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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-25544
Miravant Medical Technologies
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(Exact name of Registrant as specified in its charter)
Delaware 77-0222872
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
336 Bollay Drive, Santa Barbara, California 93117
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(Address of principal executive offices, including zip code)
(805) 685-9880
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at May 10, 2004
----- ---------------------------
Common Stock, $.01 par value 34,757,807
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page
Item 1. Condensed Consolidated Financial Statements
Condensed consolidated balance sheets as of March 31, 2004 and
December 31, 2003.......................................................... 3
Condensed consolidated statements of operations for the three
months ended March 31, 2004 and 2003........................................ 4
Condensed consolidated statement of stockholders' equity (deficit)
for the three months ended March 31, 2004................................... 5
Condensed consolidated statements of cash flows for the three
months ended March 31, 2004 and 2003........................................ 6
Notes to condensed consolidated financial statements......................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................ 11
Item 3. Qualitative and Quantitative Disclosures About Market Risk................... 38
Item 4. Controls and Procedures...................................................... 38
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.................................... 39
Item 4. Submission of Matters to a Vote of Security Holders.......................... 39
Item 6. Exhibits and Reports on Form 8-K............................................. 40
Signatures................................................................... 40
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MIRAVANT MEDICAL TECHNOLOGIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
Assets 2004 2003
------------------ -------------------
Current assets: (Unaudited)
Cash and cash equivalents............................................... $ 1,162,000 $ 1,030,000
Prepaid expenses and other current assets............................... 813,000 298,000
------------------ -------------------
Total current assets....................................................... 1,975,000 1,328,000
Property, plant and equipment:
Vehicles................................................................ 28,000 28,000
Furniture and fixtures.................................................. 1,393,000 1,393,000
Equipment............................................................... 4,723,000 5,200,000
Leasehold improvements.................................................. 2,721,000 2,720,000
------------------ -------------------
8,865,000 9,341,000
Accumulated depreciation................................................ (8,718,000) (9,125,000)
------------------ -------------------
147,000 216,000
Patents, net............................................................... 804,000 707,000
Other assets............................................................... 150,000 154,000
------------------ -------------------
Total assets............................................................... $ 3,076,000 $ 2,405,000
================== ===================
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable........................................................ $ 1,360,000 $ 1,456,000
Accrued payroll and expenses............................................ 1,232,000 536,000
------------------ -------------------
Total current liabilities.................................................. 2,592,000 1,992,000
Long-term liabilities:
Convertible debt:
Face value of convertible debt......................................... 12,286,000 12,916,000
Deferred financing costs and beneficial conversion value............... (3,413,000) (5,476,000)
------------------ -------------------
Total long-term liabilities................................................ 8,873,000 7,440,000
Stockholders' equity (deficit):
Common stock, 75,000,000 shares authorized; 30,055,855 and
25,564,904 shares issued and outstanding at March 31, 2004 and
December 31, 2003, respectively...................................... 194,677,000 190,586,000
Notes receivable from officers.......................................... (578,000) (603,000)
Deferred compensation................................................... -- (16,000)
Accumulated deficit..................................................... (202,488,000) (196,994,000)
------------------ -------------------
Total stockholders' equity (deficit)....................................... (8,389,000) (7,027,000)
------------------ -------------------
Total liabilities and stockholders' equity (deficit)....................... $ 3,076,000 $ 2,405,000
================== ===================
See accompanying notes.
MIRAVANT MEDICAL TECHNOLOGIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
March 31,
----------------------------------------------------
2004 2003
------------------------ -------------------
Revenues $ -- $ --
Costs and expenses:
Research and development..................... 2,261,000 1,875,000
General and administrative................... 1,724,000 1,373,000
--------------------- -------------------
Total costs and expenses........................ 3,985,000 3,248,000
Loss from operations............................ (3,985,000) (3,248,000)
Interest and other income (expense):
Interest and other income.................... 20,000 20,000
Interest expense............................. (1,538,000) (106,000)
Gain (loss) on sale of assets................ 9,000 (18,000)
--------------------- -------------------
Total net interest and other expense............ (1,509,000) (104,000)
--------------------- -------------------
Net loss........................................ $(5,494,000) $ (3,352,000)
===================== ===================
Net loss per share - basic and diluted.......... $ (0.20) $ (0.14)
===================== ===================
Shares used in computing net loss per share..... 27,251,824 24,250,735
===================== ===================
See accompanying notes.
MIRAVANT MEDICAL TECHNOLOGIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICT)
(Unaudited)
Notes
Receivable
Common Stock from Deferred Accumulated
Shares Amount Officers Compensation Deficit Total
------------ --------------- ------------- --------------- -------------- --------------
Balance at January 1, 2004...........25,564,904 $ 190,586,000 $ (603,000) $ (16,000) $(196,994,000) $(7,027,000)
Comprehensive loss:
Net loss............................ -- -- -- -- (5,494,000) (5,494,000)
--------------
Total comprehensive loss............... (5,494,000)
Issuance of restricted shares,
stock awards and stock option
exercises............................264,375 287,000 -- -- -- 287,000
Beneficial conversion value........... -- 300,000 -- -- -- 300,000
Issuance of stock related to
debt conversions, warrant
exercises and interest payments
on debt, net of deferred
financing costs....................4,137,826 3,214,000 -- -- -- 3,214,000
Value of warrants, options and
stock awards issued to
consultants........................ 88,750 290,000 -- (73,000) -- 217,000
Non-cash interest on officer
notes.............................. -- -- (16,000) -- -- (16,000)
Repayments on officer notes, net
of reserve for officer
notes.............................. -- -- 41,000 -- -- 41,000
Amortization of deferred
compensation....................... -- -- -- 89,000 -- 89,000
------------ --------------- ------------- --------------- -------------- --------------
Balance at March 31, 2004............30,055,855 $ 194,677,000 $(578,000) $ -- $(202,488,000) $(8,389,000)
============ =============== ============= =============== ============== ==============
See accompanying notes.
MIRAVANT MEDICAL TECHNOLOGIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended March 31,
Operating activities: 2004 2003
------------------- ----------------------
Net loss.......................................................... $ (5,494,000) $ (3,352,000)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization.................................. 76,000 146,000
Amortization of deferred compensation.......................... 89,000 116,000
(Gain) loss on sale of equipment............................... (9,000) 18,000
Stock awards and restricted stock grants....................... 233,000 11,000
Non-cash interest and amortization of deferred
financing costs on long-term debt............................ 1,520,000 86,000
Provision (reduction) for employee and officer loans, net of
non-cash interest on related loans........................... (100,000) 13,000
Changes in operating assets and liabilities:
Prepaid expenses and other assets............................ (511,000) 211,000
Accounts payable and accrued payroll......................... 600,000 (95,000)
------------------- ----------------------
Net cash used in operating activities............................. (3,596,000) (2,846,000)
Investing activities:
Purchases of patents.............................................. (120,000) (16,000)
Proceeds from the sale of property, plant and equipment........... 35,000 --
Purchases of property, plant and equipment........................ (10,000) (85,000)
------------------- ----------------------
Net cash used in investing activities............................. (95,000) (101,000)
Financing activities:
Proceeds from convertible note arrangements....................... 2,000,000 2,910,000
Proceeds from issuance of common stock and exercise of warrants... 1,698,000 --
Payment on short-term debt........................................ -- (105,000)
Proceeds from repayment of note to officers....................... 125,000 --
------------------- ----------------------
Net cash provided by financing activities......................... 3,823,000 2,805,000
Net increase (decrease) in cash and cash equivalents.............. 132,000 (142,000)
Cash and cash equivalents at beginning of period.................. 1,030,000 723,000
------------------- ----------------------
Cash and cash equivalents at end of period........................ $ 1,162,000 $ 581,000
=================== ======================
Supplemental disclosures:
Cash paid for:
State taxes..................................................... $ 3,000 $ 3,000
=================== ======================
Interest ....................................................... $ 1,000 $ 125,000
=================== ======================
Supplemental disclosures on non-cash transactions:
During the quarter ended March 31, 2004, $2.6 million of the 2003
Convertible Debt, net of related deferred financing costs of $1.1 million,
converted into 2.6 million shares of Common Stock.
See accompanying notes.
MIRAVANT MEDICAL TECHNOLOGIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The information contained herein has been prepared in accordance with Rule
10-01 of Regulation S-X. The information at March 31, 2004 and for the
three month period ended March 31, 2004 and 2003, is unaudited. In the
opinion of management, the information reflects all adjustments necessary
to make the results of operations for the interim periods a fair statement
of such operations. All such adjustments are of a normal recurring nature.
Interim results are not necessarily indicative of results for a full year.
For a presentation including all disclosures required by accounting
principles generally accepted in the United States, these consolidated
condensed financial statements should be read in conjunction with the
audited consolidated financial statements for the year ended December 31,
2003 included in the Miravant Medical Technologies Annual Report on Form
10-K filed with the Securities and Exchange Commission.
The accompanying condensed consolidated financial statements have been
prepared assuming the Company will continue as a going concern. This basis
of accounting contemplates the recovery of the Company's assets and the
satisfaction of its liabilities in the normal course of business. The
Company's independent auditors, Ernst & Young LLP, have indicated in their
report accompanying the December 31, 2003 consolidated financial statements
that, based on generally accepted auditing standards, our viability as a
going concern is in question. Through March 31, 2004, the Company had an
accumulated deficit of $202.5 million and expects to continue to incur
substantial, and possibly increasing, operating losses for the next few
years due to continued spending on research and development programs, the
cost associated with the regulatory review process for the New Drug
Application, or an NDA, that we submitted, pre-commercialization expenses
for SnET2, the funding of preclinical studies, clinical trials and
regulatory activities and the costs of manufacturing and administrative
activities. The Company also expects these operating losses to fluctuate
due to its ability to fund the research and development programs as well as
the operating expenses of the Company.
The Company is continuing its scaled-back efforts in research and
development and the preclinical studies and clinical trials of our
products. These efforts, along with the cost of following up on our
submitted NDA, obtaining requisite regulatory approval, and commencing
pre-commercialization activities prior to receiving regulatory approval,
will require substantial expenditures. Once requisite regulatory approval
has been obtained, if at all, substantial additional financing will be
required for the manufacture, marketing and distribution of our product in
order to achieve a level of revenues adequate to support the Company's cost
structure. In April 2004, as discussed in Note 7, the Company entered into
a $10.3 million Securities Purchase Agreement, or the 2004 Equity
Agreement, with a group of institutional investors. In February 2004, the
Company entered into a $2.0 million Unsecured Convertible Debenture
Purchase Agreement, or the February 2004 Debt Agreement, with certain
accredited investors, or the February 2004 Lenders, which provided proceeds
of $2.0 million. In August 2003, the Company entered into a Convertible
Debt and Warrant Purchase Agreement, or the 2003 Debt Agreement, with a
group of private accredited investors, or the 2003 Lenders, pursuant to
which the Company issued securities to the Lenders in exchange for gross
proceeds of $6.0 million. In addition, in December 2002, the Company
entered into a $12.0 million Convertible Debt and Warrant Agreement, or
2002 Debt Agreement, with a group of private accredited investors, or the
2002 Lenders. As of May 10, 2004, the Company had borrowed $6.3 million
under the 2002 Debt Agreement and there will be no further borrowings under
the 2002 Debt Agreement. The Company believes it can raise additional
funding to support operations through corporate collaborations or
partnerships, licensing of SnET2 or new products and additional equity or
debt financings prior to December 31, 2004. If additional funding is not
available when required, the Company's executive management believes that
as long as the Company's debt is not accelerated, then the Company has the
ability to conserve cash required for operations through December 31, 2004
and into the first quarter of 2005. If the additional funding is not
available or only a portion thereof is available, the Company believes that
it will have cash required for operations beyond December 31, 2004 by the
delay or reduction in scope of one or more of our research and development
programs and adjusting, deferring or reducing salaries of employees and by
reducing operating facilities and overhead expenditures. There can be no
assurance that the Company will be successful in obtaining additional
financing or that financing will be available on favorable terms.
Effective April 21, 2004, the Company is authorized to issue up to
75,000,000 shares of common stock and up to 30,000,000 shares of preferred
stock. The Board of Directors has authority to fix the rights, preferences,
privileges and restrictions, including voting rights, of these shares of
preferred stock without any future vote or action by the shareholders.
The preparation of condensed consolidated financial statements in
conformity with accounting principles generally accepted in the United
States requires management to make estimates and assumptions that affect
the amounts reported in the condensed consolidated financial statements and
the accompanying notes. Actual results may differ from those estimates and
such differences may be material to the condensed consolidated financial
statements.
2. Comprehensive Loss
For the three months ended March 31, 2004 and 2003, comprehensive loss was
$5.5 million and $3.3 million, respectively. There was no difference
between net loss and comprehensive loss for the three months ended March
31, 2004. The difference between net loss and comprehensive loss for the
three months ended March 31, 2003, related to the change in the unrealized
loss or gain the Company recorded for its available-for-sale securities on
its investment in its former affiliate, Xillix Technologies Corp.
3. Per Share Data
Basic loss per common share is computed by dividing the net loss by the
weighted average shares outstanding during the period. Diluted earnings per
share reflect the potential dilution that would occur if securities or
other contracts to issue common stock were exercised or converted to common
stock. Since the effect of the assumed exercise of common stock options and
other convertible securities was anti-dilutive, basic and diluted loss per
share as presented on the condensed consolidated statements of operations
are the same.
4. Convertible Debt Agreements
In February 2004, the Company entered into an Unsecured Convertible
Debenture Purchase Agreement, or the February 2004 Debt Agreement, with
certain private accredited investors, or the February 2004 Lenders. Under
the February 2004 Debt Agreement, the Company issued $2.0 million worth of
convertible debentures maturing on February 5, 2008 with interest accruing
at 8% per year, due and payable quarterly, with the first interest payment
due on April 1, 2004. At the Company's option, and subject to certain
restrictions, the Company may make interest payments in cash or in shares
of its Common Stock, or the interest can be added to the outstanding
principal of the note. Each convertible debenture issued pursuant to the
February 2004 Debt Agreement is convertible at the holder's option into
shares of the Company's Common Stock at $2.00 per share. The Company is
obligated to file a registration statement with the SEC covering the resale
of the shares of Common Stock underlying these convertible debentures no
later than April 30, 2004 which it filed on April 22, 2004. Upon the
occurrence of certain events of default, the holders of the convertible
debentures may require that they be repaid prior to maturity. These events
of default include the Company's failure to pay amounts due under the
debentures or to otherwise perform any material covenant in the February
2004 Debt Agreement or other related documents. Additionally, under the
Emerging Issues Task Force, or EITF, No. 98-5, the Company was required to
determine the beneficial conversion value for the notes related to the
February 2004 Debt Agreement, or the 2004 Notes. The beneficial conversion
value represents the difference between the fair value of the Company's
2004 Notes as of the date of issuance and the intrinsic value, which is the
value of the 2004 Notes as converted, as described above. If the intrinsic
value of the 2004 Notes exceeds the fair value of the 2004 Notes, then a
beneficial conversion value is determined to have been received by the
securityholders. Any beneficial conversion value determined is recorded as
equity and a reduction to the convertible debt outstanding, which is
subsequently amortized to interest expense. The beneficial conversion value
was calculated as follows:
Fair value of the February 2004 Debt converted to Common Stock on
February 5, 2004 at $2.30 per share, a 10% discount from the fair value
of the Common Stock on the date of issuance as the underlying shares
are unregistered........................................................$ 2,300,000
Less: Intrinsic value of the February 2004 Debt converted to Common
Stock at $2.00 per share................................................(2,000,000)
--------------
Beneficial conversion value.............. $ 300,000
=============
The beneficial conversion value for the 2004 Notes was amortized over the
period from the date of note issuance to the period of first available note
conversion which was March 25, 2004, therefore the $300,000 of beneficial
conversion value was amortized during the quarter ended March 31, 2004.
Additionally, the beneficial conversion value from the 2002 Debt Agreement
and the 2003 Debt Agreement of $681,000 was amortized during the three
months ended March 31, 2004. The amortization on the beneficial conversion
value is included in interest expense in the condensed consolidated
statement of operations.
In connection with the Company's 2003 Debt Agreement, during the first
quarter of 2004, certain of the 2003 Lenders converted their Notes into
shares of the Company's Common Stock. As of March 31, 2004, $2.6 million of
the $6.0 million face value of the 2003 Notes outstanding have been
converted into 2.6 million shares of Common Stock. The $2.6 million was net
of $1.1 million of deferred financing costs. In addition, of the warrants
to purchase 4.5 million shares of Common Stock related to the 2003 Debt
Agreement, 1,425,000 warrants have been exercised, resulting in proceeds to
the Company of $1.4 million.
5. Stock-Based Compensation
Statement of Financial Accounting Standard, or SFAS, No. 123, "Accounting
for Stock-Based Compensation," encourages, but does not require, companies
to record compensation expense for stock-based employee compensation plans
at fair value. The Company has chosen to continue to account for
stock-based compensation using the intrinsic value method prescribed by
Accounting Principles Board Opinion, or APB Opinion, No. 25 and related
interpretations including Financial Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation - an Interpretation of
APB Opinion No. 25" in accounting for its stock option plans.
If the Company had elected to recognize stock compensation expense based on
the fair value of the options granted at grant date for its stock-based
compensation plans consistent with the method of SFAS No. 123, the
Company's net loss and loss per share would have been increased to the pro
forma amounts indicated below:
Three months ended March Three months ended March 31,
31, 2004 2003
--------------------------------------------------- --- ---------------------------- --- -----------------------------
Net loss as reported $ (5,494,000) $ (3,352,000)
Pro forma stock-based employee compensation
cost under SFAS No. 123 (220,000) (259,000)
---------------------------- -----------------------------
Pro forma net loss $ (5,714,000) $ (3,611,000)
--------------------------------------------------- --- ---------------------------- --- -----------------------------
Loss per share - basic and diluted:
As reported $ (0.20) $ (0.14)
Pro forma $ (0.21) $ (0.15)
--------------------------------------------------- --- ---------------------------- ---- ---------------------------
6. Reclassifications
Certain reclassifications have been made to the 2003 condensed consolidated
financial statements to conform to the current period presentation.
7. Subsequent Events
In April 2004, the Company entered in a Securities Purchase Agreement, or
the 2004 Equity Agreement, with a group of institutional investors, whereby
the Company sold 4,564,000 shares of Common Stock at $2.25 per share,
resulting in proceeds to the Company of $10.3 million. There were no
placement fees associated with the offering and the shares issued were
unregistered.
In May 2004, the Company and the 2002 Lenders agreed to terminate the
available borrowing provisions of the 2002 Debt Agreement, which were to
expire by June 30, 2004. As May 12, 2004, the Company had borrowed $6.3
million in convertible promissory notes.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This section of the Quarterly Report on Form 10-Q contains forward-looking
statements, which involve known and unknown risks and uncertainties. These
statements relate to our future plans, objectives, expectations and intentions.
These statements relate to our future plans, objectives, expectations and
intentions. These statements may be identified by the use of words such as
"may," "will," "should," "potential," "expects," "anticipates," "intends,"
"plans," "believes" and similar expressions. These statements which are based on
our current beliefs, expectations and assumptions and are subject to a number of
risks and uncertainties, including but not limited to statements regarding: our
general beliefs concerning the efficacy and potential benefits of photodynamic
therapy; our ability to raise funds to continue operations; the use of SnET2 to
treat wet age-related macular degeneration, or AMD; our ability to meet the
covenants of the August 2003 Unsecured Convertible Debt and Warrant Purchase
Agreement, or the 2003 Debt Agreement; our ability to meet the covenants of the
February Unsecured Convertible Debt Purchase Agreement, or the February 2004
Debt Agreement; our ability to resolve any issues or contingencies associated
with our New Drug Application, or an NDA, submission with the Food and Drug
Administration, or FDA; the assumption that we will continue as a going concern;
our ability to regain our listing status on Nasdaq or other national market; our
plans to collaborate with other parties and/or license SnET2; our ability to
continue to retain employees under our current financial circumstances; our
ability to use our laser and delivery devices in future clinical trials; our
expected research and development expenditures; our patent prosecution strategy;
and our expectations concerning the government exercising its rights to use
certain of our licensed technology. Our actual results could differ materially
from those discussed in these statements due to a number of risks and
uncertainties including but not limited to: failure to obtain additional funding
in a timely manner, if at all; our failure to comply with the covenants in our
2003 Debt Agreement and/or our February 2004 Debt Agreement, or to the extent we
are unable to comply with these covenants, obtain waivers from these covenants,
which could lead to a default under those agreements; a failure of our drugs and
devices to receive regulatory approval; other parties declining to collaborate
with us due to our financial condition or other reasons beyond our control; the
failure of our existing laser and delivery technology to prove to be applicable
or appropriate for future studies; our failure to obtain the necessary funding
to further our research and development activities; and unanticipated changes by
the government in its past practices by exercising its rights contrary to our
expectations. For a more complete description of the risks that may impact our
business, see "Risk Factors", for a discussion of certain risks, including those
relating to our ability to obtain additional funding, our ability to establish
new strategic collaborations, our operating losses, risks related to our
industry and other forward-looking statements.
The following discussion should be read in conjunction with the condensed
Consolidated Financial Statements and Notes thereto.
General
We are a pharmaceutical research and development company specializing in
photodynamic therapy, or PDT, a treatment modality based on drugs that respond
to light. When activated by light, these drugs induce a photochemical reaction
in the presence of oxygen that can be used to locally destroy diseased cells and
abnormal blood vessels. We have branded our novel version of PDT technology with
the trademark PhotoPoint(R). Our drugs and devices are in various stages of
development and have not yet been evaluated for regulatory approval. Our most
advanced drug, PhotoPoint SnET2, has completed Phase III clinical trials for the
treatment of wet age-related macular degeneration, or AMD, and we are preparing
to submit a New Drug Application, or an NDA, for its marketing approval.
We have been unprofitable since our founding and have incurred a cumulative
net loss of approximately $202.5 million as of March 31, 2004. We expect to
continue to incur significant, and possibly increasing, operating losses over
the next few years, and we believe we will be required to obtain substantial
additional debt or equity financing to fund our operations during this time as
we seek to achieve a level of revenues sufficient to support our anticipated
cost structure. Our independent auditors, Ernst & Young LLP, have indicated in
their report accompanying our December 31, 2003 consolidated financial
statements that, based on generally accepted auditing standards, our viability
as a going concern is in question.
Although we continue to incur costs for research and development,
preclinical studies, clinical trials and general corporate activities, we have
continued to adhere to our cost restructuring program we implemented in 2002
which has helped reduce our overall costs. Our ability to achieve sustained
profitability depends upon our ability, alone or with others, to receive
regulatory approval on our NDA submission for SnET2 in AMD, to successfully
complete the development of our proposed products, obtain the required
regulatory clearances and manufacture and market our proposed products. No
revenues have been generated from commercial sales of SnET2 and only limited
revenues have been generated from sales of our devices. Our ability to achieve
significant levels of revenues within the next few years is dependent on the
timing of receiving regulatory approval, if at all, for SnET2 in AMD and our
ability to establish a collaboration, with a corporate partner or other sales
organization, to commercialize SnET2 once regulatory approval is received, if at
all. Our revenues to date have consisted of license reimbursements, grants
awarded, royalties on our devices, sales of SnET2 bulk active pharmaceutical
ingredient, or bulk API sales, milestone payments, payments for our devices, and
interest income. We do not expect any significant revenues until we have
established a collaborative partnering agreement, receive regulatory approval
and commence commercial sales.
Our significant funding activities over the last eighteen months have
consisted of the following:
* A $10.3 million equity financing completed April 23, 2004;
* A $2.0 million convertible debt financing completed February 5, 2004;
* Warrant exercises through May 10, 2004 providing proceeds of $1.4
million;
* The sale of our investment in an affiliate, Xillix Technologies Corp.,
or Xillix, in December 2003, providing net cash proceeds of $1.6
million;
* A $6.0 million convertible debt financing completed in August 2003;
* Settlement of our $10.0 million debt with Pharmacia AB, a wholly owned
subsidiary of Pfizer, Inc., or Pharmacia, that required a cash payment
of $1.0 million; and
* We have borrowed $6.3 million under a convertible debt financing
entered into in December 2002.
We believe we can raise additional funding to support operations through
corporate collaborations or partnerships, through licensing of SnET2 or new
products and through public or private equity or debt financings prior to
December 31, 2004. However, there can be no assurance that the Company will be
successful in obtaining additional financing or that financing will be available
on favorable terms. If additional funding is not available when required, and if
our debt does not go into default and become immediately due, then we believe we
have the ability to conserve cash required for operations through December 31,
2004 by the delay or reduction in scope of one or more of its research and
development programs, and adjusting, deferring or reducing salaries of employees
and by reducing operating facilities and overhead expenditures.
Ongoing Operations
We have continued our scaled-back efforts in research and development and
the preclinical studies and clinical trials of our products. Our primary efforts
in 2003 and the first quarter of 2004 have been in preparing a submission of an
NDA for marketing approval in AMD for SnET2. We expect over the next year or so,
our likely activities and costs to consist of the following:
* Continuation of work related to our NDA, once accepted for filing by
the U.S. Food and Drug Administration, or FDA;
* Commencement of pre-commercialization activities such as pre-marketing
and possible drug and device manufacturing prior to receiving
regulatory approval;
* Increasing our development activities for our cardiovascular program;
and
* Review and follow-up of our Phase II dermatology clinical trial.
The extent of each of these activities will depend on the available funding
and resources. Additionally, once requisite regulatory approval has been
obtained for SnET2, if at all, substantial additional funding will be required
for the manufacture, marketing and distribution of our product in order to
achieve a level of revenues adequate to support our cost structure.
In ophthalmology, our primary focus during 2003 through March 31, 2004, has
been the preparation of our NDA for submission for marketing approval of
PhotoPoint SnET2, a new drug for the treatment of AMD. In January 2003, we
announced our plans to move forward with preparing our first NDA submission of
SnET2, for the treatment of AMD. Our decision came after we completed our
analyses of the Phase III AMD clinical data, which we believed showed positive
results in a significant number of PhotoPoint SnET2 treated patients versus
placebo control patients, and after holding discussions with regulatory
consultants and the ophthalmic division of the FDA. Previously, in January 2002,
Pharmacia, after a top-line review of the Phase III AMD clinical data,
determined that the clinical data results indicated that SnET2 did not meet the
primary efficacy endpoint in the study population, as defined by the clinical
trial protocol, and that they would not be preparing an NDA with the FDA. In
March 2002, we regained the license rights to SnET2 as well as the related data
and assets from the Phase III AMD clinical trials from Pharmacia. Additionally,
in March 2002 we terminated our license collaboration with Pharmacia. We
submitted the NDA on March 31, 2004, seeking marketing approval based on
clinical results in the "per protocol" study population. The per protocol
population consists of those patients who received the exposure to the SnET2
treatment regimen pre-specified in the clinical study protocol, comprising a
smaller number of patients than the total study population. Although there is
precedent for FDA approval of drugs based on subgroup populations, including
Visudyne(R), the currently approved competitive PDT product for wet AMD, we
cannot assure you that the FDA will grant approval for SnET2 based on our per
protocol group of patients. Besides the possible use of SnET2 alone or in
combination with other therapies, we have identified potential next generation
drug compounds for use in various eye diseases. These drugs are in the early
stage of development and will not likely begin further development until we
obtain additional funding and/or a corporate partner or other collaboration in
ophthalmology.
In our dermatology program, we use a topical gel formulation to deliver
MV9411, a proprietary photoreactive drug, directly to the skin. In July 2001, we
completed a Phase I dermatology clinical trial and, in January 2002, we
commenced a Phase II clinical trial with MV9411 for potential use in the
treatment of plaque psoriasis, a chronic dermatological condition for which
there is no known cure. Plaque psoriasis is a disease marked by
hyperproliferation of the epidermis, resulting in inflamed and scaly skin
plaques. The Phase II clinical trial is expected to be closed out in 2004 with
an analysis of the clinical trial results to follow. Our continuation of the
dermatology development program will depend on the results of the clinical
trials and other factors such as available funding and personnel.
We are also conducting preclinical studies with new photoselective drugs
for cardiovascular diseases, in particular for the prevention and treatment of
vulnerable plaque and restenosis. Vulnerable plaque, or VP, is an unstable,
rupture-prone inflammation within the artery walls, and restenosis is the
renarrowing of an artery that commonly occurs after balloon angioplasty for
obstructive artery disease. We are in the process of formulating a new lead
drug, MV0633, and, pending the outcome of our preclinical studies, our corporate
activities, financial considerations, and other factors, we may prepare an
Investigational New Drug application, or IND, in cardiovascular disease for
MV0633. The timing of the IND is dependent on numerous factors including
preclinical results, available funding and personnel. We are currently pursuing
various potential strategic partners in the field of cardiovascular disease.
There are no guarantees that potential strategic partners will enter into a
license agreement or provide us with any potential funding to advance our
research and development programs.
As a result of our preclinical studies in cardiovascular disease, we are
evaluating the use of PhotoPoint PDT for the prevention and/or treatment of
vascular access graft disease. Synthetic arteriovenous, or AV, grafts are placed
in patients with End Stage Renal Disease to provide access for hemodialysis.
While these grafts are critical to the health of the patient, their functional
lifetime is limited due to stenosis, or narrowing, caused by cell overgrowth in
the vein. We are currently pursuing potential strategic partners in this field.
Pending the results of our preclinical studies as well as financial
considerations, corporate collaborations and other factors, we may decide to
file an IND for the commencement of clinical trials in this field.
In our oncology research program, we have ongoing preclinical studies in
solid tumors to target tumor cells and tumor neovasculature. The focus of our
preclinical research is to evaluate the utility of PhotoPoint PDT as a
stand-alone treatment or as a combination therapy with experimental or
conventional therapies. Currently, our research efforts focus on the use of
PhotoPoint PDT in treating cancers such as those of the brain, breast, lung and
prostate. We have an existing oncology IND for SnET2, under which we may choose
to submit protocols for clinical trials in the future. We are investigating our
novel compound MV6401 for oncology applications.
Below is a summary of the disease programs and their related stages of
development. The information in the column labeled "Estimate of Completion of
Phase" is forward-looking in nature and the actual timing of completion of those
phases could differ materially from the estimates provided in the table.
Additionally, due to the uncertainty of the scientific results of any of these
programs as well as the uncertainty regarding our ability to fund these
programs, we are unable to provide an accurate estimate as to the costs, capital
requirements or the specific timing necessary to complete any of these programs.
For a discussion of the risks and uncertainties associated with the timing of
completing a product development phase for our company as well as our industry
as a whole, see the "Risk Factors" section of "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Estimate of Completion
Program Description/Indication Phase of Development of Phase
--------------------- ------------------------------ ---------------------------- ------------------------
Ophthalmology AMD (SnET2) Acceptance of our NDA Q2 2004
submission to the FDA
New drug compounds Research studies
Completed
Dermatology Psoriasis (MV9411) Phase II 2004
Cardiovascular VP and Restenosis (MV0633
disease and other compounds) Preclinical studies **
AV Graft (MV2101) Preclinical studies **
Oncology Tumor research Research studies **
(MV 6401)
** Based on the early development stage of these programs we cannot
reasonably estimate the time at which these programs may move from a
research or preclinical development phase to the clinical trial phase. The
decision and timing of whether these programs will move to the clinical
trial phase will depend on a number of factors including the results of the
preclinical studies, the estimated costs of the programs, the availability
of alternative therapies and our ability to fund or obtain additional
financing or to obtain new collaborative partners to help fund the
programs.
Based on our ability to successfully obtain additional funding, our ability
to obtain new collaborative partners, our ability to license and pursue further
development of SnET2 for AMD or other disease indications, our ability to
complete our submission of an NDA for SnET2, our ability to reduce operating
costs as needed, our ability to regain our listing status on Nasdaq or other
national stock market exchange and various other economic and development
factors, such as the cost of the programs, reimbursement and the available
alternative therapies, we may or may not elect or be able to further develop
PhotoPoint PDT procedures in ophthalmology, cardiovascular disease, dermatology,
oncology or in any other indications.
Results of Operations
Revenues. We had no revenues for the three months ended March 31, 2004 and
2003.
Historically, we have recorded limited revenues for the sale of our bulk
active pharmaceutical ingredient and license income for the reimbursement of
out-of-pocket expenses incurred under license agreements. Any future revenue
will likely be related to new collaborative agreements, and royalties or
revenues from drug and device sales upon regulatory approval and subsequent
commercial sales, if any.
Research and Development. Research and development costs are expensed as
incurred. Research and development expenses are comprised of direct and indirect
costs. Direct costs consist of costs incurred by outside providers and
consultants for preclinical studies, clinical trials and related clinical drug
and device development and manufacturing costs, drug formulation expenses, NDA
preparation services and other research and development expenditures. Indirect
costs consist of internally generated costs from salaries and benefits, overhead
and facility costs, and other support services. Our research and development
expenses increased from $1.9 million for the three months ended March 31, 2003
to $2.3 million for the same period in 2004. The slight increase in research and
development expenses is specifically related to the activities associated with
the preparation and compilation of the submission of our NDA. Research and
development expenses for the three months ended March 31, 2003 and 2004 related
primarily to payroll, payroll taxes, employee benefits and allocated operating
costs. Additionally, the Company incurred research and development expenses for:
* Preparation of our NDA submission for SnET2 in AMD;
* Work associated with the development of new devices, delivery systems,
drug compounds and formulations for the dermatology and cardiovascular
programs; and
* Preclinical studies and clinical trial costs for our Phase II
dermatology program.
As previously disclosed, we have four research and development programs
which we have focused our efforts: ophthalmology, dermatology, cardiovascular
disease and oncology. Research and development costs are initially identified as
direct costs and indirect costs, with only direct costs tracked by specific
program. These direct costs consist of clinical, preclinical, drug and
formulation development, device development and research costs. We do not track
our indirect research and development costs by program. These indirect costs
consist of labor, overhead and other indirect costs. The research and
development costs for specific programs represent the direct costs incurred. The
direct research and development costs by program are as follows:
Three months ended March 31,
------------------------------------------ ---------------------------------------------
Program 2004 2003
------------------------------------------ -------------------- ---------------------
Direct costs:
Ophthalmology.............. $ 695,000 $ 196,000
Dermatology................ 42,000 156,000
Cardiovascular disease..... 35,000 185,000
Oncology................... -- 7,000
-------------------- ---------------------
Total direct costs.............. $ 772,000 $ 544,000
Indirect costs ................. 1,489,000 1,331,000
-------------------- ---------------------
Total research and development costs $ 2,261,000 $ 1,875,000
==================== =====================
Ophthalmology. Our direct ophthalmology program costs have increased from
$196,000 for the three months ended March 31, 2003 to $695,000 for the same
period in 2004. Costs incurred for the ophthalmology program have consisted of
costs incurred from consultants and contract research organizations for
assistance in the preparation of the NDA submitted on March 31, 2004. The costs
incurred and the increase for the three month period ended March 31, 2004 are
specifically related to the final preparation and compilation of the NDA filing
for SnET2 in AMD.
Dermatology. Our direct dermatology program costs decreased from $156,000
for the three months ended March 31, 2003 to $42,000 for the same period in
2004. Costs incurred in the dermatology program include expenses for drug
development and drug formulation, internal and external preclinical study costs,
and Phase II clinical trial expenses. The decrease for the three months ended
March 31, 2004 as compared to the same period in 2003 is related to the decrease
in patient treatments in the Phase II clinical trial compared to 2003.
Cardiovascular Disease. Our direct cardiovascular disease program costs
decreased from $185,000 for the three months ended March 31, 2003 to $35,000 for
the same period in 2004. Our cardiovascular disease program costs include
expenses for the development of new drug compounds and light delivery devices,
drug formulation costs, drug and device manufacturing expenses and internal and
external preclinical study costs. The decrease from 2004 to 2003 is related to a
decrease in the development and manufacturing activities for drug and devices
used in the preclinical studies and a reduction in the preclinical studies
performed.
Oncology. Our direct oncology program costs have decreased from $7,000 for
the three months ended March 31, 2003 to zero for the same period in 2004. Our
oncology program costs had primarily consisted of costs for internal and
external preclinical studies and expenses for the early development of new drug
compounds. The decrease in oncology program costs from 2004 to 2003 is related
to our decision to temporarily utilize resources toward our preparation of our
NDA for ophthalmology rather than for discovery and research programs in
oncology.
Indirect Costs. Our indirect costs have increased from $1.3 million for the
three months ended March 31, 2003 to $1.5 million for the same period in 2004.
Generally, the increase from 2004 to 2003 was attributed to an increase in
employee wages which were adjusted for the first time since 2001. This was
offset by a slight decrease in costs related to the downsizing of facilities and
related reduction in overhead costs.
We expect that future research and development expenses may fluctuate
depending on available funds, continued expenses incurred related to our
regulatory review process for the NDA, pre-commercialization costs for drug and
devices manufacturing, costs for preclinical studies and clinical trials in our
ophthalmology, dermatology, cardiovascular, oncology and other programs, costs
associated with the purchase of raw materials and supplies for the production of
devices and drug for use in preclinical studies and clinical trials, results
obtained from our ongoing preclinical studies and clinical trials and the
expansion of our research and development programs, which includes the increased
hiring of personnel, the continued expansion of existing or the commencement of
new preclinical studies and clinical trials and the development of new drug
compounds and formulations.
General and Administrative. Our general and administrative expenses have
increased from $1.4 million for the three months ended March 31, 2003 to $1.7
million for the same period in 2004. General and administrative expenses for the
three months ended March 31, 2003 and 2004 related primarily to payroll related
expenses, operating costs such as rent, utilities, professional services and
insurance costs and non-cash expenses such as stock compensation and
depreciation. In the first quarter, the employee and overhead related expenses
increased from 2003 as compared to 2004 due to the increase in employee wages
which were adjusted for the first time since 2001 and an increase in stock
compensation costs. The increase in costs was offset by a decrease in facility
related costs due to the reduction in facilities.
We expect future general and administrative expenses to remain consistent
with the first quarter of 2004 although they may fluctuate depending on
available funds, and the need to perform our own pre-marketing, marketing and
sales activities, the support required for research and development activities,
the costs associated with potential financing and partnering activities,
continuing corporate development and professional services, facility and
overhead costs, compensation expense associated with employee stock bonuses and
stock options and warrants granted to consultants and expenses for general
corporate matters.
Interest and Other Income. Interest and other income remained consistent at
$20,000 for the three months ended March 31, 2003 and March 31, 2004. Interest
and other income amounts are derived from interest earned on cash and marketable
securities earning interest. The level of future interest and other income will
primarily be subject to the level of cash balances we maintain from period to
period and the interest rates earned.
Interest Expense. Interest expense significantly increased from $106,000
for the three months ended March 31, 2003 to $1.5 million for the three months
ended March 31, 2004. The increase is primarily related to the continued
amortization of the beneficial conversion value from the 2004, 2003 and 2002
Debt Agreements. Under the EITF No. 98-5, we were required to determine the
beneficial conversion value for the February 2004 Debt Agreement, the 2003 Debt
Agreement and the 2002 Debt Agreement. The beneficial conversion value
represents the difference between the fair value of our Common Stock on the date
of the first available conversion and the intrinsic value, which is the value of
the various notes on as converted assumption and the value of detachable warrant
issued. The remaining beneficial conversion value from the 2003 Debt Agreement
and 2002 Debt Agreement of $681,000 was amortized during the three months ended
March 31, 2004. Additionally, a $300,000 beneficial conversion value associated
with the 2004 February Debt Agreement was recorded and amortized during the
three months ended March 31, 2004. These amounts were recorded as interest
expense. The remaining increase in interest expense for 2004 compared to the
same period in 2003 related to an increase in interest expense from borrowings
under the 2002 Debt Agreement, 2003 Debt Agreement and the 2004 February Debt
Agreement and the related amortization of deferred financing costs associated
with those agreements of $273,000. Interest expense for the three months ended
March 31, 2003 consisted primarily of interest expense related to the 2002 Debt
Agreement. The level of interest expense in future periods is expected to
fluctuate depending on the levels of outstanding debt.
Liquidity and Capital Resources
Since inception through March 31, 2004, we have accumulated a deficit of
approximately $202.5 million and expect to continue to incur substantial, and
possibly increasing, operating losses for the next few years. We have financed
our operations primarily through private placements of Common Stock and
Preferred Stock, private placements of convertible notes and short-term notes,
our initial public offering, a secondary public offering and credit
arrangements. As of March 31, 2004, we have received proceeds from the sale of
equity securities, convertible notes and credit arrangements of approximately
$241.3 million. We do not anticipate achieving profitability in the next few
years, as such we expect to continue to rely on external sources of financing to
meet our cash needs for the foreseeable future. As of March 31, 2004, our
condensed consolidated financial statements have been prepared assuming we will
continue as a going concern. Our independent auditors, Ernst & Young LLP, have
indicated in their report accompanying our December 31, 2003 consolidated
financial statements that, based on generally accepted auditing standards, our
viability as a going concern is in question.
Subsequent to March 31, 2004, we entered in a Securities Purchase
Agreement, or the 2004 Equity Agreement, with a group of institutional
investors, whereby we sold 4,564,000 shares of Common Stock at $2.25 per share,
resulting in proceeds to us of $10.3 million. There were no placement fees
associated with the offering and the shares issued were unregistered. On April
22, 2004, we filed a registration statement with the SEC to cover the resale of
these shares of Common Stock with the SEC.
In February 2004, we entered into an Unsecured Convertible Debenture
Purchase Agreement, or the February 2004 Debt Agreement, with certain private
accredited investors, or the February 2004 Lenders. Under the February 2004 Debt
Agreement we issued $2.0 million worth of convertible debentures maturing on
February 5, 2008 with interest accruing at 8% per year, due and payable
quarterly, with the first interest payment due on April 1, 2004. At our option
and subject to certain restrictions, we may make interest payments in cash or in
shares of our Common Stock, or the interest can be added to the outstanding
principal of the note. Each convertible debenture issued pursuant to the
February 2004 Debt Agreement is convertible at the holder's option into shares
of our Common Stock at $2.00 per share. Upon the occurrence of certain events of
default, the holders of the convertible debentures may require that they be
repaid prior to maturity. These events of default include our failure to pay
amounts due under the debentures or to otherwise perform any material covenant
in the February 2004 Debt Agreement or other related documents.
In August 2003, we entered into a Convertible Debt and Warrant Purchase
Agreement, or the 2003 Debt Agreement, with a group of private accredited
investors, or the 2003 Lenders, pursuant to which we issued securities to the
2003 Lenders in exchange for gross proceeds of $6.0 million. Under the 2003 Debt
Agreement, the debt can be converted, at the 2003 Lender's option after the
registration of the underlying stock, at $1.00 per share into our Common Stock.
We issued separate convertible promissory notes, which are referred to as the
2003 Notes, to each 2003 Lender and the 2003 Notes earn interest at 8% per annum
and are due August 28, 2006, unless converted earlier or paid early under the
prepayment or default provisions. The interest on each 2003 Note is due
quarterly beginning October 1, 2003 and can be paid in cash or in-kind at our
option. Under certain circumstances each 2003 Note can be prepaid by us prior to
the maturity date or prior to conversion. The 2003 Notes also have certain
default provisions which can cause the 2003 Notes to become accelerated and due
immediately upon notice by the 2003 Lenders. If the 2003 Notes are declared to
be due prior to their scheduled maturity date, it is unlikely we will be able to
repay these notes and it may force us to significantly reduce or cease
operations or negotiate unfavorable terms for repayment. In connection with our
2003 Debt Agreement, during the first quarter of 2004 certain of the 2003
Lenders converted their Notes into shares of our Common Stock. As of May 12,
2004, $2.6 million of the Notes have been converted into 2.6 million shares
Common Stock.
In connection with the 2003 Debt Agreement, we also issued to the 2003
Lenders warrants to purchase an aggregate of 4,500,000 shares of our Common
Stock. Each Lender received two warrants. The first warrant is for the purchase
of one-half (1/2) of a share of our Common Stock for every $1.00 principal
amount of debt under the 2003 Debt Agreement. The second warrant is for the
purchase of one-quarter (1/4) of a share of our Common Stock for every $1.00
principal amount of debt under the 2003 Debt Agreement. The exercise price of
each warrant is $1.00 per share and the warrants will terminate on August 28,
2008, unless previously exercised. We can force the exercise of the one-quarter
share warrant under certain circumstances. In accordance with the registration
rights related to the 2003 Debt Agreement, in October 2003 we registered, as
required, certain shares underlying the convertible promissory notes and the
shares underlying the warrants for certain note holders. In addition, of the 4.5
million warrants issued, 1,425,000 warrants have been exercised through May 12,
2004, resulting in proceeds to Miravant of $1.4 million.
In December 2002, we entered into a $12.0 million Convertible Debt and
Warrant Agreement, or the 2002 Debt Agreement, with a group of private
accredited investors, or the 2002 Lenders. This available borrowing provisions
of this agreement were terminated in May 2004. As of March 31, 2004, we have
borrowed $6.3 million and there will be no further borrowings under this
agreement. Additionally, in connection with each borrowing we have issued
warrants to purchase a total of 1,575,000 shares of our Common Stock at an
exercise price of $1.00 per share. We also issued an origination warrant for the
purchase of 250,000 shares at an exercise price of $0.50 per share. All of these
warrant issued expire on December 31, 2008.
In connection with the execution of the 2003 Debt Agreement, certain of the
2002 Lenders, to whom we issued notes to under our 2002 Debt Agreement, as
described above, agreed to subordinate their debt security position to that of
the 2003 Lenders. In exchange for the subordinated security position, the 2002
Lenders received additional warrants to purchase an aggregate of 1,575,000
shares of our Common Stock at an exercise price of $1.00 per share, and these
additional warrants will terminate on August 28, 2008, unless previously
exercised. Additionally, under the anti-dilution provision of the 2002 Debt
Agreement, the conversion price of the five notes issued thereunder to the 2002
Lenders during the period February 2003 through July 2003 was reduced to $1.00
and the exercise price of the related warrants issued to the 2002 Lenders during
the same period was reduced to $1.00 per share.
Statement of Cash Flows
For the three months ended March 31, 2003 net cash used in operations was
$2.8 million compared to $3.6 million used during the three months ended March
31, 2004. The increase in cash used for operations from 2004 compared to 2003
was due to an increase in operating costs and prepaid expenses due to a
refundable filing fee of $573,000 made for our NDA submission.
For the three months ended March 31, 2003, net cash used in investing
activities was $101,000 compared to $95,000 for the same period in 2004. Cash
used in investing activities for both periods consisted primarily of the
purchases of patents and property, plant and equipment.
The net cash provided by financing activities for the three months ended
March 31, 2003 was $2.8 million compared to $3.8 million for the same period in
2004. The cash provided by financing activities for 2003 primarily related to
the net proceeds received from the three monthly $1.0 million borrowings under
the December 2002 Debt Agreement received during the quarter. The cash provided
by financing activities for 2004 primarily related to the $2.0 million from the
2004 Debt Agreement and the $1.4 million received from warrant exercises.
We will need substantial additional resources to develop our products. The
timing and magnitude of our future capital requirements will depend on many
factors, including:
* Our ability to obtain regulatory acceptance of the NDA submission and
subsequent approval;
* The cost of performing pre-commercialization activities;
* Our ability to establish additional collaborations and/or license
SnET2 or our other new products;
* Our ability to continue our efforts to conserve our use of cash, while
continuing to advance programs;
* Our ability to meet our obligations under the 2002 Debt Agreement,
2003 Debt Agreement and February 2004 Debt Agreement;
* The viability of SnET2 for future use;
* Our ability to raise equity financing or use stock awards for employee
and consultant compensation;
* Our ability to regain our listing status on Nasdaq;
* The pace of scientific progress and the magnitude of our research and
development programs;
* The scope and results of preclinical studies and clinical trials;
* The costs involved in preparing, filing, prosecuting, maintaining and
enforcing patent claims;
* The costs involved in any potential litigation;
* Competing technological and market developments; and
* Our dependence on others for development and commercialization of our
potential products.
As of March 31, 2004, our condensed consolidated financial statements have
been prepared assuming we will continue as a going concern. We are continuing
our scaled-back efforts in research and development and the preclinical studies
and clinical trials of our products. These efforts, along with the cost of
following up on our submitted NDA, obtaining requisite regulatory approval, and
commencing pre-commercialization activities prior to receiving regulatory
approval, will require substantial expenditures. Once requisite regulatory
approval has been obtained, if at all, substantial additional financing will be
required for the manufacture, marketing and distribution of our product in order
to achieve a level of revenues adequate to support our cost structure. We
believe we can raise additional funding to support operations through corporate
collaborations or partnerships, licensing of SnET2 or new products and
additional equity or debt financings prior to December 31, 2004. If additional
funding is not available when required, we believe that as long as our debt is
not accelerated, then we have the ability to conserve cash required for
operations through December 31, 2004 and into the first quarter of 2005. If the
additional funding is not available or only a portion thereof is available, we
believe that we will have cash required for operations beyond December 31, 2004
by the delay or reduction in scope of one or more of our research and
development programs and adjusting, deferring or reducing salaries of employees
and by reducing operating facilities and overhead expenditures. There can be no
assurance that the Company will be successful in obtaining additional financing
or that financing will be available on favorable terms.
Our ability to raise funds has become more difficult as our stock has been
delisted from trading on the Nasdaq National Market. Any inability to obtain
additional financing would adversely affect our business and could cause us to
significantly reduce or cease operations. Our ability to generate substantial
additional funding to continue our research and development activities,
preclinical studies and clinical trials and manufacturing, and administrative
activities and to pursue any additional investment opportunities is subject to a
number of risks and uncertainties and will depend on numerous factors including:
* Our ability to successfully receive acceptance of our NDA submission
for SnET2;
* The outcome from the FDA on the potential NDA filing;
* The potential future use of SnET2 for ophthalmology or other disease
indications;
* Our ability to successfully raise funds in the near future through
public or private equity or debt financings, or establish
collaborative arrangements or raise funds from other sources;
* The potential for equity investments, collaborative arrangements,
license agreements or development or other funding programs that are
at terms acceptable to us, in exchange for manufacturing, marketing,
distribution or other rights to products developed by us;
* The future development and results of our Phase II dermatology
clinical trial and our ongoing cardiovascular and oncology preclinical
studies;
* The amount of funds received from outstanding warrant and stock option
exercises, if any; and
* Our ability to maintain, renegotiate, or terminate our existing
collaborative arrangements.
We cannot guarantee that additional funding will be available to us now,
when needed, or if at all. If additional funding is not available in the near
term, we will be required to scale back our research and development programs,
preclinical studies and clinical trials and administrative activities or cease
operations. As a result, we would not be able to successfully develop our drug
candidates or commercialize our products and we would never achieve
profitability. Our independent auditors, Ernst & Young LLP, have indicated in
their report accompanying our December 31, 2003 consolidated financial
statements that, based on generally accepted auditing standards, our viability
as a going concern is in question.
RISK FACTORS
FACTORS AFFECTING FUTURE OPERATING RESULTS
The following section of this report describes material risks and
uncertainties relating to Miravant and our business. Our business operations may
be impaired by additional risks and uncertainties that we are not aware of or
that we currently consider immaterial. Our business, results of operations or
cash flows may be adversely affected if any of the following risks actually
occur. In such case, the trading price of our Common Stock could decline.
RISKS RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF SIGNIFICANT OPERATING LOSSES AND EXPECT TO CONTINUE TO HAVE
LOSSES IN THE FUTURE, WHICH MAY FLUCTUATE SIGNIFICANTLY AND WE MAY NEVER ACHIEVE
PROFITABILITY.
We have incurred significant losses since our inception in 1989 and, as of
March 31, 2004, had an accumulated deficit of approximately $202.5 million. In
each of the last three years, we have increased our borrowings through the sale
of various debt instruments in order to sustain our business operations. We
expect to continue to incur significant, and possibly increasing, operating
losses over the next few years, and we believe we will be required to obtain
substantial additional debt or equity financing to fund our operations during
this time as we seek to achieve a level of revenues sufficient to support our
anticipated cost structure. Our independent auditors, Ernst & Young LLP, have
indicated in their report accompanying our December 31, 2003 consolidated
financial statements that, based on generally accepted auditing standards, our
viability as a going concern is in question.
Although we continue to incur costs for research and development,
preclinical studies, clinical trials and general corporate activities, we have
continued to adhere to our cost restructuring program we implemented in 2002
which has helped reduce our overall costs. Our ability to achieve and sustain
profitability depends upon our ability, alone or with others, to receive
regulatory approval on our NDA submission for SnET2 in AMD, to successfully
complete the development of our proposed products, obtain the required
regulatory clearances and manufacture and market our proposed products. No
revenues have been generated from commercial sales of SnET2 and only limited
revenues have been generated from sales of our devices. Our ability to achieve
significant levels of revenues within the next few years is dependent on the
timing of receiving regulatory approval, if at all, for SnET2 in AMD and our
ability to establish a collaboration with a corporate partner or other sales
organization to commercialize SnET2 once regulatory approval is received, if at
all. Our revenues to date have consisted of license reimbursements, grants
awarded, royalties on our devices, SnET2 bulk active pharmaceutical ingredient,
or bulk API sales, milestone payments, payments for our devices, and interest
income. We do not expect any significant revenues until we have established a
collaborative partnering agreement, receive regulatory approval and commence
commercial sales.
EVEN THOUGH WE RAISED $10.3 MILLION IN APRIL 2004, WE WILL LIKELY NEED
ADDITIONAL FUNDS IN 2005 TO CONTINUE OUR OPERATIONS, AND IF WE FAIL TO OBTAIN
ADDITIONAL FUNDING, WE WOULD BE FORCED TO SIGNIFICANTLY SCALE BACK OR CEASE
OPERATIONS.
We are continuing our scaled-back efforts in research and development and
the preclinical studies and clinical trials of our products. These efforts,
along with the cost of preparing and the follow-up associated with the NDA
submission for SnET2, obtaining requisite regulatory approval, and commencing
pre-commercialization and manufacturing activities prior to receiving regulatory
approval, has required and will require substantial expenditures. Once requisite
regulatory approval has been obtained, if at all, substantial additional
financing will likely be required for the manufacture, marketing and
distribution of our product in order to achieve a level of revenues adequate to
support our cost structure.
The timing and magnitude of our future capital requirements will depend on
many factors, including:
* Our ability to obtain regulatory acceptance of the NDA submission and
subsequent approval;
* The cost of performing pre-commercialization activities;
* Our ability to establish additional collaborations and/or license
SnET2 or our other new products;
* Our ability to continue our efforts to conserve our use of cash, while
continuing to advance programs;
* Our ability to meet our obligations under the 2002 Debt Agreement,
2003 Debt Agreement and February 2004 Debt Agreement;
* The viability of SnET2 for future use;
* Our ability to raise equity financing or use stock awards for employee
and consultant compensation;
* Our ability to regain our listing status on Nasdaq;
* The pace of scientific progress and the magnitude of our research and
development programs;
* The scope and results of preclinical studies and clinical trials;
* The costs involved in preparing, filing, prosecuting, maintaining and
enforcing patent claims;
* The costs involved in any potential litigation;
* Competing technological and market developments; and
* Our dependence on others for development and commercialization of our
potential products.
We believe that as a result of our $10.3 million funding in April 2004, we
will have sufficient cash to fund operations through December 31, 2004 and into
the first quarter of 2005. If we are unable to raise funds when we may need them
we believe we can delay or reduce in scope one or more of our research and
development programs and to adjust, defer or reduce salaries of employees and to
reduce operating facilities and overhead expenditures.
We continue to seek additional capital needed to fund our operations
through corporate collaborations or partnerships, through licensing of SnET2 or
new products and through public or private equity or debt financings. Our
inability to obtain additional financing would adversely affect our business and
could cause us to significantly scale back or cease operations. If we are
successful in obtaining additional equity or convertible debt financing this is
likely to result in significant dilution to our stockholders. In addition, any
new securities issued may have rights, preferences or privileges senior to those
securities held by our current stockholders.
WE ARE HIGHLY LEVERAGED, OUR RECENT DEBT AND EQUITY AGREEMENTS HAVE FURTHER
DILUTED OUR EXISTING STOCKHOLDERS AND OUR DEBT SERVICE REQUIREMENTS MAKE US
VULNERABLE TO ECONOMIC DOWNTURN AND IMPOSE RESTRICTIONS ON OUR OPERATIONS.
The face amount of our debt outstanding was approximately $11.7 million as
of May 10, 2004. There is no certainty that our cash balance and our financing
arrangements, will be sufficient to finance our operating requirements, and our
indebtedness may restrict our ability to obtain additional financing in the
future. The issuance of additional shares of common stock in April 2004 and
warrants to purchase Common Stock in connection with the 2002 and 2003 Debt
Agreements and related negotiations with existing debtors has resulted in the
issuance of significant amounts of securities which has a dilutive effect on our
existing stockholders. Also, we are highly leveraged, which may place us at a
competitive disadvantage and makes us more susceptible to downturns in our
business in the event our cash balances are not sufficient to cover our debt
service requirements. In addition, the February 2004 Debt Agreement, the 2003
Debt Agreement and the 2002 Debt Agreement contain certain covenants that impose
operating and financial restrictions on us. These covenants may affect our
ability to conduct operations to raise additional financing or to engage in
other business activities that may be in our interest. In addition, if we cannot
achieve the financial results necessary to maintain compliance with these
covenants, we could be declared in default.
OUR FUTURE SUCCESS IS HIGHLY DEPENDENT ON REGULATORY APPROVAL AND SUCCESSFUL
COMMERCIALIZATION OF SNET2. IF OUR SUBMISSION FOR SNET2 DOES NOT SUPPORT THE
ACCEPTANCE FOR FILING OR APPROVAL OF THE NDA BY THE FDA FOR ANY REASON, OUR
BUSINESS WILL BE SUBSTANTIALLY HARMED. ADDITIONALLY, WE CANNOT BE ASSURED THAT
WE WILL BE ABLE TO MAINTAIN OUR FAST-TRACK DESIGNATION WITH THE FDA BECAUSE OF
SUBSEQUENT FDA APPROVALS RECEIVED FOR THE TREATMENT OF AMD TO THIRD PARTIES.
Within 75 days of our NDA submission, the FDA will make a determination to
accept or refuse to file the NDA and, if accepted, will designate its review
status. We cannot guarantee the FDA will accept our NDA for filing. In the event
that the FDA does not accept our NDA for fling, we may be required to provide
additional information or conduct additional clinical trials before resubmitting
our NDA and before the FDA may accept our NDA for substantive review. If this
occurs, there is likely to be a substantial delay in the approval process and it
is less likely that SnET2 will be approved. This delay would have an immediate
material adverse effect on our business and would likely further depress the
price of our stock.
Even if the FDA accepts our submission for filing, the FDA may not
ultimately approve our NDA for SnET2. This approval process may take a
significant amount of time and the FDA's approval, if any, may be contingent
upon satisfying additional requirements. For instance, the FDA may require
follow-up clinical trials or pre-clinical studies prior to final approval, which
may be costly and may cause a significant delay in the timing of receiving FDA
approval. If the FDA does approve this NDA, the approved label claims could be
for a limited market, resulting in smaller than expected markets and revenue.
Additionally, we received a fast-track designation on our clinical program in
1998 primarily due to the lack of an existing approved treatment for AMD.
Subsequently, there has been an approval by the FDA for the treatment of a
specific portion of the AMD disease, thus, there can be no guarantee that we
will be able to maintain our fast-track designation, and related benefits, from
the FDA, which may further delay the timing of a potential FDA approval. Any
delay in receiving FDA approval further limits our ability to begin market
commercialization and harms our on-going funding requirements and our business.
Additionally, we might be forced to substantially scale down our operations or
sell certain of our assets, and it is likely the price of our stock would
decline precipitously.
EVEN IF WE RECEIVE REGULATORY APPROVAL OF SNET2 FOR THE TREATMENT OF AMD, SNET2
MAY NOT BE COMMERCIALLY SUCCESSFUL.
Even if SnET2 receives regulatory approval, patients and physicians may not
readily accept it, which would result in lower than projected sales and
substantial harm to our business. Acceptance will be a function of SnET2 being
clinically useful and demonstrating superior therapeutic effect with an
acceptable side-effect profile, as compared to currently existing or future
treatments. In addition, even if SnET2 does achieve market acceptance, we may
not be able to maintain that market acceptance over time if new products are
introduced that are more favorably received than SnET2 or render SnET2 obsolete.
WE FACE INTENSE COMPETITION AND OUR FAILURE TO COMPETE EFFECTIVELY, PARTICULARLY
AGAINST LARGER, MORE ESTABLISHED PHARMACEUTICAL AND MEDICAL DEVICE COMPANIES,
WILL CAUSE OUR BUSINESS TO SUFFER.
Many of our competitors have substantially greater financial, technical and
human resources than we do, and may also have substantially greater experience
in developing products, conducting preclinical studies or clinical trials,
obtaining regulatory approvals and manufacturing and marketing and distribution.
Further, our competitive position could be harmed by the establishment of patent
protection by our competitors. The existing competitors or other companies may
succeed in developing technologies and products that are more safe, effective or
affordable than those being developed by us or that would render our technology
and products less competitive or obsolete.
We are aware that other companies are marketing or developing certain
products to prevent, diagnose or treat diseases for which we are developing
PhotoPoint PDT. These products, as well as others of which we may not be aware,
may adversely affect the existing or future market for our products. Competitive
products may include, but are not limited to, drugs such as those designed to
inhibit angiogenesis or otherwise target new blood vessels, certain medical
devices, such as drug-eluting stents and other photodynamic therapy treatments.
We are aware of various competitors involved in the photodynamic therapy or
AMD sector. We understand that these companies are conducting preclinical
studies and/or clinical trials in various countries and for a variety of disease
indications. Our direct competitors in our sector include QLT Inc., or QLT, DUSA
Pharmaceuticals, or DUSA, Axcan Pharm Inc., or Axcan, Eyetech Pharmacueticals
Inc., or Eyetech, and Pharmacyclics. QLT's drug Visudyne(R) has received
marketing approval in the United States and certain other countries for the
treatment of AMD and has been commercialized by Novartis. Axcan and DUSA have
photodynamic therapy drugs, both of which have received marketing approval in
the United States - Photofrin(R) (Axcan) for the treatment of certain oncology
indications and Levulan(R) (DUSA Pharmaceuticals) for the treatment of actinic
keratoses, a dermatological condition. Pharmacyclics has a photodynamic therapy
drug that has not received marketing approval, which is being used in certain
preclinical studies and/or clinical trials for ophthalmology, oncology and
cardiovascular indications. Eyetech is currently completing a Phase III clinical
trial in AMD and is expected to submit an NDA at the end of 2004 or the
beginning of 2005. We are aware of other drugs and devices under development by
these and other competitors in additional disease areas for which we are
developing PhotoPoint PDT. These competitors as well as others that we are not
aware of, may develop superior products or reach the market prior to PhotoPoint
PDT and render our products non-competitive or obsolete.
AS A RESULT OF OUR SHARES BEING DELISTED FROM TRADING ON NASDAQ, OUR ABILITY TO
RAISE ADDITIONAL CAPITAL MAY BE LIMITED OR IMPAIRED.
We were delisted by Nasdaq on July 11, 2002 and our Common Stock began
trading on the Over-The-Counter Bulletin Board(R), or OTCBB, effective as of the
opening of business on July 12, 2002. Our management continues to review our
ability to regain our listing status with Nasdaq or other national stock market
exchange, however, we cannot guarantee we will be able to raise the additional
capital needed or to increase the current trading price of our Common Stock to
allow us to meet the relisting requirements for the Nasdaq National Market or
the Nasdaq Small Cap Market or other national stock market exchange on a timely
basis, if at all, and there is no guarantee that any of the stock market
exchanges would approve our relisting request even if we met all the listing
requirements. Our ability to obtain additional funding, beyond our current
funding agreements is impeded by a number of factors including that fact that
our Common Stock is currently being traded on the OTCBB and may prevent us from
obtaining additional financing as required in the near term on favorable terms
or at all.
OUR FINANCIAL CONDITION AND COST REDUCTION EFFORTS COULD RESULT IN DECREASED
EMPLOYEE MORALE AND LOSS OF EMPLOYEES AND CONSULTANTS WHO ARE CRITICAL TO OUR
SUCCESS.
Our success in the future will depend in large part on our ability to
attract and retain highly qualified scientific, management and other personnel
and to develop and maintain relationships with leading research institutions and
consultants. We are highly dependent upon principal members of our management,
key employees, scientific staff and consultants, which we may retain from time
to time. We currently have limited cash and capital resources and our ability to
raise funds is questionable, causing our business outlook to be uncertain.
Additionally, due to our ongoing limited cash balances, we try to utilize stock
options and stock awards as a key component of short-term and long-term
compensation. However, given the volatility of our stock and the uncertainty of
our long-term prospects, our ability to use stock options and stock awards as
compensation may be limited. These measures, along with our financial condition,
may cause employees to question our long-term viability and increase our
turnover. These factors may also result in reduced productivity and a decrease
in employee morale causing our business to suffer. We do not have insurance
providing us with benefits in the event of the loss of key personnel. Our
consultants may be affiliated with or employed by others, and some have
consulting or other advisory arrangements with other entities that may conflict
or compete with their obligations to us.
IF WE ARE NOT ABLE TO MAINTAIN AND SUCCESSFULLY ESTABLISH NEW COLLABORATIVE AND
LICENSING ARRANGEMENTS WITH OTHERS, OUR BUSINESS WILL BE HARMED.
Our business model is based on establishing collaborative relationships
with other parties both to license compounds upon which our products and
technologies are based and to manufacture, market and sell our products. As a
development company we must have access to compounds and technologies to license
for further development. For example, we are party to a License Agreement with
the University of Toledo, the Medical College of Ohio and St. Vincent Medical
Center, of Toledo, Ohio, collectively referred to as Toledo, to license or
sublicense certain photoselective compounds, including SnET2. Similarly, we must
also establish relationships with suppliers and manufacturers to build our
medical devices and to manufacture our compounds. We have partnered with Iridex
for the manufacture of certain light sources and have entered into an agreement
with Fresenius for supply of the final dose formulation of SnET2. Due to the
expense of the drug approval process it is critical for us to have relationships
with established pharmaceutical companies to offset some of our development
costs in exchange for a combination of manufacturing, marketing and distribution
rights. We formerly had a significant relationship with Pharmacia for the
development of SnET2 for the treatment of AMD, which was terminated in March
2002. To further develop SnET2 for AMD or other indications it is essential that
we establish a new collaborative relationship with another party.
We are currently at various stages of discussions with various companies
regarding the establishment of new collaborations. If we are not successful in
establishing new collaborative partners for the potential development of SnET2
or our other molecules, we may not be able to pursue further development of such
drugs and/or may have to reduce or cease our current development programs, which
would materially harm our business. Even if we are successful in establishing
new collaborations, they are subject to numerous risks and uncertainties
including the following:
* Our ability to negotiate acceptable collaborative arrangements;
* Future or existing collaborative arrangements may not be successful or
may not result in products that are marketed or sold;
* Collaborative partners are free to pursue alternative technologies or
products either on their own or with others, including our
competitors, for the diseases targeted by our programs and products;
* Our partners may fail to fulfill their contractual obligations or
terminate the relationships described above, and we may be required to
seek other partners, or expend substantial resources to pursue these
activities independently; and
* Our ability to manage, interact and coordinate our timelines and
objectives with our strategic partners may not be successful.
ALL OF OUR PRODUCTS, EXCEPT SNET2 AND MV9411, ARE IN AN EARLY STAGE OF
DEVELOPMENT AND ALL OF OUR PRODUCTS, INCLUDING SNET2 AND MV9411, MAY NEVER BE
SUCCESSFULLY COMMERCIALIZED.
Our products, except SnET2 and MV9411, are at an early stage of development
and our ability to successfully commercialize these products, including SnET2
and MV9411, is dependent upon:
* Successfully completing our research or product development efforts or
those of our collaborative partners;
* Successfully transforming our drugs or devices currently under
development into marketable products;
* Obtaining the required regulatory approvals;
* Manufacturing our products at an acceptable cost and with appropriate
quality;
* Favorable acceptance of any products marketed; and
* Successful marketing and sales efforts of our corporate partner(s).
We may not be successful in achieving any of the above, and if we are not
successful, our business, financial condition and operating results would be
adversely affected. The time frame necessary to achieve these goals for any
individual product is long and uncertain. Most of our products currently under
development will require significant additional research and development and
preclinical studies and clinical trials, and all will require regulatory
approval prior to commercialization. The likelihood of our success must be
considered in light of these and other problems, expenses, difficulties,
complications and delays.
OUR PRODUCTS, INCLUDING SNET2 AND MV9411, MAY NOT SUCCESSFULLY COMPLETE THE
CLINICAL TRIAL PROCESS AND WE MAY BE UNABLE TO PROVE THAT OUR PRODUCTS ARE SAFE
AND EFFICACIOUS.
All of our drug and device products currently under development will
require extensive preclinical studies and/or clinical trials prior to regulatory
approval for commercial use, which is a lengthy and expensive process. None of
our products, except SnET2, have completed testing for efficacy or safety in
humans, and none of our products, including SnET2, have been approved for any
purpose by the FDA. Some of the risks and uncertainties related to safety and
efficacy testing and the completion of preclinical studies and clinical trials
include:
* Our ability to demonstrate to the FDA that our products are safe and
efficacious;
* Our products may not be as efficacious as our competitors' products;
* Our ability to successfully complete the testing for any of our
compounds within any specified time period, if at all;
* Clinical outcomes reported may change as a result of the continuing
evaluation of patients;
* Data obtained from preclinical studies and clinical trials are subject
to varying interpretations which can delay, limit or prevent approval
by the FDA or other regulatory authorities;
* Problems in research and development, preclinical studies or clinical
trials that will cause us to delay, suspend or cancel clinical trials;
and
* As a result of changing economic considerations, competitive or new
technological developments, market approvals or changes, clinical or
regulatory conditions, or clinical trial results, our focus may shift
to other indications, or we may determine not to further pursue one or
more of the indications currently being pursued.
Data already obtained from preclinical studies and clinical trials of our
products under development do not necessarily predict the results that will be
obtained from future preclinical studies and clinical trials. A number of
companies in the pharmaceutical industry, including biotechnology companies like
us, have suffered significant setbacks in advanced clinical trials, even after
promising results in earlier clinical trials. Moreover, our clinical trials may
not demonstrate the sufficient levels of safety and efficacy necessary to obtain
the requisite regulatory approval or may not result in marketable products. The
failure to adequately demonstrate the safety and effectiveness of a product
under development could delay or prevent regulatory approval of the potential
product and would materially harm our business.
THE PRICE OF OUR COMMON STOCK HAS BEEN AND MAY CONTINUE TO BE VOLATILE.
From time to time and in particular during the year ended December 31,
2003, the price of our Common Stock has been highly volatile. These fluctuations
create a greater risk of capital losses for our stockholders as compared to less
volatile stocks. From January 1, 2003 to May 10, 2004, our Common Stock price,
per Nasdaq and OTCBB closing prices, has ranged from a high of $4.10 to a low of
$0.71.
The market prices for our Common Stock, and the securities of emerging
pharmaceutical and medical device companies, have historically been highly
volatile and subject to extreme price fluctuations, which may reduce the market
price of the Common Stock. Extreme price fluctuations could be the result of the
following:
* The acceptance for filing of our NDA for SnET2 in AMD by the FDA;
* The results of the FDA review of our NDA submission and our ability to
receive approval from the FDA for commercialization;
* Announcements concerning Miravant or our collaborators, competitors or
industry;
* Our ability to successfully establish new collaborations and/or
license SnET2 or our other new products;
* The impact of dilution from past or future equity or convertible debt
financings;
* The results of our testing, technological innovations or new
commercial products;
* The results of our testing, technological innovations or new
commercial products;
* The results of preclinical studies and clinical trials by us or our
competitors;
* Technological innovations or new therapeutic products;
* Our ability to regain our listing status on Nasdaq;
* Public concern as to the safety, efficacy or marketability of products
developed by us or others;
* Comments by securities analysts;
* The achievement of or failure to achieve certain milestones;
* Litigation, such as from stockholder lawsuits or patent infringement;
and
* Governmental regulations, rules and orders, or developments concerning
safety of our products.
In addition, the stock market has experienced extreme price and volume
fluctuations. This volatility has significantly affected the market prices of
securities of many emerging pharmaceutical and medical device companies for
reasons frequently unrelated or disproportionate to the performance of the
specific companies. If these broad market fluctuations cause the trading price
of our Common Stock to decline further, we may be unable to obtain additional
capital that we may need through public or private financing activities and our
stock may not be relisted on Nasdaq, further exacerbating our ability to raise
funds and limiting our stockholders' ability to sell their shares. Because
outside financing is critical to our future success, large fluctuations in our
share price that harm our financing activities could cause us to significantly
alter our business plans or cease operations altogether.
WE MAY RELY ON THIRD PARTIES TO ASSIST US WITH THE REGULATORY REVIEW PROCESS FOR
THE NDA, IF NEEDED, AND TO CONDUCT CLINICAL TRIALS ON OUR PRODUCTS, AND IF THESE
RESOURCES FAIL, OUR ABILITY TO COMPLETE THE NDA REVIEW PROCESS OR SUCCESSFULLY
COMPLETE CLINICAL TRIALS WILL BE ADVERSELY AFFECTED AND OUR BUSINESS WILL
SUFFER.
To date, we have limited experience in conducting clinical trials. We have
relied on Parexel International, a large clinical research organization, or CRO,
as well as numerous other consultants, to assist in preparation of our NDA,
which we submitted to the FDA on March 31, 2004. Additionally, we relied on
Pharmacia, our former corporate partner, and Inveresk, Inc., formerly ClinTrials
Research, Inc., a CRO, to complete our Phase III AMD clinical trials and we
currently rely on a Parexel International for our Phase II dermatology clinical
trials. We may need to rely on Parexel International and other consultants and
third parties to complete the review of the NDA by the FDA. We will either need
to rely on third parties, including our collaborative partners, to design and
conduct any required clinical trials or expend resources to hire additional
personnel or engage outside consultants or contract research organizations to
administer current and future clinical trials. We may not be able to find
appropriate third parties to design and conduct clinical trials or we may not
have the resources to administer clinical trials in-house. The failure to have
adequate resources for completing the review process of the NDA, and conducting
and managing clinical trials will have a negative impact on our ability to
develop marketable products and would harm our business. Other CROs may be
available in the event that our current CROs fail; however there is no guarantee
that we would be able to engage another organization in a timely manner, if at
all. This could cause delays in our clinical trials and our development
programs, which could materially harm our business.
WE RELY ON PATIENT ENROLLMENT TO CONDUCT CLINICAL TRIALS, AND OUR INABILITY TO
CONTINUE TO ATTRACT PATIENTS TO PARTICIPATE WILL HAVE A NEGATIVE IMPACT ON OUR
CLINICAL TRIAL RESULTS.
Our ability to complete clinical trials is dependent upon the rate of
patient enrollment. Patient enrollment is a function of many factors including:
* The nature of our clinical trial protocols;
* Existence of competing protocols or treatments;
* Size and longevity of the target patient population;
* Proximity of patients to clinical sites; and
* Eligibility criteria for the clinical trials.
A specific concern for potential future AMD clinical trials, if any, is
that there currently is an approved treatment for AMD and patients enrolled in
future AMD clinical trials, if any, may choose to drop out of the trial or
pursue alternative treatments. This could result in delays or incomplete
clinical trial data.
We cannot make assurances that we will obtain or maintain adequate levels
of patient enrollment in current or future clinical trials. Delays in planned
patient enrollment may result in increased costs, delays or termination of
clinical trials, which could result in slower introduction of our potential
products, a reduction in our revenues and may prevent us from becoming
profitable. In addition, the FDA may suspend clinical trials at any time if,
among other reasons, it concludes that patients participating in such trials are
being exposed to unacceptable health risks. Failure to obtain and keep patients
in our clinical trials will delay or completely impede test results, which will
negatively impact the development of our products and prevent us from becoming
profitable.
WE MAY FAIL TO ADEQUATELY PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS,
OUR PATENTS AND OUR PROPRIETARY TECHNOLOGY, WHICH WILL MAKE IT EASIER FOR OTHERS
TO MISAPPROPRIATE OUR TECHNOLOGY AND INHIBIT OUR ABILITY TO BE COMPETITIVE.
Our success will depend, in part, on our and our licensors' ability to
obtain, assert and defend our patents, protect trade secrets and operate without
infringing the proprietary rights of others. The exclusive license relating to
various drug compounds, including our leading drug candidate SnET2, may become
non-exclusive if we fail to satisfy certain development and commercialization
objectives. The termination or restriction of our rights under this or other
licenses for any reason would likely reduce our future income, increase our
costs and limit our ability to develop additional products.
The patent position of pharmaceutical and medical device firms generally is
highly uncertain. Some of the risks and uncertainties include:
* The patent applications owned by or licensed to us may not result in
issued patents;
* Our issued patents may not provide us with proprietary protection or
competitive advantages;
* Our issued patents may be infringed upon or designed around by others;
* Our issued patents may be challenged by others and held to be invalid
or unenforceable;
* The patents of others may prohibit us from developing our products as
planned; and
* Significant time and funds may be necessary to defend our patents.
We are aware that our competitors and others have been issued patents
relating to photodynamic therapy. In addition, our competitors and others may
have been issued patents or filed patent applications relating to other
potentially competitive products of which we are not aware. Further, our
competitors and others may in the future file applications for, or otherwise
obtain proprietary rights to, such products. These existing or future patents,
applications or rights may conflict with our or our licensors' patents or
applications. Such conflicts could result in a rejection of our or our
licensors' applications or the invalidation of the patents.
Further exposure could arise from the following risks and uncertainties:
* We do not have contractual indemnification rights against the
licensors of the various drug patents;
* We may be required to obtain licenses under dominating or conflicting
patents or other proprietary rights of others;
* Such licenses may not be made available on terms acceptable to us, if
at all; and
* If we do not obtain such licenses, we could encounter delays or could
find that the development, manufacture or sale of products requiring
such licenses is foreclosed.
We also seek to protect our proprietary technology and processes in part by
confidentiality agreements with our collaborative partners, employees and
consultants. These agreements could be breached and we may not have adequate
remedies for any breach.
The occurrence of any of these events described above could harm our
competitive position. If such conflicts occur, or if we believe that such
products may infringe on our proprietary rights, we may pursue litigation or
other proceedings, or may be required to defend against such litigation. We may
not be successful in any such proceeding. Litigation and other proceedings are
expensive and time consuming, regardless of whether we prevail. This can result
in the diversion of substantial financial, managerial and other resources from
other activities. An adverse outcome could subject us to significant liabilities
to third parties or require us to cease any related research and development
activities or product sales.
WE HAVE LIMITED MANUFACTURING CAPABILITY AND EXPERIENCE AND THUS RELY HEAVILY
UPON THIRD PARTIES. IF WE ARE UNABLE TO MAINTAIN AND DEVELOP OUR PAST
MANUFACTURING CAPABILITY, OR IF WE ARE UNABLE TO FIND SUITABLE THIRD PARTY
MANUFACTURERS AND OUR OPERATING RESULTS COULD SUFFER.
Prior to our being able to supply drugs for commercial use, our
manufacturing facilities must comply with Good Manufacturing Practices, or GMPs.
In addition, if we elect to outsource manufacturing to third-party
manufacturers, these facilities also have to satisfy GMP a