit to the Company's Current Report on
Form 8-K, dated October 25, 2002, filed with the Commission on October 25,
2002, and incorporated herein by reference.
|
|
|
3.1.4
|
Certificate
of Designations of Series C Junior Participating Preferred Stock of
Cytogen Corporation. Filed as an exhibit to the Company's
Registration Statement on Form S-8 (Reg. No. 333-59718), filed with the
Commission on April 27, 2001, and incorporated herein by
reference.
|
|
|
3.1.5
|
Certificate
of Amendment to the Restated Certificate of Incorporation dated June 15,
2005. Filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2005, filed with the Commission
on August 9, 2005, and incorporated herein by
reference.
|
|
|
Exhibit
No.
|
||
|
3.1.6
|
Certificate
of Amendment to Restated Certificate of Incorporation dated June 13,
2007. Filed as an exhibit to the Company’s Quarterly Report on
Form 10-Q ended June 30, 2007, filed with the Commission on August 9, 2007
and incorporated herein by reference.
|
|
|
3.2
|
By-Laws
of Cytogen Corporation, as amended and restated. Filed as an
exhibit to the Company's Current Report on Form 8-K, filed with the
Commission on October 19, 2006, and incorporated herein by
reference.
|
|
|
4.1.1
|
Amended
and Restated Rights Agreement, dated as of October 19, 1998 between
Cytogen Corporation and Chase Mellon Shareholder Services, L.L.C., as
rights agent. The Amended and Restated Rights Agreement
includes the Form of Certificate of Designations of Series C Junior
Participating Preferred Stock as Exhibit A, the form of Right Certificate
as Exhibit B and the Summary of Rights as Exhibit C. Filed as
an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998, filed with the Commission on November 13, 1998,
and incorporated herein by reference.
|
|
|
4.1.2
|
Agreement
for Substitution and Amendment of Rights Agreement by and between Cytogen
Corporation and American Stock Transfer & Trust Company dated
September 1, 2004. Filed as an exhibit to the Company's Current
Report on Form 8-K, dated September 1, 2004, filed with the Commission on
September 2, 2004, and incorporated herein by
reference.
|
|
|
10.1.1
|
1988
Stock Option Plan for Non-Employee Directors. Filed as an
exhibit to the Company's Registration Statement on Form S-8 (Reg. No.
33-30595), filed with the Commission on August 18, 1989, and incorporated
herein by reference. +
|
|
|
10.1.2
|
Amendment
No. 2 to the Cytogen Corporation 1988 Stock Option Plan for Non-Employee
Directors dated May 22, 1996. Filed as an exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1996, filed with the Commission on August 2, 1996, and incorporated herein
by reference. +
|
|
|
10.2
|
1989
Stock Option Policy for Outside Consultants. Filed as an
exhibit to Amendment No. 1 to the Company's Registration Statement on Form
S-1 (Reg. No. 33-31280), and incorporated herein by reference.
+
|
|
|
10.3.1
|
License
Agreement dated March 31, 1993 between Cytogen Corporation and The Dow
Chemical Company. Filed as an exhibit to Amendment No. 1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended July 3,
1993, filed with the Commission on October 13, 1993, and incorporated
herein by reference.*
|
|
|
Exhibit
No.
|
||
|
10.3.2
|
Amendment
of the License Agreement between Cytogen Corporation and The Dow Chemical
Company dated September 5, 1995. Filed as an exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1996, filed with the Commission on May 9, 1996, and incorporated herein by
reference.*
|
|
|
10.3.3
|
Second
Amendment to the License Agreement between Cytogen Corporation and The Dow
Chemical Company dated May 20, 1996. Filed as an exhibit to
Amendment No. 1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996, filed with the Commission on August 2, 1996,
and incorporated herein by reference.*
|
|
|
10.4
|
License
Agreement, dated March 10, 1993, between Cytogen Corporation and The
University of North Carolina at Chapel Hill, as amended. Filed
as an exhibit to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994, filed with the Commission on March 17, 1995, and
incorporated herein by reference.*
|
|
|
10.5
|
Option
and License Agreement, dated July 1, 1993, between Cytogen Corporation and
Sloan-Kettering Institute for Cancer Research. Filed as an
exhibit to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994, filed with the Commission on March 17, 1995, and
incorporated herein by reference.*
|
|
|
10.6
|
Horosziewicz-Cytogen
Agreement, dated April 20, 1989, between Cytogen Corporation and Julius S.
Horosziewicz, M.D., DMSe. Filed as an exhibit to the Company' s
Annual Report on Form 10-K for the year ended December 31, 1995, filed
with the Commission on March 28, 1996, and incorporated herein by
reference.*
|
|
|
10.7.1
|
Stock
Exchange Agreement among Cytogen Corporation and the Stockholders and
Debtholders of Prostagen, Inc. Filed as an exhibit to the
Company's Registration Statement on Form S-3 (Reg. No. 333-83215) dated
July 19, 1999, as amended, filed with the Commission on July 20, 1999, and
incorporated herein by reference.
|
|
|
10.7.2
|
Addendum
to Stock Exchange Agreement among Cytogen Corporation and the Shareholders
and Debtholders of Prostagen, Inc. dated as of May 14, 2002, and amended
as of August 13, 2002. Filed as an exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, filed
with the Commission on August 14, 2002, and incorporated herein by
reference.
|
|
|
Exhibit
No.
|
||
|
10.7.3
|
Addendum
No. 2 to Stock Exchange Agreement among Cytogen Corporation and the
Stockholders and Debtholders of Prostagen, Inc. Filed as an
exhibit to the Company's Current Report on Form 8-K dated November 19,
2004, filed with the Commission on November 22, 2004, and incorporated
herein by reference.
|
|
|
10.8
|
AxCell
Biosciences Corporation Stock Option Plan. Filed as an exhibit
to the Company's Annual Report on Form 10-K for the year ended December
31, 1999, filed with the Commission on March 28, 2000, and incorporated
herein by reference. +
|
|
|
10.9
|
Written
Compensatory Agreement by and between Cytogen Corporation and H. Joseph
Reiser dated August 24, 1998, as revised on July 11,
2000. Filed as an exhibit to the Company's Registration
Statement on Form S-8 (Reg. No. 333-48454), filed with the Commission on
October 23, 2000, and incorporated herein by reference.
+
|
|
|
10.10
|
Written
Compensatory Agreement by and between Cytogen Corporation and Lawrence
Hoffman dated July 10, 2000. Filed as an exhibit to the
Company's Registration Statement on Form S-8 (Reg. No. 333-48454), filed
with the Commission on October 23, 2000, and incorporated herein by
reference. +
|
|
|
10.11
|
Cytogen
Corporation Stock Payment Program Bonus Plan. Filed as an
exhibit to the Company's Registration Statement on Form S-8 (Reg. No.
333-58384), filed with the Commission on April 6, 2001, and incorporated
herein by reference. +
|
|
|
10.12
|
MFS
Fund Distributors, Inc. 401(K) Profit Sharing Plan and
Trust. Filed as an exhibit to the Company's Registration
Statement on Form S-8 (Reg. No. 333-59718), filed with the Commission on
April 27, 2001, and incorporated herein by reference. +
|
|
|
10.13
|
Adoption
Agreement for MFS Fund Distributors, Inc. Non-Standardized 401(K) Profit
Sharing Plan and Trust, with amendments. Filed as an exhibit to
the Company's Registration Statement on Form S-8 (Reg. No. 333-59718),
filed with the Commission on April 27, 2001, and incorporated herein by
reference.
|
|
|
10.14
|
Cytogen
Corporation Performance Bonus Plan with Stock Payment
Program. Filed as an exhibit to Company's Registration
Statement on Form S-8 (Reg. No. 333-75304), filed with the Commission on
December 17, 2001, and incorporated herein by reference.
+
|
|
|
Exhibit
No.
|
||
|
10.15
|
Share
Purchase Agreement by and between Cytogen Corporation and the State of
Wisconsin Investment Board dated as of January 18, 2002. Filed
as an exhibit to the Company's Current Report on Form 8-K, dated January
18, 2002, filed with the Commission on January 24, 2002, and incorporated
herein by reference.
|
|
|
10.16
|
Form
of Executive Change of Control Severance Agreement by and between Cytogen
Corporation and each of its Executive Officers. Filed as an
exhibit to the Company's Annual Report on Form 10-K for the year ended
December 31, 2001, filed with the Commission on March 28, 2002, and
incorporated herein by reference. +
|
|
|
10.17.1
|
Sublease
Agreement by and between Cytogen Corporation and Hale and Dorr LLP dated
as of May 23, 2002. Filed as an exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, filed
with the Commission on August 14, 2002, and incorporated herein by
reference.
|
|
|
10.17.2
|
First
Amendment to Sublease Agreement by and between Cytogen Corporation and
Hale and Dorr LLP dated February 10, 2004. Filed as an exhibit
to the Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 2004, filed with the Commission on May 7, 2004, and incorporated
herein by reference.
|
|
|
10.18
|
Cytogen
Corporation Amended and Restated 1995 Stock Option Plan. Filed
as an exhibit to the Company's Annual Report on Form 10-K for the year
ended December 31, 2002, filed with the Commission on March 31, 2003, and
incorporated herein by reference. +
|
|
|
10.19
|
Amended
and Restated 1999 Stock Option Plan for Non-Employee
Directors. Filed as an exhibit to the Company's Annual Report
on Form 10-K for the year ended December 31, 2002, filed with the
Commission on March 31, 2003, and incorporated herein by reference.
+
|
|
| 10.20 | Written Compensatory Agreement by and between Cytogen Corporation and Michael D. Becker dated December 17, 2002. Filed as an exhibit to the Company's Annual Report on Form 10-K for the year ended December 31, 2002, filed with the Commission on March 31, 2003, and incorporated herein by reference. + | |
| 10.21 | Securities Purchase Agreement by and among Cytogen Corporation and certain purchasers of the Company's common stock dated June 6, 2003. Filed as an exhibit to the Company's Current Report on Form 8-K dated June 6, 2003, filed with the Commission on June 9, 2003, and incorporated herein by reference. | |
|
Exhibit
No.
|
||
|
10.22
|
Form
of Common Stock Purchase Warrant issued by the Company in favor of certain
purchasers of the Company's common stock dated June 6,
2003. Filed as an exhibit to the Company's Current Report on
Form 8-K dated June 6, 2003, filed with the Commission on June 9, 2003,
and incorporated herein by reference.
|
|
|
10.23
|
Registration
Rights Agreement by and among the Company and certain purchasers of the
Company's common stock dated June 6, 2003. Filed as an exhibit
to the Company's Current Report on Form 8-K dated June 6, 2003, filed with
the Commission on June 9, 2003, and incorporated herein by
reference.
|
|
|
10.24
|
Securities
Purchase Agreement by and among Cytogen Corporation and certain purchasers
of the Company's common stock dated July 10, 2003. Filed as an
exhibit to the Company's Current Report on Form 8-K dated July 10, 2003,
filed with the Commission on July 11, 2003, and incorporated herein by
reference.
|
|
|
10.25
|
Form
of Common Stock Purchase Warrant issued by Cytogen Corporation in favor of
certain purchasers of the Company's common stock dated July 10,
2003. Filed as an exhibit to the Company's Current Report on
Form 8-K dated July 10, 2003, filed with the Commission on July 11, 2003,
and incorporated herein by reference.
|
|
|
10.26
|
Registration
Rights Agreement by and among Cytogen Corporation and certain purchasers
of the Company's common stock dated July 10, 2003. Filed as an
exhibit to the Company's Current Report on Form 8-K dated July 10, 2003,
filed with the Commission on July 11, 2003, and incorporated herein by
reference.
|
|
|
10.27
|
Share
Purchase Agreement by and among Cytogen Corporation and certain purchasers
of the Company's common stock dated November 6, 2003. Filed as
an exhibit to the Company's Current Report on Form 8-K dated November 6,
2003, filed with the Commission on November 7, 2003, and incorporated
herein by reference.
|
|
|
10.28
|
Termination
Agreement between Cytogen Corporation and Berlex Laboratories, Inc., dated
June 16, 2003. Filed as an exhibit to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2003, filed with
the Commission on November 12, 2003, and incorporated herein by reference.
**
|
|
|
10.29
|
Assignment
Agreement between Cytogen Corporation and Berlex Laboratories, Inc., dated
August 1, 2003. Filed as an exhibit to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2003, filed with
the Commission on November 12, 2003, and incorporated herein by reference.
**
|
|
|
Exhibit
No.
|
||
|
10.30
|
Placement
Agency Agreement by and among Cytogen Corporation, CIBC World Markets
Corp., JMP Securities LLC and ThinkEquity Partners LLC dated April 14,
2004. Filed as an exhibit to the Company's Current Report on
Form 8-K dated April 14, 2004, filed with the Commission on April 15,
2004, and incorporated herein by reference.
|
|
|
10.31
|
Manufacturing
and Supply Agreement by and between Cytogen Corporation and Bristol-Myers
Squibb Medical Imaging, Inc. effective as of January 1,
2004. Filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 2004, filed with the Commission
on May 7, 2004, and incorporated herein by reference.
**
|
|
|
10.32
|
Cytogen
Corporation 2004 Stock Incentive Plan. Filed as an exhibit to
the Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
2004, filed with the Commission on August 9, 2004, and incorporated herein
by reference. +
|
|
|
10.33
|
Cytogen
Corporation 2004 Non-Employee Director Stock Incentive
Plan. Filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2004, filed with the Commission
on August 9, 2004, and incorporated herein by reference.
+
|
|
| 10.34 | Warrant Agreement, dated June 10, 2003, between Cytogen Corporation and Howard Soule, Ph.D. Filed as an exhibit to the Company's Registration Statement on Form S-8 (Reg. No. 333-121320), filed with the Commission on December 16, 2004, and incorporated herein by reference. + | |
|
10.35
|
Cytogen Corporation Employee Stock Purchase Plan, amended as of February 2005. Filed as an exhibit to the Company's Current Report on Form 8-K dated February 8, 2005, filed with the Commission on February 10, 2005, and incorporated herein by reference. + | |
|
10.36
|
Form of Securities Purchase Agreement by and among the Company and the Purchasers dated July 19, 2005. Filed as an exhibit to the Company's Current Report on Form 8-K, filed with the Commission on July 20, 2005, and incorporated herein by reference. | |
|
10.37
|
Form of Common Stock Purchase Warrant issued by the Company in favor of each Purchaser dated July 19, 2005. Filed as an exhibit to the Company's Current Report on Form 8-K, filed with the Commission on July 20, 2005, and incorporated herein by reference. | |
|
Exhibit
No.
|
||
|
10.38
|
Cytogen
Corporation 2005 Employee Stock Purchase Plan. Filed as an
exhibit to the Company's Current Report on Form 8-K, filed with the
Commission on September 27, 2005, and incorporated herein by reference.
+
|
|
|
10.39
|
Form
of Securities Purchase Agreement by and among the Company and the
Purchasers dated December 13, 2005. Filed as an exhibit to the
Company's Current Report on Form 8-K, filed with the Commission on
December 14, 2005, and incorporated herein by
reference.
|
|
|
10.40
|
Form
of Common Stock Purchase Warrant issued by the Company in favor of each
Purchaser dated December 13, 2005. Filed as an exhibit to the
Company's Current Report on Form 8-K, filed with the Commission on
December 14, 2005, and incorporated herein by
reference.
|
|
|
10.41
|
Engagement
Agreement dated December 13, 2005 between Cytogen Corporation and Rodman
& Renshaw, LLC. Filed as an exhibit to the Company's
Current Report on Form 8-K/A, filed with the Commission on December 14,
2005, and incorporated herein by reference.
|
|
| 10.42 | Cytogen Corporation 2006 Equity Compensation Plan. Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2006, filed with the Commission on May 10, 2006, and incorporated herein by reference. + | |
| 10.43 | Membership Interest Purchase Agreement dated as of April 20, 2006 between the Company and Progenics Pharmaceutical, Inc. Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2006, filed with the Commission on May 10, 2006, and incorporated herein by reference. | |
| 10.44 | Amended and Restated PSMA/PSMP License Agreement dated April 20, 2006 among the Company, Progenics Pharmaceuticals, Inc. and PSMA Development Company LLC.** Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2006, filed with the Commission on May 10, 2006, and incorporated herein by reference. | |
|
10.45
|
Exclusive Distribution Agreement dated as of April 21, 2006 between the Company and Savient Pharmaceuticals, Inc. ** Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2006, filed with the Commission on May 10, 2006, and incorporated herein by reference. |
|
Exhibit
No.
|
||
|
10.46
|
Manufacture
and Supply Agreement dated April 21, 2006 between the Company, Savient
Pharmaceuticals, Inc. and Rosemont Pharmaceuticals Limited.** Filed
as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2006, filed with the Commission on May 10, 2006,
and incorporated herein by reference.
|
|
|
10.47
|
Product
Purchase and Supply Agreement dated as of June 20, 2006 between the
Company and Oncology Therapeutics Network, J.V. Filed as an
exhibit to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2006, filed with the Commission on August 9, 2006, and
incorporated herein by reference.
|
|
|
10.48
|
Manufacturing
Agreement dated September 29, 2006 by and between the Company and Laureate
Pharma, Inc.
** Filed as an exhibit to the Company's Quarterly Report
on Form 10-Q, filed with the Commission on November 9, 2006, and
incorporated herein by reference.
|
|
| 10.49.1 | Product License and Assignment Agreement dated as of October 11, 2006 by and among the Company, InPharma AS, and InPharma, Inc. ** Filed as an exhibit to the Company's Quarterly Report on Form 10-Q, filed with the Commission on November 9, 2006, and incorporated herein by reference. | |
| 10.49.2 | Amendment No. 1 to Product License and Assignment Agreement dated August 30, 2007 between the Company and InPharma AS.* Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007, filed with the Commission on November 14, 2007, and incorporated herein by reference. | |
|
10.50
|
Securities Purchase Agreement dated as of November 1, 2006, among the Company and certain Purchasers. Filed as an exhibit to the Company's Current Report on Form 8-K, filed with the Commission on November 9, 2006, and incorporated herein by reference. | |
| 10.51 | Form of Common Stock Purchase Warrant issued by the Company in favor of certain Purchasers. Filed as an exhibit to the Company's Current Report on Form 8-K, filed with the Commission on November 9, 2006, and incorporated herein by reference. |
|
Exhibit
No.
|
||
|
10.52
|
Form
of Registration Rights Agreement among the Company and certain
Purchasers. Filed as an exhibit to the Company's Current Report
on Form 8-K, filed with the Commission on November 9, 2006, and
incorporated herein by reference.
|
|
|
10.53
|
Settlement
and Release Agreement dated February 15, 2007 between the Company and
Advanced Magnetics, Inc. Filed as an exhibit to the Company’s
Annual Report on Form 10-K filed with the Commission on March 16, 2007 and
incorporated herein by reference.
|
|
|
10.54
|
Contract
Manufacturing Agreement dated as of January 8, 2007 between the Company
and Holopack Verpackungstechnik GmbH.** Filed
as an exhibit to the Company’s Annual Report on Form 10-K filed with the
Commission on March 16, 2007, and incorporated herein by
reference.
|
|
10.55
|
Securities
Purchase Agreement between the Company and each of the Purchasers dated as
of June 28, 2007. Filed as an exhibit to the Company's Current Report on
Form 8-K, filed with the Commission on July 2, 2007, and incorporated
herein by reference.
|
|
|
10.56
|
Form
of Common Stock Purchase Warrant issued by the Company in favor of each
Purchaser. Filed as an exhibit to the Company's Current Report on Form
8-K, filed with the Commission on July 2, 2007, and incorporated herein by
reference.
|
|
|
10.57
|
Registration Rights Agreement
between the Company and each of the Purchasers dated as of June 28,
2007. Filed as an exhibit to the Company's Current Report on Form 8-K,
filed with the Commission on July 2, 2007, and incorporated herein by
reference.
|
|
|
10.58
|
Engagement
Agreement between the Company, Rodman & Renshaw, LLC and Roth Capital
Partners, LLC. Filed as an exhibit to the Company's Current Report on
Form 8-K, filed with the Commission on July 11, 2007, and incorporated
herein by reference.
|
|
|
10.59
|
Cytogen
Corporation 2004 Non-Employee Director Stock Incentive Plan, as
amended. Filed as an exhibit to the Company’s Quarterly Report
on Form 10-Q for the quarter ended June 30, 2007, filed with the
Commission on August 9, 2007, and incorporated herein by
reference.
|
|
|
23.1
|
Consent
of KPMG LLP. Filed herewith.
|
|
Exhibit
No.
|
||
|
23.2
|
Consent
of PricewaterhouseCoopers LLP. Filed herewith
|
|
|
24
|
Power
of Attorney (contained on signature page attached
hereto)
|
|
|
31.1
|
Certification
of President and Chief Executive Officer pursuant to Rule 13a-14(a) or
15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. Filed
herewith.
|
|
|
31.2
|
Certification
of Senior Vice President, Finance and Chief Financial Officer pursuant to
Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed
herewith.
|
|
|
32.1
|
Certification
of President and Chief Executive Officer pursuant to 18 U.S.C Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. Filed herewith.
|
|
|
32.2
|
Certification
of Senior Vice President, Finance and Chief Financial Officer pursuant to
18 U.S.C Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. Filed herewith.
|
|
+
Management contract or compensatory plan or arrangement.
* We have
received confidential treatment of certain provisions contained in this exhibit
pursuant to an order issued by the Securities and Exchange
Commission. The copy filed as an exhibit omits the information
subject to the confidentiality grant.
** We
have submitted an application for confidential treatment with the Securities and
Exchange Commission with respect to certain provisions contained in this
exhibit. The copy filed as an exhibit omits the information subject
to the confidentiality application.
|
|
(b)
|
Exhibits:
|
|
|
The
Exhibits filed with this Form 10-K are listed above in response to Item
15(a)(3).
|
|
|
(c)
|
Financial
Statement Schedules:
|
|
|
None.
|
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized on the 14th day of March,
2008.
|
CYTOGEN
CORPORATION
|
||
|
By:
|
/s/ KEVIN
G. LOKAY
|
|
|
Kevin
G. Lokay,
|
||
|
President
and Chief Executive Officer
|
||
SIGNATURES
AND POWER OF ATTORNEY
We, the
undersigned officers and directors of Cytogen Corporation, hereby severally
constitute and appoint Kevin G. Lokay and Kevin J. Bratton and each of them
singly, our true and lawful attorneys with full power to any of them, and to
each of them singly, to sign for us and in our names in the capacities indicated
below, the Annual Report on Form 10-K filed herewith and any and all amendments
to said Annual Report on Form 10-K and generally to do all such things in our
name and behalf in our capacities as officers and directors to enable Cytogen
Corporation to comply with the provisions of the Securities Exchange Act of
1934, as amended, and all requirements of the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as they may be signed
by our said attorneys, or any of them, to said Annual Report on Form 10-K and
any and all amendments thereto.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
/capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
|||
|
By:
|
/s/ KEVIN
G. LOKAY
|
President
and Chief Executive Officer
|
March
14, 2008
|
||
|
Kevin
G. Lokay
|
(Principal
Executive Officer and Director)
|
||||
|
By:
|
/s/ KEVIN
J. BRATTON
|
Senior
Vice President, Finance, and Chief Financial Officer
(Principal
|
March
14, 2008
|
||
|
Kevin
J. Bratton
|
Financial
and Accounting Officer)
|
||||
|
By:
|
/s/ JOHN
E. BAGALAY, JR.
|
Director
|
March
14, 2008
|
||
|
John
E. Bagalay, Jr.
|
|||||
|
By:
|
/s/ ALLEN
BLOOM
|
Director
|
March
14, 2008
|
||
|
Allen
Bloom
|
|||||
|
By:
|
/s/
STEPHEN K. CARTER
|
Director
|
March
14, 2008
|
||
|
Stephen
K. Carter
|
|||||
|
By:
|
/s/ JAMES
A. GRIGSBY
|
Director
and Chairman of the Board
|
March
14, 2008
|
||
|
James
A. Grigsby
|
|||||
|
By:
|
/s/ ROBERT
F. HENDRICKSON
|
Director
|
March
14, 2008
|
||
|
Robert
F. Hendrickson
|
|||||
|
By:
|
/s/ DENNIS
H. LANGER
|
Director
|
March
14, 2008
|
||
|
Dennis
H. Langer
|
|||||
|
By:
|
/s/ JOSEPH
A. MOLLICA
|
Director
|
March
14, 2008
|
||
|
Joseph
A. Mollica
|
Index to
Consolidated Financial Statements
|
F-2
|
|
|
F-4
|
|
|
Consolidated
Financial Statements:
|
|
|
F-5
|
|
|
F-6
|
|
|
F-7
|
|
|
F-8
|
|
|
F-9
|
The Board
of Directors and Stockholders
Cytogen
Corporation:
We have
audited the accompanying consolidated balance sheets of Cytogen Corporation and
subsidiaries as of December 31, 2007 and 2006, and the related consolidated
statements of operations, stockholders' equity and comprehensive loss, and cash
flows for each of the years in the three-year period ended December 31,
2007. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits. We did not audit the financial statements of PSMA Development
Company LLC (a development stage enterprise), a 50% owned unconsolidated
investee company. The Company's equity interest in the loss of PSMA
Development Company LLC was $3.2 million for the year ended December 31,
2005. The 2005 financial statements of PSMA Development Company
LLC were audited by other auditors whose report has been furnished to us, and
our opinion, insofar as it relates to the 2005 amounts included for PSMA
Development Company LLC, is based solely on the report of the other
auditors. The report of the other auditors on the 2005 financial
statements of PSMA Development Company LLC contains an explanatory paragraph
that states that PSMA Development Company LLC has suffered recurring losses from
operations and does not have a work plan or budget for 2006, all of which raise
substantial doubt about its ability to continue as a going concern, and that its
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the report of the other
auditors provide a reasonable basis for our opinion.
In our
opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Cytogen Corporation and
subsidiaries as of December 31, 2007 and 2006, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2007, in conformity with U.S. generally accepted accounting
principles.
As
discussed in notes 1 and 13 to the consolidated financial statements, the
Company adopted the provisions of Statement of Financial Accounting Standards
No. 123R, "Share-Based Payment" effective January 1, 2006.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations that raise substantial doubt about its ability to continue as a
going concern. Management’s plans in regard to these matters are also
described in note 1. The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Cytogen Corporation's internal control over
financial reporting as of December 31, 2007, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated March 14,
2008 expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
/s/ KPMG
LLP
Philadelphia,
Pennsylvania
March 14,
2008
Report of Independent Registered Public Accounting
Firm
To the
Management Committee and Members of
PSMA
Development Company LLC:
In our
opinion, the statements of operations, of Members' (deficit) equity and of cash
flows of PSMA Development Company LLC (the “Company”) (a development stage
enterprise) (not presented separately herein) present fairly, in all material
respects, the results of its operations and its cash flows for the year ended
December 31, 2005, and, cumulatively, for the period from June 15, 1999 (date of
inception) to December 31, 2005 in conformity with accounting principles
generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
The
financial statements have been prepared assuming that the Company will continue
as a going concern. As discussed in Note 1 to the financial statements,
the Company has suffered recurring losses from operations and does not have a
work plan or budget for 2006, all of which raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 1. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/
PricewaterhouseCoopers LLP
New York,
New York
March 15,
2006
CONSOLIDATED
BALANCE SHEETS
(All
amounts in thousands, except share and per share data)
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
ASSETS:
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 8,914 | $ | 32,507 | ||||
|
Restricted
cash
|
— | 1,100 | ||||||
|
Accounts
receivable, net
|
2,747 | 2,113 | ||||||
|
Inventories
|
4,635 | 2,538 | ||||||
|
Prepaid
expenses
|
1,070 | 1,571 | ||||||
|
Other
current assets
|
121 | 156 | ||||||
|
Total
current assets
|
17,487 | 39,985 | ||||||
|
Property
and equipment, less accumulated depreciation and amortization of $1,662
and $1,409 at December 31, 2007 and 2006, respectively
|
1,046 | 691 | ||||||
|
Product
license fees, less accumulated amortization of $3,547 and $2,577, at
December 31, 2007 and 2006, respectively
|
8,842 | 11,612 | ||||||
|
Other
assets
|
1,952 | 2,065 | ||||||
| $ | 29,327 | $ | 54,353 | |||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY:
|
||||||||
|
Current
liabilities:
|
||||||||
|
Current
portion of long-term liabilities
|
$ | 87 | $ | 64 | ||||
|
Accounts
payable and accrued liabilities
|
8,490 | 10,104 | ||||||
|
Total
current liabilities
|
8,577 | 10,168 | ||||||
|
Warrant
liabilities
|
995 | 6,464 | ||||||
|
Other
long-term liabilities
|
66 | 59 | ||||||
|
Total
liabilities
|
9,638 | 16,691 | ||||||
|
Commitments
and contingencies (Note 16)
|
||||||||
|
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, 100,000,000 and 50,000,000 shares authorized,
35,570,836 and 29,605,631 shares issued and outstanding at December 31,
2007 and 2006, respectively
|
356 | 296 | ||||||
|
Additional
paid-in capital
|
472,648 | 465,016 | ||||||
|
Accumulated
other comprehensive income
|
47 | 20 | ||||||
|
Accumulated
deficit
|
(453,362 | ) | (427,670 | ) | ||||
|
Total
stockholders' equity
|
19,689 | 37,662 | ||||||
| $ | 29,327 | $ | 54,353 | |||||
The
accompanying notes are an integral part of these statements.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(All
amounts in thousands, except per share data)
|
Year
Ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
REVENUES:
|
||||||||||||
|
Product
revenue:
|
||||||||||||
|
PROSTASCINT
|
$ | 9,636 | $ | 9,125 | $ | 7,407 | ||||||
|
QUADRAMET
|
9,301 | 8,141 | 8,350 | |||||||||
|
CAPHOSOL
|
1,275 | — | — | |||||||||
|
Others
|
— | 30 | — | |||||||||
|
Total
product revenue
|
20,212 | 17,296 | 15,757 | |||||||||
|
License
and contract revenue
|
6 | 11 | 189 | |||||||||
|
Total
revenues
|
20,218 | 17,307 | 15,946 | |||||||||
|
OPERATING
EXPENSES:
|
||||||||||||
|
Cost
of product revenue
|
13,053 | 10,150 | 9,523 | |||||||||
|
Selling,
general and administrative
|
39,086 | 30,166 | 25,895 | |||||||||
|
Research
and development
|
5,851 | 7,301 | 6,162 | |||||||||
|
Equity
in loss of joint venture
|
— | 120 | 3,175 | |||||||||
|
Impairment
of intangible asset
|
1,767 | — | — | |||||||||
|
Total
operating expenses
|
59,757 | 47,737 | 44,755 | |||||||||
|
Operating
loss
|
(39,539 | ) | (30,430 | ) | (28,809 | ) | ||||||
|
Interest
income
|
1,092 | 1,451 | 712 | |||||||||
|
Interest
expense
|
(66 | ) | (36 | ) | (114 | ) | ||||||
|
Advanced
Magnetics Inc. litigation settlement, net
|
3,946 | — | — | |||||||||
|
Gain
on sale of equity interest in joint venture
|
— | 12,873 | — | |||||||||
|
Decrease
in value of warrant liabilities
|
8,875 | 1,039 | 1,666 | |||||||||
|
Loss
before income taxes
|
(25,692 | ) | (15,103 | ) | (26,545 | ) | ||||||
|
Income
tax benefit
|
— | — | (256 | ) | ||||||||
|
Net
loss
|
$ | (25,692 | ) | $ | (15,103 | ) | $ | (26,289 | ) | |||
|
Basic
and diluted net loss per share
|
$ | (0.79 | ) | $ | (0.64 | ) | $ | (1.54 | ) | |||
|
Weighted-average
common shares outstanding
|
32,496 | 23,494 | 17,117 | |||||||||
The
accompanying notes are an integral part of these statements.
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS
(All
amounts in thousands, except share data)
|
Common
Stock
|
Additional
Paid-in
Capital
|
Unearned
Compensa-tion
|
Accumulated
Other
Comprehensive
Income
|
Accumulated
Deficit
|
Total
Stockholders'
Equity
|
||
|
Share
|
Amount
|
||||||
|
Balance,
December 31, 2004
|
15,489,116
|
$ 155
|
$ 426,153
|
$ —
|
$ —
|
$
(386,278)
|
$
40,030
|
|
Sale
of shares of common stock including exercise of stock options and
warrants
|
6,887,847
|
69
|
23,129
|
—
|
—
|
—
|
23,198
|
|
Issuance
of shares of common stock related to compensation
|
4,000
|
—
|
19
|
—
|
—
|
—
|
19
|
|
Issuance
of shares of common stock related to Prostagen
|
92,799
|
1
|
499
|
—
|
—
|
—
|
500
|
|
Unearned
compensation related to non-vested stock grants
|
—
|
—
|
869
|
(869)
|
—
|
—
|
—
|
|
Reversal
of unearned compensation related to non-vested stock
grants
|
—
|
—
|
(167)
|
167
|
—
|
—
|
—
|
|
Amortization
of unearned compensation
|
—
|
—
|
—
|
92
|
—
|
—
|
92
|
|
Comprehensive
loss:
|
|||||||
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
(26,289)
|
(26,289)
|
|
Unrealized
gain on marketable securities
|
—
|
—
|
—
|
—
|
28
|
—
|
28
|
|
Total
comprehensive loss
|
—
|
—
|
—
|
—
|
—
|
—
|
(26,261)
|
|
Balance,
December 31, 2005
|
22,473,762
|
225
|
450,502
|
(610)
|
28
|
(412,567)
|
37,578
|
|
Sale
of shares of common stock
|
7,131,869
|
71
|
13,247
|
—
|
—
|
—
|
13,318
|
|
Share-based
compensation expense
|
—
|
—
|
1,877
|
—
|
—
|
—
|
1,877
|
|
Reversal
of unearned compensation related to non-vested stock
grants
|
—
|
—
|
(610)
|
610
|
—
|
—
|
—
|
|
Comprehensive
loss:
|
|||||||
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
(15,103)
|
(15,103)
|
|
Unrealized
loss on marketable securities
|
—
|
—
|
—
|
—
|
(8)
|
—
|
(8)
|
|
Total
comprehensive loss
|
—
|
—
|
—
|
—
|
—
|
—
|
(15,111)
|
|
Balance,
December 31, 2006
|
29,605,631
|
296
|
465,016
|
—
|
20
|
(427,670)
|
37,662
|
|
Sale
of shares of common stock
|
5,965,205
|
60
|
6,559
|
—
|
—
|
—
|
6,619
|
|
Share-based
compensation expense related to warrants issued to placement
agents
|
—
|
—
|
(255)
|
—
|
—
|
—
|
(255)
|
|
Share-based
compensation expense related to grants to employees
|
—
|
—
|
1,328
|
—
|
—
|
—
|
1,328
|
|
Comprehensive
loss:
|
|||||||
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
(25,692)
|
(25,692)
|
|
Unrealized
gain on marketable securities
|
—
|
—
|
—
|
—
|
27
|
—
|
27
|
|
Total
comprehensive loss
|
—
|
—
|
—
|
—
|
—
|
—
|
(25,665)
|
|
Balance,
December 31, 2007
|
35,570,836
|
$ 356
|
$ 472,648
|
$ —
|
$ 47
|
$ (453,362)
|
$
19,689
|
The
accompanying notes are an integral part of these statements.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(All
amounts in thousands)
|
Year
Ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||
|
Net
loss
|
$ | (25,692 | ) | $ | (15,103 | ) | $ | (26,289 | ) | |||
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
|
Depreciation
and amortization
|
1,703 | 1,366 | 1,018 | |||||||||
|
Decrease
in value of warrant liabilities
|
(8,875 | ) | (1,039 | ) | (1,666 | ) | ||||||
|
Share-based
compensation expense
|
1,435 | 1,877 | 111 | |||||||||
|
Share-based
milestone obligation
|
— | — | 500 | |||||||||
|
Increase
(decrease) in provision for doubtful accounts
|
13 | 2 | (72 | ) | ||||||||
|
Gain
on sale of equity interest in joint venture
|
— | (12,873 | ) | — | ||||||||
|
Impairment
of intangible asset
|
1,767 | — | — | |||||||||
|
Inventory
write-down
|
1,132 | — | — | |||||||||
|
Other
|
55 | (19 | ) | 64 | ||||||||
|
Changes
in assets and liabilities:
|
||||||||||||
|
Accounts
receivables
|
(647 | ) | (372 | ) | (265 | ) | ||||||
|
Inventories
|
(3,205 | ) | 1,044 | 51 | ||||||||
|
Other
assets
|
1,786 | (1,588 | ) | (139 | ) | |||||||
|
Liability
related to joint venture
|
— | — | (396 | ) | ||||||||
|
Accounts
payable and accrued liabilities
|
(601 | ) | 3,852 | (2,385 | ) | |||||||
|
Net
cash used in operating activities
|
(31,129 | ) | (22,853 | ) | (29,468 | ) | ||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
|
Purchases
of product rights
|
(1,200 | ) | (6,845 | ) | — | |||||||
|
Purchases
of property and equipment
|
(840 | ) | (171 | ) | (405 | ) | ||||||
|
Proceeds
from sale of equity interest in joint venture
|
— | 13,132 | — | |||||||||
|
Maturities
of short-term investments
|
— | — | 22,727 | |||||||||
|
Net
cash provided by (used in) investing activities
|
(2,040 | ) | 6,116 | 22,322 | ||||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
|
Proceeds
from issuance of common stock
|
6,619 | 13,318 | 23,198 | |||||||||
|
Proceeds
from issuance of warrants
|
3,041 | 5,634 | 3,535 | |||||||||
|
Payments
of long-term liabilities
|
(84 | ) | (45 | ) | (2,296 | ) | ||||||
|
Net
cash provided by financing activities
|
9,576 | 18,907 | 24,437 | |||||||||
|
Net
increase (decrease) in cash and cash equivalents
|
(23,593 | ) | 2,170 | 17,291 | ||||||||
|
Cash
and cash equivalents, beginning of year
|
32,507 | 30,337 | 13,046 | |||||||||
|
Cash
and cash equivalents, end of year
|
$ | 8,914 | $ | 32,507 | $ | 30,337 | ||||||
|
Supplemental
disclosure of non-cash information:
|
||||||||||||
|
Unrealized
holding gain (loss) on marketable securities
|
$ | 27 | $ | (8 | ) | $ | 28 | |||||
|
Capital
lease of equipment
|
113 | 96 | 25 | |||||||||
|
Issuance
of warrants to placement agents
|
365 | — | — | |||||||||
|
Share-based
compensation charged to inventory
|
3 | — | — | |||||||||
|
Supplemental
disclosure of cash information:
|
||||||||||||
|
Cash
paid for interest
|
$ | 36 | $ | 32 | $ | 395 | ||||||
|
Cash
received for taxes
|
— | — | 256 | |||||||||
The
accompanying notes are an integral part of these statements.
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
1.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Business
Cytogen
Corporation (the "Company") is a specialty pharmaceutical company dedicated to
advancing the treatment and care of patients by building, developing, and
commercializing a portfolio of oncology products. The Company's
specialized sales force currently markets two therapeutic products and one
diagnostic product to the U.S. oncology market. CAPHOSOL is an
electrolyte solution for the treatment of oral mucositis and dry mouth that is
approved in the U.S. as a prescription medical device. QUADRAMET
(samarium Sm-153 lexidronam injection) is approved for the treatment of pain in
patients whose cancer has spread to the bone. PROSTASCINT (capromab
pendetide) is a PSMA-targeting monoclonal antibody-based agent to image the
extent and spread of prostate cancer.
Cytogen
has a history of operating losses since its inception. The Company
currently relies on two products, PROSTASCINT and QUADRAMET, for substantially
all of its current revenues. The Company will depend on market
acceptance of CAPHOSOL for potential new revenues. If
CAPHOSOL does not achieve market acceptance, either because the Company fails to
effectively market such product or competitors introduce new products, the
Company will not be able to generate sufficient revenue to become
profitable. The Company has, from time to time, stopped selling
certain products that the Company previously believed would generate significant
revenues. Effective January 1, 2008, the Company ceased selling and
marketing SOLTAMOX, a liquid hormonal therapy approved in the U.S. for the
treatment of breast cancer in adjuvant and metastatic settings (see Note
17). The Company's products are subject to significant regulatory
review by the FDA and other federal and state agencies, which requires
significant time and expenditures in seeking, maintaining and expanding product
approvals. In addition, the Company relies on collaborative partners
to a significant degree, among other things, to manufacture its products, to
secure raw materials, and to provide licensing rights to their proprietary
technologies for the Company to sell and market to others. The
Company is also subject to revenue and credit concentration risks as a small
number of its customers account for a high percentage of total revenues and
corresponding receivables. The loss of one of these customers or
changes in their buying patterns could result in reduced sales, thereby
adversely affecting the operating results.
The
Company’s audited financial statements for the fiscal year ended December 31,
2007, were prepared under the assumption that the Company will continue its
operations as a going concern. The Company incorporated in 1980, and
does not have a history of earnings. As a result, the Company’s
independent registered accountants in their audit report have expressed
substantial doubt about the Company’s ability to continue as a going
concern. Continued operations are dependent on the Company’s ability
to complete equity or debt formation activities or to generate profitable
operations. Such capital formation activities may not be available or
may not be available on reasonable terms. The Company’s financial
statements do
not
include any adjustments that may result from the outcome of this
uncertainty. If the Company cannot continue as a viable entity, its
stockholders may lose some or all of their investment in the
Company.
On
November 5, 2007, the Company received notification from The NASDAQ Stock
Market, or NASDAQ, that the Company is not in compliance with the $1.00 minimum
bid price requirement for continued inclusion on the NASDAQ Global Market
pursuant to Marketplace Rule 4450(a)(5). The closing price of
Cytogen’s common stock has been below $1.00 per share since September 24,
2007. The letter states that the Company has 180 calendar days, or
until May 5, 2008, to regain compliance with the minimum bid price requirement
of $1.00 per share. The Company can achieve compliance, if at any
time before May 5, 2008, its common stock closes at $1.00 per share or more for
at least 10 consecutive business days. If compliance with NASDAQ’s
Marketplace Rules is not achieved by May 5, 2008, NASDAQ will provide notice
that the Company’s common stock will be delisted from the NASDAQ Global
Market. In the event of such notification, the Company would have an
opportunity to appeal NASDAQ’s determination. If faced with
delisting, the Company may submit an application to transfer the listing of its
common stock to the NASDAQ Capital Market. There can be no assurance
that the Company will be able to maintain the listing of its Common Stock on the
NASDAQ Global Market.
On
November 5, 2007, the Company announced that it had engaged an investment
banking firm to assist the Company in identifying and evaluating strategic
alternatives intended to enhance the future growth potential of the Company’s
pipeline and maximize shareholder value. On March 11, 2008, the
Company announced that it has entered into a definitive merger agreement with
EUSA Pharma Inc., pursuant to which all outstanding shares of the Company will
be converted into $0.62 per share in cash, which represents a premium of
approximately 35% over the closing price of $0.46 on March 10,
2008. EUSA Pharma is a transatlantic specialty pharmaceutical company
focused on oncology, pain control and critical care.
Closing
of the merger is conditioned on, among other things, the receipt of approval by
holders of a majority of the outstanding shares of Cytogen’s common stock, and
the parties entrance into a sublicense agreement for the European and Asian
rights to the Company’s Caphosol product. It is also subject to
certain regulatory review and other customary closing conditions. The
transaction is expected to close in the second quarter of 2008. Upon
closing of the merger, EUSA Pharma intends to apply to delist all of Cytogen’s
issued shares from the NASDAQ Stock Market.
Our cash
and cash equivalents were $8.9 million as of December 31, 2007. During the
year ended December 31, 2007, net cash used in operating activities was $31.1
million. We expect that our existing capital resources at December 31,
2007, should be adequate to fund our operations and commitments into the second
quarter of 2008. We have incurred negative cash flows from operations since our
inception, and have expended, and expect to continue to expend in the future,
substantial funds to implement our planned product development efforts,
including acquisition of complementary clinical stage and marketed products,
research and development, clinical studies and regulatory activities, and to
further our marketing and sales programs. We expect that our existing capital
resources at December 31, 2007, should be adequate to fund our operations and
commitments into the second quarter of 2008. However, 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.
If we are
unable to consummate the merger with EUSA, we will need to raise additional
capital in the second quarter of 2008. If we are unable to raise additional
financing, we will be required to reduce our capital expenditures, scale back
our sales and marketing or research and development plans, reduce our workforce,
license to others products or technologies we would otherwise seek to
commercialize ourselves, sell certain assets, cease operations or declare
bankruptcy. There can be no assurance that we can obtain equity financing, if at
all, on terms acceptable to us. 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 clinical stage and marketed products;
(iii) progress in our product development efforts and the magnitude and
scope of such efforts; (iv) progress with clinical trials;
(v) progress with regulatory affairs activities; (vi) the cost of
filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights; (vii) competing technological and market
developments; and (viii) the expansion of strategic alliances for the
sales, marketing, manufacturing and distribution of our products. To the extent
that the currently available funds and revenues are insufficient to meet current
or planned operating requirements, we will be required to obtain additional
funds through equity or debt financing, strategic alliances with corporate
partners and others, or through other sources. We cannot assure you that the
financial sources described above will be available when needed or at terms
commercially acceptable to us. If adequate funds are not available, we may be
required to delay, further scale back or eliminate certain aspects of our
operations or attempt to obtain funds through arrangements with collaborative
partners or others that may require us to relinquish rights to certain of our
technologies, product candidates, products or potential markets. If adequate
funds are not available, our business, financial condition and results of
operations will be materially and adversely affected.
Additionally,
if we are unable to consummate the merger with EUSA, our common stock may be
delisted by NASDAQ. If delisted from the NASDAQ Global Market and unable to
transfer to the NASDAQ Capital Market, our common stock would be eligible to
trade on the OTC Bulletin Board maintained by NASDAQ, another over-the-counter
quotation system, or on the pink sheets where an investor may find it more
difficult to dispose of or obtain accurate quotations as to the market value of
our common stock. In addition, we would be subject to “penny stock” regulations
promulgated by the Securities and Exchange Commission that, if we fail to meet
criteria set forth in such regulations, imposes various practice requirements on
broker-dealers who sell securities governed by the regulations to persons other
than established customers and accredited investors. Consequently, such
regulations may deter broker-dealers from recommending or selling our common
stock, which may further affect the liquidity of our common stock. There can be
no assurance that we will be able to maintain the listing of our common stock on
NASDAQ. Delisting from NASDAQ would make trading our common stock more difficult
for investors, potentially leading to further declines in our share price. It
would also make it more difficult for us to raise additional capital. Further,
if we are delisted, we would also incur additional costs under state blue sky
laws in connection with any sales of our securities.
These requirements could severely limit the market liquidity of our common stock
and the ability of our shareholders to sell our common stock in the secondary
market.
Basis
of Consolidation
The
consolidated financial statements include the financial statements of Cytogen
and its subsidiaries. All intercompany balances and transactions have
been eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
Cash
and Cash Equivalents
Cash and
cash equivalents include cash on hand, cash in banks and all highly-liquid
investments with a maturity of three months or less at the time of
purchase.
Restricted
Cash
In
connection with the Company's license agreement with InPharma executed in
October 2006, the Company pledged $1.1 million as collateral to secure a letter
of credit for $1.0 million in favor of InPharma to guarantee Cytogen's payment
of $1.0 million on April 11, 2007 (see Note 19). Drawing under this
letter of credit could not be made prior to April 12, 2007 and only if Cytogen
failed to fulfill its payment obligation. The cash collateral was
released from restriction upon the expiration of the letter of credit on April
17, 2007.
Accounts
Receivable
The
Company's accounts receivable balances are net of an estimated allowance for
uncollectible accounts. The Company continuously monitors collections
and payments from its customers and maintains an allowance for uncollectible
accounts based upon its historical experience and any specific customer
collection issues that the Company has identified. While the Company
believes its reserve estimate to be appropriate, the Company may find it
necessary to adjust its allowance for uncollectible accounts if the future bad
debt expense exceeds its estimated reserve. The Company is subject to
concentration risks as a limited number of its customers provide a high percent
of total revenues, and corresponding receivables. The Company does
not have any off-balance sheet credit exposure related to its
customers.
At
December 31, 2007 and 2006, accounts receivable were net of an allowance for
doubtful accounts of $19,000 and $6,000, respectively. Expense
charged to the provisions for doubtful accounts during 2007 and 2006 was $13,000
and $2,000, respectively compared to an expense reversal of $72,000 recorded in
2005 which was a result of a decrease in the allowance for
doubtful accounts. The Company wrote did not write off any
uncollectible accounts in 2007, 2006 or 2005.
Inventories
The
Company's inventories include PROSTASCINT and CAPHOSOL with the majority of the
inventories related to PROSTASCINT. Inventories are stated at the
lower of cost or market, as determined using the first-in, first-out method,
which most closely reflects the physical flow of our inventories. The
Company's products and raw materials are subject to expiration
dating. The Company regularly reviews quantities on hand to determine
the need to write-down inventory for excess and obsolete inventories based
primarily on our estimated forecast of product sales. The Company's
estimate of future product demand may prove to be inaccurate, in which case the
Company may have understated or overstated its reserve for excess and obsolete
inventories.
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
(All
amounts in thousands)
|
||||||||
|
Raw
materials
|
$ | 82 | $ | 325 | ||||
|
Work-in
process
|
3,221 | 1,296 | ||||||
|
Finished
goods
|
1,332 | 917 | ||||||
| $ | 4,635 | $ | 2,538 | |||||
Due to short dating of current SOLTAMOX
product and limited end user demand, the Company recorded a charge of $298,000
during 2007 to fully reserve SOLTAMOX inventory. The Company ceased
selling and marketing SOLTAMOX effective January 1, 2008. Also in
2007, the Company wrote off $765,000 of PROSTASCINT inventory to cost of product
revenue for a failed PROSTASCINT batch due to contamination.
Other
Current Assets
At
December 31, 2007 and 2006, other current assets include $4,000 and $6,000,
respectively, of receivables from employees for advances related to travel,
tuition and sales incentive payments.
Property
and Equipment
Property
and equipment are stated at cost, net of accumulated depreciation or
amortization. Leasehold improvements are amortized on a straight-line
basis over the lease period or the estimated useful life, whichever is
shorter. Equipment and furniture are depreciated on a straight-line
basis over three to five years. Expenditures for repairs and
maintenance are charged to expense as incurred. Property and
equipment consisted of the following:
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
(All
amounts in thousands)
|
||||||||
|
Leasehold
improvements
|
$ | 181 | $ | 175 | ||||
|
Equipment
and furniture
|
2,527 | 1,925 | ||||||
| 2,708 | 2,100 | |||||||
|
Less:
Accumulated depreciation and amortization
|
(1,662 | ) | (1,409 | ) | ||||
| $ | 1,046 | $ | 691 | |||||
Depreciation
and amortization expense for property and equipment was $520,000, $462,000 and
$331,000 in 2007, 2006 and 2005, respectively.
Fair
Value of Financial Instruments
The
Company's financial instruments consist primarily of cash and cash equivalents,
restricted cash, accounts receivable, accounts payable, accrued expenses and
long-term debt. Management believes the carrying value of these
assets and accounts payable and accrued expenses are representative of their
fair value because of the short-term nature of these instruments. The
fair value of long-term debt is estimated by discounting the future cash flows
of each instrument at rates currently offered to the Company for similar debt
instruments of comparable maturities by the Company's bankers. The
resulting fair value of long-term debt approximates its carrying
amount. The warrant liabilities are measured at fair value using the
Black-Scholes option-pricing model at each reporting date (see Notes 11 and
12).
Impairment
of Long-Lived Assets
In
accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," if indicators
of impairment exist, management assesses the recoverability of the affected
long-lived assets by determining whether the carrying value of such assets can
be recovered through undiscounted future operating cash flows and eventual
disposition of the asset. If impairment is indicated, management
measures the amount of such impairment by comparing the carrying value of the
assets to the present value of the expected future cash flows associated with
the use of the asset.
In 2007,
due to limited end-user demand for SOLTAMOX, uncertainty regarding future market
penetration, and inventory dating issues, the decision in the third quarter of
2007 to reallocate sales and marketing resources to other products, the Company
assessed the recoverability of the carrying amount of its SOLTAMOX license and
determined an impairment existed as of September 30, 2007. Accordingly, during
the third quarter of 2007, Cytogen recorded a non-cash impairment charge of
approximately $1.8 million to write-down this asset to zero. The Company ceased
selling and marketing SOLTAMOX effective January 1, 2008.
Product
License Fees
Product
license fees consisted of the following:
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
(All
amounts in thousands)
|
||||||||
|
QUADRAMET
license fee, net (see Note 6)
|
$ | 4,934 | $ | 5,631 | ||||
|
SOLTAMOX
license fee, net (see Note 17)
|
— | 1,890 | ||||||
|
CAPHOSOL
license fee, net (see Note 19)
|
3,908 | 4,091 | ||||||
| $ | 8,842 | $ | 11,612 | |||||
QUADRAMET
License Fee
In August
2003, Cytogen reacquired marketing rights to QUADRAMET in North America and
Latin America in exchange for an up-front payment of $8.0 million which was
capitalized as a QUADRAMET license fee and is being amortized on a straight-line
basis over approximately 12 years, the estimated performance period of the
agreement. The balance is comprised as follows:
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
(All
amounts in thousands)
|
||||||||
|
QUADRAMET
license
fee
|
$ | 8,000 | $ | 8,000 | ||||
|
Less:
Accumulated
amortization
|
(3,066 | ) | (2,369 | ) | ||||
| $ | 4,934 | $ | 5,631 | |||||
During
2007, 2006 and 2005, Cytogen recorded $697,000, $696,000 and $697,000,
respectively, of such amortization as cost of product revenues in the
accompanying consolidated statements of operations. Estimated
amortization expense is $696,000 for each of the next fiscal years through 2014
and $62,000 in 2015.
SOLTAMOX
License Fee
In February
and April 2006, Cytogen paid an aggregate total of $2.0 million to Savient
Pharmaceuticals, Inc. representing an up-front licensing fee granting exclusive
marketing rights for SOLTAMOX in the United States which was capitalized as a
SOLTAMOX license fee and amortized on a straight-line basis over approximately
12 years, the estimated performance period of the agreement. The SOLTAMOX
license fee is comprised as follows:
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
(All
amounts in thousands)
|
||||||||
|
SOLTAMOX
license fee
|
$ | 2,000 | $ | 2,000 | ||||
|
Less:
Accumulated amortization
|
(233 | ) | (110 | ) | ||||
|
Less:
Impairment of intangible asset
|
(1,767 | ) | — | |||||
| $ | — | $ | 1,890 | |||||
During 2007
and 2006, the Company recorded $123,000 and $110,000, respectively, of such
amortization as cost of product revenues in the accompanying consolidated
statements of operations. During the third quarter of 2007, Cytogen
recorded a non-cash impairment charge of approximately $1.8 million to
write-down the license fee to zero.
CAPHOSOL
License Fee
In
October 2006, Cytogen acquired from InPharma the exclusive marketing rights to
CAPHOSOL in North America and an option to acquire the marketing rights to
CAPHOSOL in Europe and Asia. Based on the relative fair value of the
assets acquired, the Company allocated the license and option fees and related
transaction costs as follows: $4.2 million to CAPHOSOL marketing
rights in North America which excludes a $400,000 payment contingent upon
certain conditions, $1.7 million to the option to license the product rights in
Europe and $162,000 to the option to license the product rights in Asia (see
"Other Assets" below and Note 19). In October 2007, the Company paid
one-half of the contingent payment or $200,000 to InPharma with the remaining
balance to be paid in October 2008 upon certain conditions. Such
payment was added to the cost of Caphosol marketing rights in North
America. The allocated license fee for North America was capitalized
as CAPHOSOL license fee in the accompanying consolidated balance sheet and is
being amortized on a straight-line basis over approximately eleven years, which
is the estimated performance period of the agreement. The balance is
comprised as follows:
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
(All
amounts in thousands)
|
||||||||
|
CAPHOSOL
license fee
|
$ | 4,189 | $ | 4,189 | ||||
|
Add: Contingent
payment
|
200 | — | ||||||
|
Less:
Accumulated amortization
|
(481 | ) | (98 | ) | ||||
| $ | 3,908 | $ | 4,091 | |||||
During
2007 and 2006, the Company recorded $383,000 and $98,000, respectively, of such
amortization as cost of product revenues in the accompanying consolidated
statements of operations. Estimated amortization expense is $401,000
for each of the next fiscal year through 2016 and $299,000 in 2017.
Other
Assets
Other
assets consisted of the following:
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
(All
amounts in thousands)
|
||||||||
|
CAPHOSOL
option fee for
Europe
|
$ | 1,656 | $ | 1,656 | ||||
|
Deferred
royalty
expense
|
— | 105 | ||||||
|
Other
|
296 | 304 | ||||||
| $ | 1,952 | $ | 2,065 | |||||
In
October 2006, the Company acquired from InPharma an option to purchase marketing
rights to CAPHOSOL in Europe (see "CAPHOSOL License Fee" above and Note
19). The allocated option fee of $1.7 million for Europe is recorded
as other assets and will be transferred to the appropriate asset account, if
exercised. The Company periodically evaluates the option value for
impairment by assessing, among other things, its intent and ability to exercise
the option, the option expiry date and the market and product
competitiveness.
In 2006,
the Company introduced SOLTAMOX to the U.S. oncology market and began supplying
the distribution channels to support the initial patient
demand. Approximately $1.1 million of SOLTAMOX supply was shipped to
wholesalers, however, these shipments were not recognized as revenues because
the Company did not have sufficient information to estimate expected product
returns. Accordingly, royalties owed based on SOLTAMOX shipments to
wholesalers were deferred, since the Company had the right to offset royalties
paid for products that could later be returned against subsequent royalty
obligations. At December 31, 2006, the deferred royalty expense of
$105,000 was classified as other assets in the accompanying consolidated balance
sheet. The deferred royalties were subsequently recognized as royalty expense in
2007 since the Company was obligated to pay SOLTAMOX minimum royalties (see Note
17).
Other
assets in 2007 and 2006 each include $50,000 and $48,000, respectively, of
restricted cash which is used as collateral for a letter of credit required by a
facility lease as a security deposit. The letter of credit is
automatically renewed annually but not beyond the term of the
lease.
Other
assets in 2007 and 2006 also include $47,000 and $20,000, respectively, of
marketable securities that relate to the 18,356 shares (post a 15 to 1 reverse
stock split in 2007) of Northwest Biotherapeutics, Inc. common stock which the
Company received in connection with the acquisition of Prostagen, Inc. in
1999. The Company has classified this investment as
available-for-sale securities in accordance with Statement of Financial
Accounting Standards
("SFAS")
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Available-for-sale securities are carried at fair value,
based on quoted market prices, with unrealized gains or losses reported as a
separate component of stockholders' equity. As of December 31, 2007
and 2006, the Company had an unrealized gain of $47,000 and $20,000,
respectively, related to this investment. There is no assurance,
however, that the Company can sell these securities within a reasonable amount
of time without negatively affecting the price of the stock because of low daily
trading volume.
Warrant
Liabilities
Emerging
Issues Task Force ("EITF") No. 00-19, "Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company's Own Stock"
addresses accounting for equity derivative contracts indexed to, and potentially
settled in a company's own stock, or equity derivatives, by providing guidance
for distinguishing between permanent equity, temporary equity and assets and
liabilities. Under EITF 00-19, to qualify as permanent equity, the
equity derivative must permit the issuer to settle in unregistered
shares. EITF 00-19 considers the ability to keep a registration
statement effective as beyond a company's control and warrants that cannot be
classified as permanent equity are instead classified as a
liability. In addition, warrants that permit net cash settlement at
the option of the holder are also classified as a liability.
Equity
derivatives not qualifying for permanent equity accounting are recorded at their
fair value using the Black-Scholes option-pricing model and are remeasured at
each reporting date until the warrants are exercised or
expire. Changes in the fair value of the warrants will be reported in
the consolidated statements of operations as non-operating income or
expense. The fair value of the warrants as calculated using the
Black-Scholes option-pricing model is subject to significant fluctuation based
on changes in the Company's stock price, expected volatility, expected life, the
risk-free interest rate and dividend yield.
EITF No.
00-19-2 "Accounting for Registration Payment Arrangements" specifies that
registration payment arrangements should play no part in determining the initial
classification and subsequent accounting for the securities they related
to. The Staff position requires the contingent obligation in a
registration payment arrangement to be separately analyzed under FASB Statement
No. 5, "Accounting for Contingencies" and FASB Interpretation No. 14,
"Reasonable Estimation of the Amount of a Loss". If payment in a
registration payment arrangement is probable and can be reasonably estimated, a
liability should be recorded.
Revenue Recognition
The
Company generates revenue from product sales and license and contract
revenues. The Company recognizes revenue in accordance with the SEC's
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
as amended by Staff Accounting Bulletin No. 104 (together, "SAB 104"), and FASB
Statement No. 48 "Revenue Recognition When Right of Return Exists" ("SFAS
48"). SAB 104 states that revenue should not be recognized until it
is realized or realizable and earned. Revenue is realized or
realizable and earned when all of the following criteria are met:
(1) persuasive evidence of an arrangement exists; (2) delivery has occurred
or services have been rendered; (3) the seller's price to the buyer is
fixed or determinable; and (4) collectibility is reasonably
assured. SFAS 48
states
that revenue from sales transactions where the buyer has the right to return the
product shall be recognized at the time of sale only if (1) the seller's price
to the buyer is substantially fixed or determinable at the date of sale,
(2) the buyer has paid the seller, or the buyer is obligated to pay the
seller and the obligation is not contingent on resale of the product,
(3) the buyer's obligation to the seller would not be changed in the event
of theft or physical destruction or damage of the product, (4) the buyer
acquiring the product for resale has economic substance apart from that provided
by the seller, (5) the seller does not have significant obligations for
future performance to directly bring about resale of the product by the buyer,
and (6) the amount of future returns can be reasonably
estimated.
Product
Sales
The
Company recognizes revenues for product sales at the time title and risk of loss
are transferred to the customer, and the other criteria of SAB 104 and SFAS 48
are satisfied, which is generally at the time products are shipped to
customers. At the time gross revenue is recognized from product
sales, an adjustment, or decrease, to revenue for estimated rebates, discounts
and returns is also recorded. This revenue reserve is determined on a
product-by-product basis. The rebate or discount reserve is recorded
in accordance with Emerging Issues Task Force (EITF) Issue No. 01-9, "Accounting for Consideration Given
by a Vendor to a Customer", which states that cash consideration given by
a vendor to a customer is presumed to be a reduction of the selling prices of
the vendor's products or services and, therefore, should be characterized as a
reduction of revenue when recognized in the vendor's income
statement. At the time product is shipped, an adjustment is recorded
for estimated rebates and discounts based on the contractual terms with
customers. Revenue reserves including return allowances are
established by management as its best estimate at the time of sale based on each
product's historical experience adjusted to reflect known changes in the factors
that impact such reserves.
For new
products launches such as CAPHOSOL and SOLTAMOX, which the Company introduced in
March 2007 and August 2006, respectively, the Company’s policy is to recognize
revenue based on a number of factors, including product sales to end-users,
on-hand inventory estimates in the distribution channel, and the data to
determine product acceptance in the marketplace to estimate product
returns. When inventories in the distribution channel do not exceed
targeted levels, and the Company has the ability to estimate product returns and
discounts, the Company will recognized product sales upon shipment, net of
discounts, returns and allowances.
Starting
in the third quarter of 2007, the Company has had sufficient evidence to
reasonably estimate returns and chargebacks for CAPHOSOL and has monitored
inventories in the distribution channels to not exceed targeted
levels. As a result, the Company began recognizing CAPHOSOL revenues
based on shipments to customers.
In the
case of SOLTAMOX, product shipments made to wholesalers did not meet the revenue
recognition criteria of SFAS 48 and SAB 104. Because the Company
could not reliably estimate expected returns for this new product, the Company
deferred recognition of revenue until the right of return no longer
existed or until the Company developed sufficient historical experience to
estimate sales returns. In 2006, approximately $1.1 million of
SOLTAMOX was
shipped
to wholesalers. For these product shipments, the Company invoiced the
wholesalers, recorded the payment received as "Customer Liability", and
classified the inventory shipped to wholesalers as "Inventory at Wholesalers",
in the amount of $93,000 at December 31, 2006, the Company's cost of goods for
such inventory. The Company recognized revenue for SOLTAMOX when such
product was sold through to the end users, on a first-in first-out
(FIFO) basis. Additionally, royalty amount due based on unit
shipments to wholesalers was deferred and recognized as royalty expense as those
units were sold through and recognized as revenue. The Company had
the right to offset royalties paid for products that were later returned against
subsequent royalty obligations. Expenses related to shipments of
SOLTAMOX, for which the Company did not have the ability to recover when the
products were returned, were expensed as incurred. Due to limited
end-user demand and inventory dating issues, most of SOLTAMOX inventory at
wholesalers was returned to the Company by December 31, 2007. As a
result, all deferred costs related to SOLTAMOX shipments were expensed in
2007. The Company ceased selling and marketing SOLTAMOX effective
January 1, 2008.
License
and contract revenues include milestone payments and fees under collaborative
agreements with third parties, revenues from research services, and revenues
from other miscellaneous sources. The Company defers non-refundable
up-front license fees and recognizes them over the estimated performance period
of the related agreement, when the Company has continuing
involvement. Since the term of the performance periods is subject to
management's estimates, future revenues to be recognized could be affected by
changes in such estimates.
In
accordance with EITF No. 00-10, the Company records shipping and handling
charges billed to customers as revenue and the related costs as cost of product
revenues.
Research
and Development
Research
and development expenditures consist of projects conducted by the Company and
payments made for sponsored research programs and consultants. All
research and development costs are charged to expense as incurred.
Advertising
Costs
Advertising
costs are charged to expense as incurred. In 2007, 2006 and 2005, the
advertising costs were $4.5 million, $2.1 million and $710,000, respectively,
and are included in selling and marketing expenses in the Company's consolidated
statements of operations.
Patent
Costs
Patent
costs are charged to expense as incurred.
Rent
Expense
Rental
expenses for the Company's corporate offices are recognized over the term of the
lease. The Company recognizes rent starting when possession of the
facility is taken from the
landlord. When
a lease contains a predetermined fixed escalation of the minimum rent, the
Company recognizes the related rent expense on a straight-line basis and records
the difference between the recognized rental expense and the amounts payable
under the lease as deferred lease credits. Tenant leasehold
improvement allowances are reflected in Accounts Payable and Accrued Liabilities
in the consolidated balance sheet and are amortized as a reduction to rent
expense in the statement of operations over the term of the lease.
Income
Taxes
The
Company accounts for income taxes under the asset and liability method in
accordance with SFAS No. 109, "Accounting for Income Taxes." Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Effective
January 1, 2007, the Company adopted FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109" ("FIN
48"). FIN 48 prescribes how a company should recognize, measure,
present and disclose an uncertain income tax position. A "tax
position" is a position taken on a previously filed tax return, or expected to
be taken in a future tax return that is reflected in the measurement of current
and deferred tax assets or liabilities for interim or annual periods. A tax
position can result in a permanent reduction of income taxes payable, a deferral
of income taxes to future periods, or a change in the expected ability to
realize deferred tax assets. A change in net assets that results from
adoption of FIN 48 is recorded as an adjustment to retained earnings in the
period of adoption. The adoption of FIN 48 did not have any impact on
the Company's consolidated financial statements.
On May 2,
2007, the FASB Staff Position amended FIN 48 to provide guidance on how an
enterprise should determine whether a tax position is effectively settled for
the purpose of recognizing previously unrecognized tax benefits. This
guidance, which is effective immediately, had no impact on the Company's
consolidated financial statements as of and for the year ended December 31,
2007.
Net
Loss Per Share
Basic net
loss per common share is calculated by dividing the Company's net loss by the
weighted-average common shares outstanding during each
period. Diluted net loss per common share is the same as basic net
loss per share for each of the three years ended December 31, 2007, 2006 and
2005, because the inclusion of common stock equivalents, which consist of
nonvested shares, warrants and options to purchase shares of the Company's
common stock, would be antidilutive due to the Company's losses (see Notes 12
and 13).
Variable
Interest Entities
FASB
Interpretation No. 46 ("FIN 46R"), "Consolidation of Variable Interest Entities"
("VIEs"), addresses how a business enterprise should evaluate whether it has a
controlling financial interest in an entity through means other than voting
rights and accordingly should consolidate the entity. The Company was
required to apply FIN 46R to variable interests in VIEs created after December
31, 2003. For variable interests in VIEs created before January 1,
2004, FIN 46R applied beginning on March 31, 2004.
In June
1999, Cytogen entered into a joint venture with Progenics Pharmaceuticals Inc.
("Progenics") to form the PSMA Development Company LLC (the "Joint
Venture"). The Company sold its 50% ownership interest in the Joint
Venture to Progenics in April 2006. Cytogen accounted for the Joint
Venture using the equity method of accounting. The Company was not
required to consolidate the Joint Venture under the requirements of FIN
46R.
Share-Based
Compensation
Effective
January 1, 2006, the Company adopted SFAS No. 123(R), "Share-Based Payment,"
using the modified prospective transition method. Under this method,
compensation expense is reflected in the financial statements beginning January
1, 2006 with no restatement to the prior periods. As such,
compensation expense, which is measured based on the fair value of the
instrument on the grant date, is recognized for awards that are granted,
modified, repurchased or cancelled on or after January 1, 2006 as well as for
the portion of awards previously granted that have not vested as of January 1,
2006. The Company has adopted the straight-line expense attribution
method for all options granted after January 1, 2006. Compensation
costs associated with awards granted prior to the adoption of SFAS 123(R) are
recognized using the accelerated attribution method in accordance with FASB
Interpretation No. 28, "Accounting for Stock Appreciation Rights and Other
Variable Stock Option or Award Plan ("FIN 28"), consistent with the Company's
prior policy. Prior to the adoption of SFAS 123(R), the Company
accounted for its stock-based employee compensation expense under the
recognition and measurement principles of Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and related
interpretations.
Other
Comprehensive Income
The
Company follows SFAS No. 130, "Reporting Comprehensive Income." This
statement requires the classification of items of other comprehensive income by
their nature and disclosure of the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in the
equity section of the balance sheet.
Recent
Accounting Pronouncements
Advance
Payments for Goods or Services
In June
2007, FASB issued EITF Issue No. 07-03, “Accounting for Advance Payments for
Goods or Services To Be Used in Future Research and Development” (EITF 07-03),
which is
effective
for calendar year companies on January 1, 2008. The Task Force
concluded that nonrefundable advance payment for goods or services that will be
used or rendered for future research and development activities should be
deferred and capitalized. Such amounts should be recognized as an
expense as the related goods are delivered or the services are performed, or
when the goods or services are no longer expected to be provided. We
are currently assessing the potential impacts on our consolidated financial
statements upon adoption of EITF 07-03.
Fair
Value Option
In
February 2007, FASB issued SFAS No. 159 “The Fair Value Option for Financial
Assets and Financial Liabilities, Including an Amendment of FASB Statement No.
115” (SFAS 159), which will become effective for fiscal years beginning after
November 15, 2007. SFAS 159 permits entities to measure eligible
financial assets and financial liabilities at fair value, on an
instrument-by-instrument basis, that are otherwise not permitted to be accounted
for at fair value under other generally accepted accounting
principles. The fair value measurement election is irrevocable and
subsequent changes in fair value must be recorded in earnings. We
will adopt SFAS 159 in fiscal year 2008 and are evaluating if we will elect the
fair value option for any of our eligible financial instruments.
Fair
Value Measurement
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS
157) which will become effective in 2008. This Statement defines fair
value, establishes a framework for measuring fair value and expands disclosure
about fair value measurements; however, it does not require any new fair value
measurements. The provisions of SFAS 157 will be applied
prospectively to fair value measurements and disclosures for financial assets
and liabilities beginning in the first quarter of 2008 and for non-financial
assets and liabilities starting in 2009 and is not expected to have a material
effect on our consolidated financial statements.
|
2.
|
ADVANCED
MAGNETICS, INC.
|
In August
2000, the Company and Advanced Magnetics, Inc., a developer of superparamagnetic
iron oxide nanoparticles used in pharmaceutical products, entered into
marketing, license and supply agreements (the "AVM
Agreements"). Under the AVM Agreements, Cytogen acquired certain
rights in the United States to Advanced Magnetics' product candidates:
COMBIDEX®, an
investigational functional molecular imaging agent for all applications; and
ferumoxytol (formerly referred to as Code 7228) for oncology applications
only. Advanced Magnetics was responsible for all costs associated
with the clinical development of, and if approved by the FDA, would have been
responsible for the supply and manufacture of COMBIDEX and ferumoxytol and would
receive product transfer payments and royalties based upon product sales or
certain minimum payments from Cytogen, whichever was greater. The
Company had no funding obligation regarding research and development for
Advanced Magnetics and the Company did not earn any compensation nor incur any
costs for the research and development activities related to COMBIDEX in 2006
and 2005.
In January
2006, the Company filed a complaint against Advanced Magnetics in the
Massachusetts Superior Court for breach of contract, fraud, unjust enrichment,
and breach of the implied covenant of good faith and fair dealing in connection
with the parties' 2000 license agreement. The complaint sought
damages along with a request for specific performance requiring Advanced
Magnetics to take all reasonable steps to secure FDA approval of Combidex in
compliance with the terms of the licensing agreement. In February
2006, Advanced Magnetics filed an answer to the Company's complaint and asserted
various counterclaims, including tortuous interference, defamation, consumer
fraud and abuse of process. In February 2007, the Company settled its
lawsuit against Advanced Magnetics, as well as Advanced Magnetics' counterclaims
against Cytogen, by mutual agreement. Under the terms of the
settlement agreement, Advanced Magnetics paid $4.0 million to the Company and
released 50,000 shares of Cytogen common stock held in escrow. In
addition, both parties agreed to early termination of the licensing agreement
that would have expired in August 2010. For the year ended December
31, 2007, the Company recognized a gain on litigation settlement of $3.9
million, net of transaction costs.
3. ACQUISITION
OF PROSTAGEN, INC.
Pursuant
to a Stock Exchange Agreement (the "Prostagen Agreement") related to the
Company's acquisition of Prostagen Inc. ("Prostagen") in June 1999, the Company
agreed to issue up to an additional $4.0 million worth of Cytogen Common Stock
to the stockholders and debtholders of Prostagen (the "Prostagen Partners"), if
certain milestones are achieved in the dendritic cell therapy and PSMA
development programs. In May 2002, the Company entered into an
Addendum to the Prostagen Agreement (the "Addendum"), which clarifies the future
milestone payments to be made under the Prostagen Agreement, as well as the
timing of such payments. Pursuant to the Addendum, the Company may be
obligated to pay two additional milestone payments of $1.0 million each, upon
certain clinical achievements regarding the PSMA development
programs. In November 2004, the Company entered into Addendum No. 2
to the Prostagen Agreement (the "Second Addendum"), which further clarifies the
future milestone payments to be made under the Prostagen
Agreement. Pursuant to the Second Addendum, the Company issued 92,799
shares of Common Stock to the Prostagen Partners in 2005. As a
result, the Company recorded charges to research and development expense of
$500,000 in 2005. The Company may be obligated to pay an additional
milestone payment of $1.0 million payable in shares of Cytogen common stock,
upon certain clinical achievements regarding the PSMA development
programs.
|
4.
|
PSMA
DEVELOPMENT COMPANY LLC
|
In June
1999, Cytogen entered into a joint venture with Progenics to form the PSMA
Development Company LLC (the "Joint Venture"), a development stage
enterprise. The Joint Venture was developing antibody-based and
vaccine immunotherapeutic products utilizing Cytogen's proprietary PSMA
technology. The Joint Venture was owned equally by Cytogen and
Progenics until April 20, 2006 (see below). Cytogen accounted for the
Joint Venture using the equity method of accounting. Cytogen had
recognized 50% of the Joint Venture's operating results in its consolidated
statements of operations until April 20, 2006, when the Company entered into a
Membership Interest Purchase Agreement with Progenics to sell the Company's
50%
ownership interest in the Joint Venture. In addition, the Company
entered into an Amended and Restated PSMA/PSMP License Agreement with Progenics
and the Joint Venture pursuant to which the Company licensed the Joint Venture
certain rights in PSMA technology. Under the terms of such
agreements, the Company sold its 50% interest in the Joint Venture for a cash
payment of $13.2 million, potential future milestone payments totaling up to $52
million payable upon regulatory approval and commercialization of the Joint
Venture products, and royalties on future product sales of the Joint
Venture, if any. Cytogen has no continuing involvement and no further
obligations to provide any products, services, or financial support to the Joint
Venture. This transaction was a sale of an asset in which the
consideration was fully received and for which the earning process is
complete. As a result, the Company recorded $12.9 million in gain on
sale of equity interest in the Joint Venture in the second quarter of 2006,
which represents the net proceeds after transaction costs less the carrying
value of the Company's investment in the Joint Venture at the time of
sale.
For the
years ended December 31, 2006 and 2005, Cytogen recognized $120,000 and $3.2
million, respectively, in losses of the Joint Venture. In 2005, each
Member contributed capital of $4.0 million to the Joint Venture. No
capital contribution was made in 2006. Selected financial statement
information of the Joint Venture, is as follows (all amounts in
thousands):
Income
Statement Data:
|
From
January 1, 2006 to April 20, 2006
|
Year
Ended
December
31, 2005
|
For
the Period From June 15, 1999 (inception) to April 20,
2006
|
||||||||||
|
Interest
income
|
$ | 6 | $ | 9 | $ | 256 | ||||||
|
Total
expenses
|
246 | 6,358 | 30,953 | |||||||||
|
Net
loss
|
$ | (240 | ) | $ | (6,349 | ) | $ | (30,697 | ) | |||
Prior to
the sale of its interest in the Joint Venture in April 2006, the Company
provided limited research and development services to the Joint
Venture. During 2005, the Company recorded revenue related to the
Joint Venture of $185,000 and incurred costs of $151,000. The Company
did not provide any research and development services to the Joint Venture in
2007 or 2006.
|
5.
|
THE
DOW CHEMICAL COMPANY
|
In 1993,
Cytogen acquired an exclusive license from The Dow Chemical Company for
QUADRAMET for the treatment of osteoblastic bone metastases in the United
States. This license was amended in 1995 to expand the territory to
include Canada and Latin America and again in 1996 to expand the field to
include all osteoblastic diseases. The agreement requires the Company
to pay Dow royalties based on a percentage of net sales of QUADRAMET, or a
guaranteed
annual minimum payment, whichever is greater, and future payments upon the
achievement of certain milestones. The Company recorded $1.0 million
in royalty expense for each of 2007, 2006 and 2005. Future annual
minimum royalties due to Dow are $1.0 million per year in 2008 through 2012 and
$833,000 in 2013.
In May
2005, the Company entered into a license agreement with Dow to create a targeted
oncology product designed to treat prostate and other cancers. The
agreement applies proprietary MeO-DOTA bifunctional chelant technology from Dow
to radiolabel Cytogen's PSMA antibody with a therapeutic
radionuclide. Under the agreement, proprietary chelation technology
and other capabilities, provided through ChelaMedSM
radiopharmaceutical services from Dow, will be used to attach a therapeutic
radioisotope to the same murine monoclonal antibody utilized in Cytogen's
PROSTASCINT molecular imaging agent which is called 7E11-C5.3
("7E11"). The 7E11 antibody was excluded from the PSMA technology
licensed to the Joint Venture. As a result of the agreement, Cytogen
is obligated to pay a minimal license fee and aggregate future milestone
payments of $1.9 million for each licensed product, if approved, and royalties
based on sales of related products, if any. Unless terminated
earlier, the Dow agreement terminates on the later of (a) the tenth anniversary
of the date of first commercial sale for each licensed product or (b) the
expiration of the last to expire valid claim that would be infringed by the sale
of the licensed product. The Company may terminate the license
agreement with Dow on 90 days written notice.
|
6.
|
BERLEX
LABORATORIES INC.
|
On August
1, 2003, the Company reacquired marketing rights to QUADRAMET in North America
and Latin America from Berlex Laboratories Inc. ("Berlex") in exchange for an
up-front payment of $8.0 million and royalties based on future sales of
QUADRAMET. As a result of the agreement, the Company began recording
product revenue from the sales of QUADRAMET. The up-front license
payment of $8.0 million was capitalized in 2003 as the QUADRAMET license fee in
the accompanying consolidated balance sheet and is being amortized on a
straight-line basis over approximately twelve years, which is the estimated
performance period of the agreement. Cytogen also recorded $1.5
million, $1.3 million and $1.4 million of royalty expenses to Berlex based on
its sales of QUADRAMET in 2007, 2006 and 2005, respectively, as cost of product
revenues.
|
7.
|
BRISTOL-MYERS
SQUIBB MEDICAL IMAGING, INC.
|
Effective
January 1, 2004, the Company entered into a manufacturing and supply agreement
with Bristol-Myers Squibb Medical Imaging, Inc. ("BMSMI"), whereby BMSMI will
manufacture, distribute and provide order processing and customer service for
Cytogen relating to QUADRAMET. Under the terms of the agreement,
Cytogen is obligated to pay at least $5.1 million annually, subject to future
annual price adjustment, through 2008, unless terminated by BMSMI or Cytogen on
two years prior written notice. This agreement will automatically
renew for five successive one-year periods unless terminated by BMSMI or Cytogen
on two years prior written notice. During 2007, 2006 and 2005, the
Company incurred $4.8 million, $4.5 million and $4.3 million, respectively, of
manufacturing costs for QUADRAMET, of which $4.5 million, $4.3 million and $4.2
million, respectively, are included in cost of product revenue and
the
remaining expenses for each respective period are charged to research and
development expenses for clinical supplies. The Company also pays
BMSMI a variable amount per month for each QUADRAMET order placed to cover the
costs of customer service which is included in selling and marketing
expenses. In January 2008, BMSMI was acquired by Avista Capital
Partners. Since our agreement requires two years prior written notice
to terminate and we have not received any termination notice from BMSMI, we do
not expect any disruption in BMSMI’s performance of its obligations under our
agreement for 2008 and 2009. We currently have no alternative
manufacturer or supplier for QUADRAMET and any of its components.
The two
primary components of QUADRAMET, Samarium-153 and EDTMP, are provided to BMSMI
by outside suppliers. BMSMI obtains its supply of Samarium-153 from a
sole supplier, and EDTMP from another sole supplier. Alternative
sources for these components may not be readily available, and any alternate
suppliers would have to be identified and qualified, subject to all applicable
regulatory guidelines. If BMSMI cannot obtain sufficient quantities
of these components on commercially reasonable terms, or in a timely manner, it
would be unable to manufacture QUADRAMET on a timely and cost-effective
basis.
8. LAUREATE
PHARMA, L.P.
In
September 2004, the Company entered into a non-exclusive manufacturing agreement
with Laureate Pharma, L.P. pursuant to which Laureate manufactured PROSTASCINT
and its primary raw materials for Cytogen in Laureate's Princeton, New Jersey
facility. Laureate is the sole manufacturer of PROSTASCINT and its
antibodies. The agreement was terminated upon Laureate's completion
of the specified production campaign for POSTASCINT and shipment of the
resulting products from Laureate's facility. Under the terms of the
agreement, the Company incurred $35,000 and $1.8 million for the years ended
December 31, 2006 and 2005, respectively, all of which were recorded as
inventory when purchased.
In
September 2006, we entered into a new non-exclusive manufacturing agreement with
Laureate pursuant to which Laureate shall manufacture PROSTASCINT and its
primary raw materials for Cytogen in Laureate's Princeton, New Jersey facility.
The agreement was scheduled to terminate, unless terminated earlier pursuant to
its terms, upon Laureate's completion of the specified production campaign for
PROSTASCINT and shipment of the resulting products from Laureate's
facility. Under the terms of the agreement, we anticipate paying at
least an aggregate of $3.9 million through the end of the term of contract, of
which $3.1 million and $500,000 was incurred in 2007 and 2006, respectively, and
were recorded as inventory when purchased. The original agreement was
extended by amendment through the end of 2007 and subsequently extended through
the end of 2008 by an additional amendment.
|
9.
|
REVENUES
FROM MAJOR CUSTOMERS
|
Revenues
from major customers (greater than 10%) as a percentage of total revenues were
as follows:
|
Year
Ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Cardinal
Health
|
43 | % | 41 | % | 47 | % | ||||||
|
Mallinckrodt
Inc.
|
14 | % | 14 | % | 11 | % | ||||||
Cardinal
Health and Mallinckrodt Inc. distribute PROSTASCINT and
QUADRAMET. Cardinal Health also distributes CAPHOSOL.
As of
December 31, 2007 and 2006, the receivables from the above-mentioned major
customers accounted for 58% and 50%, respectively, of gross accounts
receivable.
10. ACCOUNTS
PAYABLE AND ACCRUED LIABILITIES
Significant
components of the accounts payable and accrued liabilities were as
follows:
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
(All
amounts in thousands)
|
||||||||
|
Accounts
payable
|
$ | 3,110 | $ | 2,199 | ||||
|
Accrued
payroll, sales commission and related expenses
|
1,340 | 1,766 | ||||||
|
Accrued
royalty
expense
|
1,019 | 909 | ||||||
|
Accrued
professional and legal
expenses
|
620 | 806 | ||||||
|
Accrued
research contracts and
materials
|
331 | 467 | ||||||
|
Accrued
manufacturing
costs
|
227 | 170 | ||||||
|
Accrued
marketing
expenses
|
992 | 1,545 | ||||||
|
Liability
to InPharma (see Note
19)
|
— | 1,000 | ||||||
|
Insurance
liability
|
330 | 338 | ||||||
|
Other
accruals
|
521 | 904 | ||||||
| $ | 8,490 | $ | 10,104 | |||||
|
11.
|
LONG-TERM
LIABILITIES
|
Components
of long-term liabilities were as follows:
|
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
(All
amounts in thousands)
|
||||||||
|
Capital
lease
obligations
|
$ | 153 | $ | 123 | ||||
|
Warrant
liabilities
|
995 | 6,464 | ||||||
| 1,148 | 6,587 | |||||||
|
Less:
Current portion of long-term liabilities
|
(87 | ) | (64 | ) | ||||
| $ | 1,061 | $ | 6,523 | |||||
In August
1998, Cytogen received $2.0 million from Elan Corporation, plc ("Elan") in
exchange for a convertible promissory note. The note bore annual
interest of 7%, compounded semi-annually, however, such interest was not payable
in cash but was added to the principal for the first 24 months; thereafter,
interest was payable in cash. The Company recorded $98,000 in
interest expense on this note for 2005. In August 2005, the Company
made a payment of $2.3 million to satisfy its obligations on the $2.0 million
promissory note and $280,000 unpaid accrued interest.
The
Company leases certain equipment under capital lease obligations, which will
expire on various dates through 2010. The leased equipment in the
gross amount of $306,000 and $202,000 at December 31, 2007 and 2006,
respectively, are included in the Property and Equipment in the accompanying
consolidated balance sheet with the related accumulated depreciation of $185,000
and $118,000 at December 31, 2007 and 2006,
respectively. Depreciation of assets held under capital leases is
included with depreciation expense. Payments to be made under capital
lease obligations (including total interest of $17,000) are $99,000 in 2008,
$54,000 in 2009 and $17,000 in 2010. The Company has the option to
purchase the leased equipment at its fair value or for a dollar, depending on
the term of each respective lease.
In July
and August 2005, the Company sold 3,104,380 shares of its common stock and
776,096 warrants to purchase shares of its common stock having an exercise price
of $6.00 per share (see Note 12). These warrants are exercisable
beginning six months and ending ten years after their issuance. The
shares of common stock underlying the warrants were registered under the
Company's existing shelf registration statement. The Company is
required to maintain the effectiveness of the registration statement as long as
any warrants are outstanding.
Under
EITF 00-19, to qualify as permanent equity, the equity derivative must permit
the issuer to settle in unregistered shares. The Company does not
have that ability under the securities purchase agreement for the warrants
issued in July and August 2005 and, as EITF 00-19 considers the ability to keep
a registration statement effective as beyond the Company's control, the warrants
cannot be classified as permanent equity and are instead classified as a
liability in the accompanying consolidated balance sheets. Upon
issuance of the warrants in July
and
August 2005, the Company recorded the warrant liability at its initial fair
value of $3.5 million using the Black-Scholes option-pricing model with the
following assumptions:
|
July
20,
2005
|
August
2,
2005
|
December
31, 2005
|
December
31, 2006
|
December
31, 2007
|
||||||||||||||||
|
Dividend
yield
|
0 | % | 0 | % | 0 | % | 0 | % | 0 | % | ||||||||||
|
Expected
volatility
|
105.27 | % | 105.03 | % | 105.86 | % | 104.00 | % | 89.02 | % | ||||||||||
|
Expected
life
|
10.0
years
|
10.0
years
|
9.6
years
|
8.6
years
|
7.6
years
|
|||||||||||||||
|
Risk-free
interest rate
|
4.25 | % | 4.41 | % | 4.40 | % | 4.77 | % | 4.00 | % | ||||||||||
|
Company
Common Stock Price
|
$ | 4.92 | $ | 5.04 | $ | 2.74 | $ | 2.33 | $ | 0.53 | ||||||||||
In
November 2006, the Company sold to certain institutional investors 7,092,203
shares of its common stock and 3,546,107 warrants to purchase shares
of its common stock with an exercise price of $3.32 per share (see Note
12). These warrants are exercisable beginning six months and ending
five years after their issuance. The warrant agreement contains a
cash settlement feature, which is available to the warrant holders at their
option, upon an acquisition in certain circumstances. As a result,
the warrants cannot be classified as permanent equity and are instead classified
as a liability at their fair value in the accompanying consolidated balance
sheet. Upon issuance of the warrants in November 2006, the Company
recorded the warrant liability at its initial fair value of $5.6 million using
the Black-Scholes option-pricing model with the following
assumptions:
|
November
10, 2006
|
December
31,
2006
|
December
31,
2007
|
||||||||||
|
Dividend
yield
|
0 | % | 0 | % | 0 | % | ||||||
|
Expected
volatility
|
81.11 | % | 80.15 | % | 69.77 | % | ||||||
|
Expected
life
|
5.0
years
|
4.9
years
|
3.9
years
|
|||||||||
|
Risk-free
interest rate
|
4.61 | % | 4.74 | % | 3.33 | % | ||||||
|
Company
Common Stock Price
|
$ | 2.53 | $ | 2.33 | $ | 0.53 | ||||||
In July
2007, the Company sold to certain institutional investors 5,814,600 shares of
its common stock and warrants to purchase 2,907,301 shares of its common stock
with an exercise price of $2.23 per share (see Note 12). The
Company also issued warrants to purchase 348,876 shares of its common stock to
the placement agents, in addition to the cash
compensation. These warrants are exercisable beginning six months
after their issuance and ending five years after they become
exercisable. The warrant agreement contains a cash settlement
feature, which is available to the warrant holders at their option, upon an
acquisition in certain circumstances. As a result, the warrants
cannot be classified as permanent equity and are instead classified as a
liability at their fair value in the accompanying consolidated balance
sheet. Upon issuance of the warrants in July 2007, the Company
recorded the warrant liability at its initial fair value of $3.4 million using
the Black-Scholes option pricing model with the following
assumptions:
|
July
6,
2007
|
December
31, 2007
|
|||||||
|
Dividend
yield
|
0 | % | 0 | % | ||||
|
Expected
volatility
|
78.56 | % | 71.74 | % | ||||
|
Expected
life
|
5.5
years
|
5.0
years
|
||||||
|
Risk-free
interest rate
|
5.17 | % | 3.49 | % | ||||
|
Company
Common Stock Price
|
$ | 1.64 | $ | 0.53 | ||||
Warrants
not qualifying for permanent equity accounting are recorded at fair value and
are remeasured at each reporting date until the warrants are exercised or
expire. Changes in the fair value of the warrants issued in 2005,
2006 and 2007 as described above will be reported in the consolidated statements
of operations as non-operating income or expense. At December 31,
2007, the aggregate fair value of the warrants decreased to $1.0 million, using
the Black-Scholes option pricing model with the respective assumptions in the
preceding tables, from their initial fair value or the fair value at December
31, 2006 as applicable, resulting in a gain of $8.9 million for the year ended
December 31, 2007. At December 31, 2006, the aggregate
fair value of the warrants decreased to $6.5 million, using the Black-Scholes
option pricing model with the respective assumptions in the preceding tables,
from their initial fair value or the fair value at December 31, 2005, as
applicable, resulting in a gain of $1.0 million for the year ended December 31,
2006. At December 31, 2005, the fair value of the warrants decreased
to $1.9 million, from their initial fair value, resulting in a gain of $1.7
million for the year ended December 31, 2005.
In
connection with the sale of Cytogen shares and warrants in November 2006 (see
Note 12), the Company entered into a Registration Rights Agreement with the
investors under which, the Company was obligated to file a registration
statement with the SEC for the resale of Cytogen shares sold to the investors
and shares issuable upon exercise of the warrants within a specified time
period. The Company is also required to use commercially reasonable
efforts to cause the registration to be declared effective by the SEC and to
remain continuously effective until such time when all of the registered shares
are sold or three years from closing date, whichever is earlier. In
the event the Company fails to keep the registration statement effective, the
Company is obligated to pay the investors liquidated damages equal to 1% of the
purchase price paid by the investors ($20 million) for each thirty-day period
that the registration statement is not effective, up to 10%. On
December 28, 2006, the SEC declared the registration statement
effective. The Company concluded that the contingent obligation was
not probable, and therefore no contingent liability was recorded as of December
31, 2007 and 2006.
In
connection with the sale of Cytogen shares and warrants in July 2007 (see Note
12), the Company entered into a Registration Rights Agreement with the investors
under which the Company was obligated to file a registration statement with the
SEC for the resale of Cytogen shares sold to the investors and shares issuable
upon exercise of the warrants within a specified time period. The
Company is also required to use commercially reasonable efforts to cause the
registration to be declared effective by the SEC and to remain continuously
effective until such time when all of the registered shares are sold or two
years from closing date, whichever is earlier. In the event the
Company fails to keep the registration statement effective, the Company is
obligated to pay the investors liquidated damages equal to 1% of the aggregate
purchase price
of $10.1
million for each monthly period that the registration statement is not
effective, up to 10%. On August 22, 2007, the SEC declared the
registration statement effective. The Company concluded that the
contingent obligation was not probable, and therefore no contingent liability
was recorded as of December 31, 2007.
|
12.
|
PREFERRED
STOCK, COMMON STOCK AND WARRANTS
|
On July
6, 2007, the Company sold to certain institutional investors 5,814,600 shares of
its common stock and warrants to purchase 2,907,301 shares of its common stock,
through a private placement offering. The warrants have an exercise
price of $2.23 per share and are exercisable beginning six months after their
issuance and ending five years after they become exercisable. The
warrant agreement contains a cash settlement feature, which is available to the
warrant holders at their option, upon an acquisition in certain
circumstances. As a result, the warrants cannot be classified as
permanent equity and are instead classified as a liability at their fair value
in the accompanying consolidated balance sheet. In exchange for
$1.74, the purchasers received one share of common stock and a warrant to
purchase .5 share of common stock. The offering provided net cash
proceeds of approximately $9.3 million to the Company. The placement
agents in this transaction received (i) a cash fee equal to 6% of the aggregate
gross proceeds and (ii) warrants to purchase 348,876 shares of Cytogen common
stock having an exercise price of $2.23 per share and exercisable beginning six
months after their issuance and ending five years after they become
exercisable. In connection with this sale, the Company entered into a
Registration Rights Agreement with the investors under which the Company was
obligated to file a registration statement with the SEC for the resale of
Cytogen shares sold to the investors and shares issuable upon exercise of the
warrants within a specified time period (see Note 11). The Company is
also required to use commercially reasonable efforts to cause the registration
to be declared effective by the SEC and to remain continuously effective until
such time when all of the registered shares are sold or two years from closing
date, whichever is earlier. In the event the Company fails to keep
the registration statement effective, the Company is obligated to pay the
investors liquidated damages equal to 1% of the aggregate purchase price of
$10.1 million for each monthly period that the registration statement is not
effective, up to 10%. On August 22, 2007, the SEC declared the
registration statement effective.
On June 13, 2007, the Company’s
stockholders approved an amendment to the Company’s Restated Certificate of
Incorporation to increase the total authorized shares of common stock of the
Company from 50,000,000 to 100,000,000 shares.
On
November 10, 2006, the Company sold to certain institutional investors 7,092,203
shares of its common stock and 3,546,107 warrants to purchase shares
of its common stock, through a private placement offering. The
warrants have an exercise price of $3.32 per share and are exercisable beginning
six months and ending five years after their issuance. The warrant
agreement contains a cash settlement feature, which is available to the warrant
holders at their option, upon an acquisition in certain
circumstances. In exchange for $2.82, the purchasers received one
share of common stock and warrants to purchase .5 shares of common
stock. The offering provided net proceeds of approximately $18.4
million to the Company. The placement agents in this transaction
received a fee equal to 7% of the aggregate gross proceeds. In
connection with this sale, the Company entered into a Registration Rights
Agreement with the
investors
under which, the Company was obligated to file a registration statement with the
SEC for the resale of Cytogen shares sold to the investors and shares issuable
upon exercise of the warrants within a specified time period (see Note
11). The Company is also required to use commercially reasonable
efforts to cause the registration to be declared effective by the SEC and to
remain continuously effective until such time when all of the registered shares
are sold or three years from closing date, whichever is earlier. In
the event the Company fails to keep the registration statement effective, the
Company is obligated to pay the investors liquidated damages equal to 1% of the
purchase price paid by the investors ($20 million) for each thirty-day period
that the registration statement is not effective, up to 10%. On
December 28, 2006, the SEC declared the registration statement
effective.
In
December 2005, the Company sold 3,729,556 shares of its common stock and 932,390
warrants to purchase shares of its common stock, through a registered direct
offering. The warrants have an exercise price of $4.25 per share and
are exercisable beginning six months and ending five years after their
issuance. In exchange for $3.56, the purchasers received one share of
common stock and warrants to purchase .25 shares of common stock. The
offering provided net proceeds of approximately $12.5 million to the
Company. The placement agent in this transaction received
compensation consisting of (i) a cash fee equal to 5% of the aggregate gross
proceeds and (ii) warrants to purchase 186,478 shares of Cytogen common stock
having an exercise price of $4.25 per share and exercisable beginning six months
and ending five years after their issuance (see Note 13).
In July
and August 2005, the Company sold 3,104,380 shares of its common stock and
776,096 warrants to purchase shares of its common stock having an exercise price
of $6.00 per share, through a registered direct offering. In exchange
for $4.50, the purchasers received one share of common stock and warrants to
purchase .25 shares of common stock. These warrants are exercisable
beginning six months and ending ten years after their issuance. The
transaction provided net proceeds of approximately $13.9 million to the Company
(see Note 11).
In June
2005, the Company stockholders approved an amendment to the Company's
Certificate of Incorporation to increase the total authorized shares of common
stock of the Company from 25,000,000 to 50,000,000 shares.
In 2005,
the Company issued to certain members of Cytogen's Board of Directors (the
“Board Members”) an aggregate total of 4,000 shares of its common stock as
compensation for their services as directors of the
Company. Excluding non-vested shares (see Note 13), no shares were
issued to the Board Members as compensation in 2007 and 2006.
See Note
3 for information regarding Cytogen common stock issued to the Prostagen
Partners, and Notes 13 for information regarding Cytogen common stock issued to
employees under the stock option and employee stock purchase plans.
The
following table summarizes information about outstanding warrants to purchase
Cytogen common stock at December 31, 2007, including warrants issued to
non-employees (see Note 13):
|
Number
of
Warrants
|
Price
Range
Per
Share
|
Weighted-Average
Exercise Price Per Share
|
Aggregate
Exercise
Price
|
|||||||||||||
|
Balance
at December 31, 2004
|
1,938,122 | $ | 5.65 - $12.80 | $ | 11.24 | $ | 21,775,459 | |||||||||
|
Granted
|
1,894,964 | 4.25 – 6.00 | 4.97 | 9,411,765 | ||||||||||||
|
Exercised
|
(30,000 | ) | 5.65 | 5.65 | (169,500 | ) | ||||||||||
|
Expired
|
— | — | — | — | ||||||||||||
|
Balance
at December 31, 2005
|
3,803,086 | 4.25 – 12.80 | 8.16 | 31,017,724 | ||||||||||||
|
Granted
|
3,546,107 | 3.32 | 3.32 | 11,773,075 | ||||||||||||
|
Exercised
|
— | — | — | — | ||||||||||||
|
Expired
|
(70,000 | ) | 5.65 | 5.65 | (395,500 | ) | ||||||||||
|
Balance
at December 31, 2006
|
7,279,193 | 3.32 – 12.80 | 5.82 | 42,395,299 | ||||||||||||
|
Granted
|
3,256,177 | 2.23 | 2.23 | 7,264,531 | ||||||||||||
|
Exercised
|
— | — | — | — | ||||||||||||
|
Expired
|
— | — | — | — | ||||||||||||
|
Balance
at December 31, 2007
|
10,535,370 | $ | 2.23 - $12.80 | $ | 4.71 | $ | 49,659,830 | |||||||||
|
Exercise
Price
|
Outstanding
Warrants
|
Aggregate
Exercise Price
|
||||||||
| $ | 2.23 | 3,256,177 | $ | 7,264,532 | ||||||
| $ | 3.32 | 3,546,107 | $ | 11,773,075 | ||||||
| $ | 4.25 | 1,118,868 | $ | 4,755,189 | ||||||
| $ | 6.00 | 776,096 | $ | 4,656,576 | ||||||
| $ | 6.91 | 315,790 | $ | 2,182,108 | ||||||
| $ | 10.97 | 250,000 | $ | 2,742,500 | ||||||
| $ | 12.80 | 1,272,332 | $ | 16,285,850 | ||||||
The
warrants exercisable at $10.97 per share and $12.80 per share become
automatically exercised, in full, if the Company's common stock trades for 30
consecutive trading days at 130% of the respective exercise
prices. The warrants outstanding as of December 31, 2007 expire at
various times through August 2015.
At
December 31, 2007, warrants to purchase 10,535,370 shares of Cytogen’s common
stock with exercise prices ranging from $2.23 to $12.80 per share were
exercisable. At December 31, 2006, warrants to purchase 3,733,086
shares of Cytogen's common stock with exercise prices ranging from $4.25 to
$12.80 per share were exercisable. At December 31, 2005,
warrants
to purchase 1,908,122 shares of Cytogen’s common stock with exercise prices
ranging from $5.65 to $12.80 were exercisable.
The Board
of Directors of the Company has the authority, without further action by the
holders of common stock, to issue from time to time, up to 5,400,000 shares of
preferred stock in one or more classes or series, and to fix the rights and
preferences of the preferred stock.
The
Company has implemented a stockholder rights plan by which one preferred stock
purchase right is attached to each share of common stock, as a means to deter
coercive takeover tactics and to prevent an acquirer from gaining control of the
Company without some mechanism to secure a fair price for all of the Company's
stockholders if an acquisition was completed. These rights will be
exercisable if a person or group acquires beneficial ownership of 20% or more of
Cytogen common stock and can be made exercisable by action of the Company's
Board of Directors if a person or group commences a tender offer which would
result in such person or group beneficially owning 20% or more of Cytogen common
stock. Each right will entitle the holder to buy one one-thousandth
of a share of a new series of Cytogen's junior participating preferred stock for
$20. If any person or group becomes the beneficial owner of 20% or
more of Cytogen common stock (with certain limited exceptions), then each right
not owned by the 20% stockholder will entitle its holder to purchase, at the
right's then current exercise price, common shares having a market value of
twice the exercise price. In addition, if after any person has become
a 20% stockholder, the Company is involved in a merger or other business
combination transaction with another person, each right will entitle its holder
(other than the 20% stockholder) to purchase, at the right's then current
exercise price, common shares of the acquiring company having a value of twice
the right's then current exercise price.
|
13.
|
SHARE-BASED
COMPENSATION
|
The
Company has various share-based compensation plans that provide for the issuance
of common stock and incentive and non-qualified stock options to purchase the
Company's common stock to employees, non-employee directors and outside
consultants. These plans are administered by the Compensation
Committee of the Board of Directors (the "Compensation
Committee"). From time to time, the Company may issue warrants to
purchase Cytogen common stock to non-employees, which are outside of the
approved share-based compensation plans, in exchange for goods or
services. The grants, terms and conditions of the warrants must be
approved by the Board of Directors. The Company utilizes newly issued
common shares to satisfy option exercises or upon satisfaction of service
requirement for nonvested shares.
Cytogen
Stock Options
Currently,
the Company has three plans which allow for the issuance of stock options and
other awards: the 2006 Equity Compensation Plan (the "2006 Plan"); the 2004
Stock Incentive Plan (the "2004 Plan"); and the 2004 Non-Employee Director Stock
Incentive Plan (the "2004 Director Plan"). An aggregate of 1,500,000
and 1,200,000 shares of Cytogen common stock have been reserved for issuance
upon the exercise of options or stock awards (as applicable) under the 2006 Plan
and 2004 Plan, respectively. On June 13, 2007, the Company’s
stockholders approved an amendment to the 2004 Directors Plan to increase the
maximum
aggregate
number of shares of common stock available for issuance under such plan from
375,000 to 750,000. The Company has reserved an additional 375,000
shares of its common stock for issuance in connection with such
increase. As of December 31, 2007, the number of remaining options or
stock authorized and available for grant is approximately
658,007. The Company also has certain other option plans, for which
there are options outstanding but no new options can be granted under those
plans. Options shall become exercisable in accordance with such terms
and conditions as may be determined by the Compensation
Committee. Generally, options granted to employees will vest 40%, 30%
and 30% one year, two years and three years after the date of grant,
respectively. Options granted to officers will generally vest
annually one third each year over a three-year period from the date of
grant.
On June
13, 2006, the Company's stockholders approved the 2006 Plan at the 2006 Annual
Meeting of Stockholders. The 2006 Plan provides for the grant of
incentive stock options, nonqualified stock options, stock units, stock awards,
stock appreciation rights and other stock-based awards to the Company's
employees and non-employee directors. Performance-based awards, which
will vest upon the achievement of objective performance goals, may also be
granted under the 2006 Plan. As long as Cytogen common stock is
traded on the NASDAQ National Market, the exercise price of Cytogen stock
options under the 2006 Plan will be equal to the last reported sales price for
Cytogen common stock on the date of grant, unless a higher exercise price is
specified by the Compensation Committee. Except for certain
circumstances, the options will generally expire upon the earlier of ten years
after the date of grant or within a certain period of time after termination of
services as determined by the Compensation Committee. On December 18,
2007, the Company’s Board of Directors approved amendments to the 2006 Plan to
(a) clarify that restricted stock units may be granted under the 2006 Plan; and
(b) increase the maximum number of shares of common stock for which awards may
be granted to any participant per calendar year from 300,000 shares to 650,000
shares.
The 2004
Plan provides for the grant of incentive stock options, non-qualified stock
options or nonvested shares (see below) to the Company's employees, officers,
consultants and advisors. Performance options, which will vest upon
the achievement of certain milestones, may also be granted under the 2004
Plan. The exercise price of Cytogen stock options is equal to the
average of high and low trading prices for Cytogen common stock on the date of
grant, unless a higher exercise price is specified by the Compensation
Committee. Except for certain circumstances, the options will
generally expire upon the earlier of ten years after the date of grant or 90
days after termination of employment. On December 18, 2007, the
Company’s Board of Directors approved an amendment to the 2004 Plan to increase
the maximum number of shares of common stock for which awards may be granted to
any participant per calendar year from 50,000 shares to 400,000
shares.
The 2004
Director Plan provides for the grant of non-qualified stock options and shares
of Cytogen common stock, in certain circumstances, to members of the Company's
Board of Directors who are not employees of the Company. According to
the 2004 Director Plan, each re-elected Director shall automatically receive
options to purchase shares of Cytogen common stock on the day following each
Annual Meeting of Stockholders. Each new Director who is appointed
after the date of the most recent Annual Meeting of Stockholders will receive a
certain number of options, pro-rated for the number of months remaining until
the next Annual Meeting.
The
exercise price of Cytogen stock options is equal to the average of high and low
trading prices for Cytogen common stock on the date of grant. All
options will become exercisable on the first anniversary of the date of grant,
unless options are granted to a Director who has served on the Company's Board
of Directors for at least three years and retires or resigns after reaching 55
years of age. In such case, the options may be exercised in full
regardless of the time lapse since the date of grant and for these options
eligible for this accelerated vesting, the share-based compensation expense is
recognized entirely on the date of grant in accordance with SFAS
123(R). Prior to the adoption of SFAS 123(R), the Company recorded
the compensation expense related to all such awards over the vesting
period. In 2006, $76,000 of compensation expense was recognized for
previous awards that would have been recognized in 2005 had the treatment
required by SFAS 123(R) been applied to awards granted prior the adoption of
SFAS 123(R). Except for certain circumstances, the options will
generally expire upon the earlier of ten years after the date of grant or 90
days after termination date.
A summary
of option activities related to Cytogen stock options other than performance
options, for the year ended December 31, 2007 is as follows:
|
Cytogen
Options Other
than Performance
Options
|
Number
of
Cytogen
Stock
Options
|
Weighted-Average
Exercise
Price
Per
Share
|
Weighted-Average
Remaining Contractual Life
|
Aggregate
Intrinsic Value
|
||||||||||||
|
Balance
at December 31, 2006
|
1,460,519 | $ | 7.14 | 8.12 | $ | 4,000 | ||||||||||
|
Granted
|
1,394,500 | 1.71 | ||||||||||||||
|
Exercised
|
— | — | ||||||||||||||
|
Forfeited
|
(519,330 | ) | 2.95 | |||||||||||||
|
Expired
|
(63,762 | ) | 8.90 | |||||||||||||
|
Balance
at December 31, 2007
|
2,271,927 | $ | 4.71 | 7.45 | $ | — | ||||||||||
|
Exercisable
and expected to vest at December 31, 2007
|
1,941,012 | $ | 5.12 | 8.06 | $ | — | ||||||||||
|
Exercisable
at December 31, 2007
|
961,769 | $ | 8.63 | 4.90 | $ | — | ||||||||||
At
December 31, 2007, the weighted-average exercise price of outstanding,
exercisable and expected to vest and exercisable options each was higher than
the market price of the Company's underlying common share, and as a result, the
aggregate intrinsic value was zero.
A summary
of activities related to performance options for the year ended December 31,
2007 is as follows:
|
Performance
Options
|
Number
of Cytogen Stock Options
|
Weighted-Average
Exercise Price Per Share
|
Weighted-Average
Remaining Contractual Life
|
Aggregate
Intrinsic Value
|
||||||||||||
|
Balance
at December 31, 2006
|
150,000 | $ | 3.54 | 5.97 | — | |||||||||||
|
Granted
|
— | — | ||||||||||||||
|
Exercised
|
— | — | ||||||||||||||
|
Forfeited
|
(100,000 | ) | 3.54 | |||||||||||||
|
Expired
|
— | — | ||||||||||||||
|
Balance
at December 31, 2007
|
50,000 | $ | 3.54 | 0.14 | -- | |||||||||||
|
Exercisable
and expected to vest at December 31, 2007
|
50,000 | $ | 3.54 | 0.14 | -- | |||||||||||
|
Exercisable
at December 31, 2007
|
50,000 | $ | 3.54 | 0.14 | -- | |||||||||||
In 2002,
options to purchase 150,000 shares of Cytogen common stock were granted to a key
employee. These options had three separate and equal tranches which
would vest upon the achievement of certain milestones established by the
Company's Board of Directors. In June 2006, the Board of Directors
determined that one of the performance milestones had been met, and as a result,
approved the vesting of 50,000 performance options. During the year
ended December 31, 2006, the Company recorded $152,000 in general and
administrative expenses, which represent the grant date fair value of the vested
options based on the Black-Scholes option pricing model. The
remaining 100,000 performance options were forfeited in 2007 upon the
resignation of the key employee.
At
December 31, 2007, the weighted-average exercise price of outstanding,
exercisable and expected to vest, and exercisable options each was higher than
the market price of the Company's underlying common share, and as a result, the
aggregate intrinsic value was zero.
Nonvested
Shares
Under the
2004 Plan, the Company may issue nonvested shares to employees, officers,
consultants and advisors. The maximum number of shares authorized for
grant under the 2004 Incentive Plan is 200,000. Generally, the
nonvested shares will vest in installments over three to six year
periods. The Company may also issue stock awards to its employees and
non-employee directors under the 2006 Plan.
A summary
of the Cytogen's nonvested share activities for the year ended December 31, 2007
is as follows:
|
Nonvested
Shares
|
Number
of
Nonvested
Shares
|
Weighted-Average
Grant Date
Fair
Value
|
Weighted-Average
Remaining Vesting Term
|
Aggregate
Intrinsic Value
|
||||||||||||
|
Balance
at December 31, 2006
|
343,900 | $ | 3.65 | 2.56 | $ | 801,000 | ||||||||||
|
Granted
|
615,877 | 0.95 | ||||||||||||||
|
Vested
|
(22,165 | ) | 3.47 | |||||||||||||
|
Forfeited
|
(234,334 | ) | 3.33 | |||||||||||||
|
Balance
at December 31, 2007
|
703,278 | $ | 1.39 | 5.72 | $ | 373,000 | ||||||||||
|
Vested
and expected to vest at December 31, 2007
|
269,534 | $ | 2.73 | 1.47 | $ | 143,000 | ||||||||||
|
Vested
at December 31, 2007
|
— | — | — | — | ||||||||||||
The table above includes 350,877
restricted stock units (RSU’s) which were granted to a key employee upon hire in
2007 and will vest, either in full or a portion thereof upon the achievement of
certain milestones established by the Company’s Board of Directors.
Employee
Stock Purchase Plan
In
September 2005, the Board of Directors of the Company adopted the 2005 Employee
Stock Purchase Plan (the "2005 ESPP"). The 2005 ESPP, which was
approved by the Company's stockholders on June 13, 2006, is effective October 1,
2005, and replaces the Company's existing employee stock purchase plan which had
no remaining shares available for future issuance. Under the 2005
ESPP, eligible employees may elect to purchase shares of Cytogen common stock at
85% of the lower of fair value as of the first or last trading day of each
participation period. Under the 2005 ESPP, officers of the Company
who purchase shares may not transfer such shares for a period of 12 months after
the purchase date. The initial offering period was a nine-month
period beginning on October 1, 2005 and ending on June 30,
2006. Subsequent purchase periods will be three-month periods
beginning on the first day in July, October, January and April. The
Company has reserved 500,000 shares of common stock for future issuance under
the 2005 ESPP. The 2005 ESPP plan is compensatory under SFAS
123(R). In the year ended December 31, 2007 and 2006, employees
purchased 128,440 and 39,666 shares of common stock, respectively, for aggregate
proceeds to the Company of $108,000 and $82,000, respectively. At
December 31, 2007, 331,894 shares remain available for purchase under the 2005
ESPP.
Warrants
and Options Issued to Non-Employees
From time
to time, the Company may issue warrants and options to purchase Cytogen common
stock to non-employees, excluding directors, in exchange for goods or
services. Warrants are issued outside of any approved compensation
plans. Terms of warrants and options vary among various arrangements,
with vesting period generally up to one year and may require exercise if certain
conditions are met. Contractual term ranges up to ten
years.
A summary
of the Cytogen warrants and options issued to non-employees for the year
ended December 31, 2007 is as follows:
|
Warrants
and Options to Non-Employees
|
Number
of Cytogen Warrants and Options
|
Weighted-Average
Exercise Price Per Share
|
Weighted-Average
Remaining Contractual Life
|
Aggregate
Intrinsic Value
|
||||||||||||
|
Balance
at December 31, 2006
|
289,978 | $ | 7.27 | 3.09 | — | |||||||||||
|
Granted
|
348,876 | 2.23 | ||||||||||||||
|
Exercised
|
— | — | ||||||||||||||
|
Forfeited
|
— | — | ||||||||||||||
|
Expired
|
— | — | ||||||||||||||
|
Balance
at December 31, 2007
|
638,854 | $ | 4.52 | 3.68 | — | |||||||||||
|
Exercisable
and expected to vest at December 31, 2007
|
638,854 | $ | 4.52 | 3.68 | — | |||||||||||
|
Exercisable
at December 31, 2007
|
638,854 | $ | 4.52 | 3.68 | — | |||||||||||
Included
in the table above are warrants issued to placement agents in connection to the
Company’s sale of equity in July 2007. These warrants contain a cash
settlement feature, which is available to the warrant holders at their option,
upon an acquisition in certain circumstances. As a result, the
warrants cannot be classified as permanent equity and are instead classified as
a liability at their fair value in the accompanying consolidated balance sheet
(see Notes 11 and 12).
At
December 31, 2007, the weighted-average exercise price of outstanding,
exercisable and expected to vest, and exercisable warrants each was higher than
the market price of the Company's underlying common share, and as a result, the
aggregate intrinsic value was zero.
AxCell
BioSciences Stock Options
AxCell
BioSciences, a non-publicly traded subsidiary of Cytogen Corporation, also has a
stock option plan that provides for the issuance of incentive and non-qualified
stock options to purchase AxCell common stock ("AxCell Stock Options") to
employees, for which 2,000,000 shares of AxCell common stock have been
reserved. AxCell Stock Options are granted with a
term of
10 years and generally become exercisable in installments over periods of up to
five years.
A summary
of AxCell stock option activities for the year ended December 31, 2007 is as
follows:
|
AxCell
Stock Options
|
Number
of AxCell Stock
Options
|
Weighted-Average
Exercise Price
|
Weighted-Average
Remaining Contractual Term
|
|||||||||
|
Balance
at December 31, 2006
|
50,000 | $ | 4.63 | 5.33 | ||||||||
|
Granted
|
— | — | ||||||||||
|
Exercised
|
— | — | ||||||||||
|
Forfeited
|
— | — | ||||||||||
|
Expired
|
— | — | ||||||||||
|
Balance
at December 31, 2007
|
50,000 | $ | 4.63 | 0.14 | ||||||||
|
Exercisable
and expected to vest at December 31, 2007
|
50,000 | $ | 4.63 | 0.14 | ||||||||
|
Exercisable
at December 31, 2007
|
50,000 | $ | 4.63 | 0.14 | ||||||||
AxCell is
not a publicly traded subsidiary. While there was not a readily
available market price for AxCell's underlying common share at December 31,
2007, the Company estimated that its fair value was less than the exercise
price, and as a result, the aggregate intrinsic value was zero.
Adoption
of SFAS No. 123(R)
Effective
January 1, 2006, the Company adopted SFAS No. 123(R) which requires companies to
measure and recognize compensation expense for all share-based payments at fair
value. Prior to the adoption of SFAS 123(R), the Company accounted
for its stock-based employee compensation expense under the recognition and
measurement principles of APB 25, and related interpretations. Under
APB 25, compensation costs related to stock options granted with exercise prices
equal to or greater than the fair value of the underlying shares at the date of
grant under those plans were not recognized in the consolidated statements of
operations. Compensation costs related to nonvested shares and stock
options granted with exercise prices below fair value of the underlying shares
at the date of grant were recognized in the consolidated statements of
operations over the requisite service period, generally the vesting periods of
the awards. Compensation costs associated with those awards granted
prior to the adoption of SFAS 123(R) were recognized using the accelerated
attribution method in accordance with FIN 28 and forfeitures were recorded as
incurred. The following table illustrates the effect on net loss and
net loss per share as if the fair value method under SFAS 123 had been
applied for the year ended December 31, 2005 (all amounts in thousands, except
per share data):
|
Year
Ended
December
31,
|
||||
|
2005
|
||||
|
Net
loss, as
reported
|
$ | (26,289 | ) | |
|
Add:
Stock-based employee compensation expense included in reported net
loss
|
111 | |||
|
Deduct:
Total stock-based employee compensation expense determined under fair
value-based method for all awards
|
(1,894 | ) | ||
|
Pro
forma net
loss
|
$ | (28,072 | ) | |
|
Basic
and diluted net loss per share, as reported
|
$ | (1.54 | ) | |
|
Pro
forma basic and diluted net loss per share
|
$ | (1.64 | ) | |
The
Company adopted SFAS No. 123(R) using the modified prospective transition
method, which requires that share-based compensation cost be based on the
grant-date fair value estimated in accordance with the provisions of SFAS 123(R)
and is recognized for all awards granted, modified or settled after the
effective date as well as awards granted to employees prior to the effective
date that remain unvested as of the effective date.
For the
years ended December 31, 2007 and 2006, the Company recorded share-based
compensation expenses as follows (all amounts in thousands):
|
Year
Ended
December
31,
|
||||||||
|
2007
|
2006
|
|||||||
|
Selling,
general and administrative
|
$ | 1,134 | $ | 1,625 | ||||
|
Research
and development
|
191 | 252 | ||||||
| $ | 1,325 | $ | 1,877 | |||||
For
the years ended December 31, 2007 and 2006, $3,000 and $0 of compensation costs,
respectively, were capitalized to inventory. In 2005, the Company
recorded a charge of $111,000 for share-based compensation in accordance with
APB25. There were no modification charges related to the share-based
awards in 2007, 2006 or 2005.
The
adoption of SFAS 123(R) resulted in higher net loss of $1.1 million or $0.03 per
basic and diluted share for 2007 and $1.6 million or $0.07 per basic and diluted
share for 2006, than if the Company had continued to account for the share-based
compensation under APB 25. At December 31, 2007 and 2006,
unrecognized compensation expense, which includes the impact of estimated
forfeitures, related to unvested awards granted under the Company's share-based
compensation plans is approximately $2.1 million and $2.3 million, respectively,
and remains to be recognized over a weighted average period of 1.1 years and 1.3
years, respectively. The Company recognizes share-based compensation on a
straight-line basis over the requisite
service
period for grants on or after January 1, 2006, however, the cumulative amount of
compensation expense recognized at any point in time for an award cannot be less
than the portion of the grant date fair value of the award that is vested at
that date. Unrecognized compensation expense related to grants made
prior to adoption of SFAS 123(R) are recognized using the accelerated
amortization method. Prior periods were not restated to reflect the
impact of adopting the new standard. No cumulative effect adjustment
was recorded for the accounting change related to recording actual forfeitures
as incurred under APB 25 to estimating forfeitures in accordance with SFAS
123(R) as the amount was de minimus.
The
Company's share-based compensation costs are generally based on the fair value
of the option awards calculated using the Black-Scholes option pricing model on
the date of grant. The weighted-average fair value per share of the
options granted under the Cytogen stock option plans during 2007, 2006 and 2005
is estimated at $1.26, $2.59 and $3.67 per share, respectively, on the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions for 2007, 2006 and 2005:
|
Valuation
Assumptions
|
2007
|
2006
|
2005
|
|||||||||
|
Dividend
yield
|
0 | % | 0 | % | 0 | % | ||||||
|
Expected
volatility
|
83 | % | 96 | % | 96 | % | ||||||
|
Risk-free
interest
rate
|
4.51 | % | 4.88 | % | 3.97 | % | ||||||
|
Expected
life
|
6.2
yrs
|
6.4
yrs
|
4.6
yrs
|
|||||||||
The
compensation costs for nonvested share awards are based on the fair value of
Cytogen common stock on the date of grant. The weighted-average grant
date fair value per share of nonvested share awards granted during 2007, 2006
and 2005 was $1.34, $3.00 and $5.15, respectively.
The
weighted-average fair value per share ascribed to the shares purchased under the
employee stock purchase plan during 2007, 2006 and 2005 is estimated at $0.42,
$0.57 and $3.35 per share, respectively, on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions for 2007, 2006 and 2005:
|
Valuation
Assumptions
|
2007
|
2006
|
2005
|
|||||||||
|
Dividend
yield
|
0 | % | 0 | % | 0 | % | ||||||
|
Expected
volatility
|
73 | % | 44 | % | 112 | % | ||||||
|
Risk-free
interest
rate
|
4.46 | % | 4.91 | % | 2.71 | % | ||||||
|
Expected
life
|
3
months
|
2
months
|
3
months
|
|||||||||
The
weighted-average fair value per share of the warrants granted to non-employees
in exchange for services during 2007 and 2005 is estimated at $1.05 and $2.30
per share, respectively, on the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions for 2007 and
2005:
|
Valuation
Assumptions
|
2007
|
2005
|
||||||
|
Dividend
yield
|
0 | % | 0 | % | ||||
|
Expected
volatility
|
79 | % | 93 | % | ||||
|
Risk-free
interest
rate
|
5.17 | % | 4.43 | % | ||||
|
Expected
life
|
5.5
yrs
|
5
yrs
|
||||||
For
warrants issued to placement agents in exchange for their services in connection
with the July 2007 financing (see Note 12), the Company allocated the
$365,000 of related compensation cost between common stock and warrants issued
to the investors based on their relative fair values. As a result,
$110,000 was charged to general and administrative expense in 2007 for cost
related to the issuance of warrant liabilities and the remaining $255,000 was
netted against the proceeds received from the sale of common
stock. The Company recognized the compensation charge of $430,000 for
the warrants issued to the placement agents in 2005 as transaction costs and
netted it against the proceeds received from the 2005 financing transaction (see
Note 12). No warrants were granted to non employees in exchange for
services during 2006.
Because
the Company has never declared cash dividends and has no intention to declare
cash dividends in the near future, an expected dividend yield of zero is
used. The Company calculates expected volatility for stock-based
awards using historical volatility, measured over a period equal to the expected
term of the award, which it believes is a reasonable estimate of future
volatility. The Company bases the risk-free interest rate on the
implied yield available on U.S. Treasury zero-coupon issues with the remaining
term equal to the expected term used.
In 2005,
the Company determined the expected term of an award by analyzing historical
exercise experience and post-vesting employment termination behavior from its
history of grants and exercises. In 2007 and 2006, the Company
calculates the expected life using the simplified method as described in the
SEC's Staff Accounting Bulletin No. 107 ("SAB 107") for "plain vanilla" options
meeting certain criteria. The simplified method is based on the
vesting period and the contractual term for each grant or each vesting-tranche
of awards with graded vesting. The mid-point between the vesting date
and the expiration date is used as the expected term under this
method. As options granted to the Board of Director members do not
meet the criteria of "plain vanilla" options, the Company determines the
expected term for these options by analyzing the historical exercise experience
and post-vesting termination behaviors. The Company believes the
result is a reasonable estimate of the length of time that the options are
expected to be outstanding.
In
addition, under SFAS 123(R), the Company is required to estimate expected
forfeitures of options and stock grants over the requisite service period and
adjust shared-based compensation accordingly. The estimate of
forfeitures will be adjusted over the requisite service period to the extent
that actual forfeitures differ, or are expected to differ, from such
estimates.
The
cumulative effect of changes in estimated forfeitures will be recognized in the
period of change and will also impact the amount of stock compensation expense
to be recognized in future periods. Under the provisions of SFAS
123(R), the Company will record additional expense if the actual forfeiture rate
is lower than what had been estimated and the Company will record a recovery of
prior expense if the actual forfeiture rate is higher than what had been
estimated.
During
2007, 22,165 nonvested shares became vested and shares were deemed issued upon
vesting. There was no vesting of nonvested shares in 2006 and
2005. There were no option exercises in 2007 and
2006. Total intrinsic value was $2,000 for options exercised in
2005. Cash received from the option exercises in 2005 was
$7,000.
|
14.
|
RETIREMENT
SAVINGS PLAN
|
The
Company maintains a defined contribution 401(k) plan for its
employees. The contribution is determined by the Board of Directors
and is based upon a percentage of gross wages of eligible
employees. The plan provides for vesting over four years, with credit
given for prior service. The Company also makes contributions in cash
or its common stock, at the Company's discretion, under the 401(k) plan in
amounts which match up to 50% of the salary deferred by the participants up to
6% of total salary. Total expense related to the 401(k) contributions
was $177,000, $223,000 and $164,000 for 2007, 2006 and 2005,
respectively. All contributions were made in cash.
|
15.
|
INCOME
TAXES
|
As of
December 31, 2007, Cytogen had federal and state net operating loss
carryforwards of approximately $323.5 million and $238.2
million, respectively. The Company also had federal and state
research and development tax credit carryforwards of approximately $3.6 million
and $441,000, respectively. These net operating loss and credit
carryforwards have begun to expire and will continue to expire through
2027.
The Tax
Reform Act of 1986 contains provisions that limit the utilization of net
operating loss and tax credit carryforwards if there has been an "ownership
change". Such an "ownership change", as described in Section 382 and
383 of the Internal Revenue Code, can significantly limit the Company's
utilization of its net operating loss and tax credit
carryforwards. Additionally, various states have similar limitations
on utilization of certain state net operating loss and credit carryforwards that
may limit the Company's ability to realize the benefits of these
carryforwards.
Deferred
income taxes reflect the net tax effect of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amount used for income tax purposes. During 2007 and 2006, there
were decreases of $4.8 million and $1.1 million, respectively, in the valuation
allowance due primarily to the expiration of federal and state net operating
loss carryforwards. During 2005 there was an increase of $4.3 million
in the valuation allowance due to the Company's loss history, and uncertainty
regarding the realization of deferred tax assets. The increase to the
valuation allowance reduced the actual benefit to
$256,000
in 2005 which amount was related to the sale of New Jersey state operating loss
carryforwards. The Company did not sell any New Jersey state net
operating loss carryforwards in 2007 and 2006. Deferred tax assets
have been fully reserved as of December 31, 2007 and 2006.
|
2007
|
2006
|
|||||||
|
(All
amounts in thousands)
|
||||||||
|
Deferred
tax assets:
|
||||||||
|
Net
operating loss carryforwards
|
$ | 123,391 | $ | 117,533 | ||||
|
Capitalized
research and development expenses
|
1,227 | 1,461 | ||||||
|
Research
and development and state tax
Credits
|
4,278 | 5,023 | ||||||
|
Acquisition
of in-process technology
|
493 | 613 | ||||||
|
Other,
net
|
2,259 | 7,040 | ||||||
|
Total
deferred tax
assets
|
131,648 | 131,670 | ||||||
|
Valuation
allowance
|
(126,841 | ) | (131,670 | ) | ||||
|
Net
deferred tax
assets
|
4,807 | — | ||||||
|
Deferred
tax liabilities:
|
||||||||
|
Other
|
(4,807 | ) | — | |||||
|
Net
deferred tax
assets
|
$ | — | $ | — | ||||
The
effective income tax rate for the Company's continuing operations differs from
the statutory tax rate as follows:
|
2007
|
2006
|
2005
|
||||||||||
|
Federal
statutory income tax rate
|
34.0 | % | 34.0 | % | 34.0 | % | ||||||
|
Increase
in valuation allowance
|
(23.0 | %) | (29.4 | %) | (29.9 | %) | ||||||
|
Sale
of New Jersey net operating loss carryforwards
|
— | % | — | % | 1.0 | % | ||||||
|
Other
|
(11.0 | %) | (4.6 | %) | (4.1 | %) | ||||||
|
Effective income tax
rate
|
— | % | — | % | 1.0 | % | ||||||
During
2005, the Company sold New Jersey state operating loss carryforwards, resulting
in the recognition of $256,000 of income tax benefit.
In July
2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48), which is applicable for fiscal years beginning after
December 15, 2006. FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in an enterprise's financial statements in accordance with SFAS
No. 109, Accounting for Income
Taxes. FIN 48 prescribes a recognition threshold and measurement for
financial statement recognition and measurement of a tax position reported or
expected to be reported on a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. The Company adopted the provisions of
FIN 48 on
January 1, 2007. Adoption of FIN 48 had no impact on the Company's
consolidated results of operations and financial position.
The
Company and its subsidiaries file income tax returns in the U.S. federal
jurisdiction and in various states. The Company has tax net operating
loss and credit carryforwards that are subject to examination for a number of
years beyond the year in which they are utilized for tax purposes. Since a
portion of these carryforwards may be utilized in the future, many of these
attribute carryforwards will remain subject to examination.
The Company's
policy is to record interest and penalties on uncertain tax positions as income
tax expense. At December 31, 2007, the Company has no uncertain tax
positions, and no amounts recorded for interest or penalties included in the
financial statements.
The Company
does not anticipate any events in the next 12-month period that would require it
to record a liability related to any uncertain income tax positions as
prescribed by FIN 48.
|
16.
|
COMMITMENTS
AND CONTINGENCIES
|
The
Company leases its facilities under a non-cancelable operating lease that
expires in October 2009. Rent expense on this lease was $325,000,
$320,000 and $351,000 in 2007, 2006 and 2005, respectively. Minimum
future obligation under the operating lease is $620,000 as of December 31, 2007
and will be paid as follows: $338,000 in 2008 and $282,000 in
2009. The Company also leases certain equipment under capital leases
(see Note 11).
The
Company is obligated to make minimum future payments under contracts for
research and development, marketing, investor relations, consulting and other
supporting services that expire at various times. As of December 31,
2007, the minimum future payments under these contracts are $3.8 million and
will be paid as follows: $2.5 million in 2008, $452,000 in 2009, $311,000 in
2010, $75,000 each year from 2011 to 2017, and $31,000 in 2018. In
addition, under the BMSMI agreement which will expire in December 31, 2008 and
will automatically renew for five successive one-year periods unless terminated
by BMSMI or Cytogen on two year prior written notice, the Company is obligated
to pay at least $5.1 million annually, subject to future annual price
adjustment. The Company has not neither terminated this agreement nor
received any termination notice from BMSMI. The Company may terminate
this agreement on two years prior written notice (see Note 7). The
Company is also obligated to pay milestone payments upon achievement of certain
milestones and royalties on revenues from commercial product sales including
certain guaranteed minimum payments. Such obligations include
payments to Dow (see Note 5), Berlex Laboratories (see Note 6) and InPharma (see
Note 19).
Each of
the Company's executive officers is currently party to an Executive Change of
Control Severance Agreement with the Company. Such agreements
provide, generally, for the payment of twelve months base salary, a pro rata
portion of such officer's bonus compensation, the continuation of all benefits,
reasonable Company-paid outplacement assistance and certain
other
accrued rights, in the event such officer's employment with the Company is
terminated in connection with certain changes in control.
In the
ordinary course of business, the Company enters into agreements with third
parties that include indemnification provisions which, in its judgment, are
normal and customary for companies in its industry sector. These
agreements are typically with business partners, clinical sites, and
suppliers. Pursuant to these agreements, the Company generally agrees
to indemnify, hold harmless and reimburse the indemnified parties for losses
suffered or incurred by the indemnified parties with respect to the Company's
products or product candidates, use of such products or other actions taken or
omitted by the Company. The maximum potential amount of future
payments the Company could be required to make under these indemnification
provisions is unlimited. The Company has not incurred material costs
to defend lawsuits or settle claims related to these indemnification
provisions. The current estimated liabilities relating to this
provision are minimal. Accordingly, the Company has no liabilities
recorded for these provisions as of December 31, 2007 and 2006.
17. SAVIENT
PHARMACEUTICALS, INC.
On April
21, 2006, the Company and Savient entered into a distribution agreement granting
the Company exclusive marketing rights for SOLTAMOX in the United
States. SOLTAMOX, a cytostatic estrogen receptor antagonist, is the
first oral liquid hormonal therapy approved in the U.S. It is
indicated for the treatment of breast cancer in adjuvant and metastatic settings
and to reduce the risk of breast cancer in women with ductal carcinoma in situ
(DCIS) or with high risk of breast cancer. The Company introduced
SOLTAMOX to the U.S. oncology market in the second half of 2006.
In
addition, the Company entered into a supply agreement with Savient and Rosemont
previously a wholly-owned subsidiary of Savient, for the manufacture and supply
of SOLTAMOX. Cytogen's agreements with Savient were subsequently
assigned to Rosemont by Savient. Under the terms of the final
transaction, the Company paid Savient an up-front licensing fee of $2.0 million
and would have had to pay additional contingent sales-based payments of up to a
total of $4.0 million to Savient and Rosemont. The Company was
required to pay Rosemont royalties on net sales of
SOLTAMOX. Beginning in 2007, Cytogen was obligated to
pay Rosemont quarterly minimum royalties based on an agreed upon percentage
of total tamoxifen prescriptions in the United States. Royalty
expenses were $209,000 and $111,000 in 2007 and 2006,
respectively. As a result of limited end-user demand and the
Company’s reallocation of resources to its other products, effective January 1,
2008, the Company ceased selling and marketing
SOLTAMOX. The Company has reached a tentative agreement with Rosemont
to early terminate the distribution and supply agreements including the minimum
royalty obligations. For the year ended December 31,
2007, the Company recorded a charge of $125,000 in cost
of product revenue, which represents the maximum financial obligation
to Rosemont for minimum royalties.
The
up-front license payment of $2.0 million was capitalized as SOLTAMOX license fee
in the accompanying consolidated balance sheet and was amortized on a
straight-line basis over approximately twelve years, the estimated performance
period of the agreement. The
amortization
expense for 2007 and 2006 was $123,000 and $110,000, respectively,
and is recorded as cost of product revenue (see Note 1).
The
Company assesses the carrying value of its intangible assets when circumstances
indicate that the carrying amount of the underlying asset may not be
recoverable. Due to limited end-user demand, uncertainty regarding future market
penetration, the decision in the third quarter of 2007 to
reallocate sales and marketing resources to other products, and inventory
dating issues, the Company assessed the recoverability of the carrying amount of
its SOLTAMOX license and determined an impairment existed as of September 30,
2007. Accordingly, during the third quarter of 2007, Cytogen recorded a non-cash
impairment charge of approximately $1.8 million to write-down this asset to
zero. In addition, the Company recorded a charge in the amount of
$298,000 in 2007 to fully reserve SOLTAMOX inventory.
18. HOLOPACK
VERPACKUNGSTECHNIK GMBH
In
February 2007, the Company entered into a non-exclusive manufacturing agreement
with Holopack Verpackungstechnik GmbH for the manufacture of
CAPHOSOL. The agreement has a term of two years and automatically
renews for an additional year. The agreement is terminable by
Holopack or the Company with three months notice prior to the end of each term
period.
19. INPHARMA
AS
On
October 11, 2006, the Company and InPharma entered into a Product License and
Assignment Agreement (the “License Agreement”) granting the Company exclusive
rights for CAPHOSOL in North America and options to license the marketing rights
for CAPHOSOL in Europe and Asia. Approved as a prescription medical
device, CAPHOSOL is a topical oral agent indicated in the United States as an
adjunct to standard oral care in treating oral mucositis caused by radiation or
high dose chemotherapy. CAPHOSOL is also indicated for dryness of the
mouth (hyposalivation) or dryness of the throat (xerostomia) regardless of the
cause or whether the conditions are temporary or permanent. Under the
terms of the Agreement, the Company is obligated to pay InPharma $6.0 million in
aggregate up-front fees, of which $4.6 million was paid upon the execution of
the agreement, $1.2 million in 2007 and $200,000 will be paid in October 2008
provided there are no indemnification claims by the Company. In
addition, the Company is obligated to pay InPharma royalties based on a
percentage of net sales. For the year ended December 31, 2007, the
Company recorded $185,000 in royalty expense. The Company
is also obligated to pay future payments of up to an aggregate of $49.0 million
to InPharma based upon the achievement of certain sales-based milestones and a
finder's fee based upon a percentage of milestone payments paid to
InPharma.
In the
event the Company exercises the options to license marketing rights for CAPHOSOL
in Europe and Asia, the Company is obligated to pay InPharma additional fees and
payments, including sales-based milestone payments for the respective
territories.
The
Company is required to obtain consents from certain licensors but not InPharma,
if the Company sublicenses the rights to market CAPHOSOL in Europe and Asia to
other parties. The Company is also required to pay those licensors royalties
based on a percentage of net sales in Europe and Asia, if
exercised.
On August
30, 2007, the Company and InPharma executed Amendment No.1 to the License
Agreement to restructure the amounts payable by the Company upon the exercise of
the option for the European marketing rights. On February 14, 2008,
the Company and InPharma executed Amendment No. 2 to the License Agreement to
restructure the amounts payable by Cytogen in connection with the exercise of
the option for the European and Asian marketing rights, including milestone
payments and royalties based on sales levels in North
America. Pursuant to the merger agreement between the Company and
EUSA, dated March 10, 2008 (see Note 21), EUSA will sublicense the marketing
rights to Europe and Asia, subject to the approvals of certain other licensors
and not InPharma.
Based on
the relative fair value of the assets acquired, the Company allocated the
up-front fees and related transaction costs as follows: $4.2 million to CAPHOSOL
marketing rights in North America which excludes a $400,000 payment, contingent
upon certain conditions, $1.7 million to the option to license the product
rights in Europe and $162,000 to the option to license the product rights in
Asia. In October 2007, the Company paid one half of the contingent
payment or $200,000 to InPharma with the remaining balance to be paid in October
2008 upon certain conditions. Such payment was added to the cost of
Caphosol marketing rights in North America. The allocated license fee
for North America was capitalized as CAPHOSOL license fee in the accompanying
consolidated balance sheet and is being amortized on a straight-line basis over
approximately eleven years, which is the estimated performance period of the
agreement. The amortization expense in 2007 and 2006 was $383,000 and
$98,000, respectively, and is recorded as cost of product
revenue. The allocated option fee for Europe is recorded as other
assets and will be transferred to the appropriate asset account if
exercised. The Company periodically evaluates the option value for
impairment by assessing, among other things, its intent and ability to exercise
the option, the option expiry date and the market and product
competitiveness. The allocated option fee for Asia is charged to
research and development expense in the accompanying consolidated statement of
operations, because the product was not approved in Asia at the time of purchase
and there was no future alternative uses for the asset.
|
20.
|
LITIGATION
AND RELATED MATTERS
|
In
December 2005, Trapezoid Healthcare Communications LLC filed a complaint against
the Company in the Superior Court of New Jersey, Law Division, Mercer County,
seeking approximately $426,000 in damages arising from the Company's alleged
failure to pay Trapezoid for marketing services allegedly provided to the
Company. On May 22, 2006, the Company settled this matter for
$365,000, without any admission of fault or liability. The Company had
previously established a reserve for the full amount of this claim in
2005.
In
January 2006, the Company filed a complaint against Advanced Magnetics in the
Massachusetts Superior Court for breach of contract, fraud, unjust enrichment,
and breach of the implied covenant of good faith and fair dealing in connection
with the parties' 2000 license
agreement. The
complaint sought damages along with a request for specific performance requiring
Advanced Magnetics to take all reasonable steps to secure FDA approval of
COMBIDEX in compliance with the terms of the licensing agreement. In
February 2006, Advanced Magnetics filed an answer to the Company's complaint and
asserted various counterclaims, including tortuous interference, defamation,
consumer fraud and abuse of process. In February 2007, the Company
settled its lawsuit against Advanced Magnetics, as well as Advanced Magnetics'
counterclaims against Cytogen, by mutual agreement. Under
the terms of the settlement agreement, Advanced Magnetics paid $4 million to the
Company and released 50,000 shares of Cytogen common stock held in
escrow. In addition, both parties agreed to early termination of the
licensing agreement that would have expired in August 2010. As a
result of the settlement, the Company recorded a gain of $3.9 million, net of
transaction costs in 2007.
On
November 7, 2007, Eastern Virginia Medical School (“EVMS”) filed
a complaint against the Company in the United States District Court for the
Eastern District of Virginia. In the complaint, EVMS purports that
the Company’s PROSTASCINT product infringes a patent owned by EVMS and
previously licensed to the Company under an agreement between EVMS and the
Company entered into in 1991. The Company is investigating the merits
of these claims and intends to conduct a vigorous defense of such claims, if
appropriate. In February 2008, the parties executed a non-binding
term sheet setting forth mutually acceptable terms for settlement of the pending
litigation between the parties. Pursuant to the term sheet, Cytogen
and EVMS are currently working toward finalizing and executing a settlement
agreement, as well as a new license agreement. For the year ended
December 31, 2007, the Company recorded an estimate settlement amount of
$100,000 in cost of product revenue which represents the maximum obligation
related to this settlement.
In
addition, the Company is, from time to time, subject to claims and suits arising
in the ordinary course of business. In the opinion of management, the
ultimate resolution of any such current matters would not have a material effect
on the Company's financial condition, results of operations or
liquidity.
21. SUBSEQUENT
EVENT
On March
11, 2008, the Company announced that it has entered into a definitive merger
agreement with EUSA Pharma Inc., pursuant to which all outstanding shares of the
Company will be converted into $0.62 per share in cash, which represents a
premium of approximately 35% over the closing price of $0.46 on March 10,
2008. If, at closing of the merger, there are additional shares of
the Company’s common stock issued and outstanding which cause the total merger
consideration to exceed $22.6 million, then the per share merger consideration
may be reduced
accordingly so that such maximum aggregate merger consideration does not exceed
$22.6 million. EUSA Pharma is a transatlantic specialty
pharmaceutical company focused on oncology, pain control and critical
care.
Closing
of the merger is conditioned on, among other things, the receipt of approval by
holders of a majority of the outstanding shares of Cytogen’s common stock, and
the parties entrance into a sublicense agreement for the European and Asian
rights to the Company’s Caphosol product. It is also subject to
certain regulatory review and other customary closing conditions. The
transaction is expected to close in the second quarter of 2008. Upon
closing of the merger, EUSA Pharma intends to apply to delist all of Cytogen’s
issued shares from the NASDAQ Stock Market.
|
22.
|
CONSOLIDATED
QUARTERLY FINANCIAL DATA -
UNAUDITED
|
The
following tables provide quarterly data for the years ended December 31, 2007
and 2006.
|
Three
Months Ended
|
||||||||||||||||
|
March
31,
2007
|
June
30,
2007
|
Sept.
30,
2007
|
Dec.
31,
2007
|
|||||||||||||
|
(amounts
in thousands except per share data)
|
||||||||||||||||
|
Total
revenues
|
$ | 4,808 | $ | 5,154 | $ | 5,122 | $ | 5,134 | ||||||||
|
Total
operating
expenses
|
15,047 | 16,831 | 16,037 | 11,842 | ||||||||||||
|
Operating
loss
|
(10,239 | ) | (11,677 | ) | (10,915 | ) | (6,708 | ) | ||||||||
|
Decrease
in value of warrant
liabilities
|
1,095 | 1,020 | 5,536 | 1,224 | ||||||||||||
|
Advanced
Magnetics Inc. litigation settlement, net
|
3,946 | — | — | — | ||||||||||||
|
Other
income,
net
|
366 | 261 | 260 | 139 | ||||||||||||
|
Net
loss
|
$ | (4,832 | ) | $ | (10,396 | ) | $ | (5,119 | ) | $ | (5,345 | ) | ||||
|
Basic
and diluted net loss per
share
|
$ | (0.16 | ) | $ | (0.35 | ) | $ | (0.15 | ) | $ | (0.15 | ) | ||||
|
Weighted-average
common shares outstanding,
basic and diluted
|
29,606 | 29,644 | 35,099 | 35,513 | ||||||||||||
|
Product
related gross
margin
|
$ | 1,904 | $ | 1,995 | $ | 1,946 | $ | 1,314 | ||||||||
|
Three
Months Ended
|
||||||||||||||||
|
March
31,
2006
|
June
30,
2006
|
Sept.
30,
2006
|
Dec.
31,
2006
|
|||||||||||||
|
(amounts
in thousands except per share data)
|
||||||||||||||||
|
Total
revenues
|
$ | 4,442 | $ | 4,172 | $ | 4,172 | $ | 4,521 | ||||||||
|
Total
operating
expenses
|
11,768 | 11,038 | 10,408 | 14,523 | ||||||||||||
|
Operating
loss
|
(7,326 | ) | (6,866 | ) | (6,236 | ) | (10,002 | ) | ||||||||
|
Gain
on sale of equity interest in joint venture
|
— | 12,873 | — | — | ||||||||||||
|
(Increase)
decrease in value of warrant liabilities
|
(631 | ) | 813 | 122 | 735 | |||||||||||
|
Other
(expense) income,
net
|
291 | 386 | 376 | 362 | ||||||||||||
|
Net
income
(loss)
|
$ | (7,666 | ) | $ | 7,206 | $ | (5,738 | ) | $ | (8,905 | ) | |||||
|
Basic
and diluted net income (loss) per share
|
$ | (0.34 | ) | $ | 0.32 | $ | (0.26 | ) | $ | (0.34 | ) | |||||
|
Weighted-average
common shares outstanding,
basic and diluted
|
22,474 | 22,474 | 22,494 | 26,468 | ||||||||||||
|
Product
related gross margin(1)
|
$ | 2,078 | $ | 1,616 | $ | 1,538 | $ | 1,914 | ||||||||
_________
(1) Reflects reclassifications
of certain costs related to QUADRAMET clinical supplies from cost of product
revenue to research and development expenses.
F-53