UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

Commission File Number: 000-50516

Eyetech Pharmaceuticals, Inc.

3 Times Square, 12th Floor
New York, New York 10036
(Address of Principal Executive Offices including Zip Code)

(212) 824-3100
(Registrant’s Telephone Number, Including Area Code)

No Change
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

     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 o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

     The number of shares of registrant’s common stock outstanding on November 8, 2004 was 41,553,904.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

ITEM 1. Financial Statements

EYETECH PHARMACEUTICALS, INC.

See accompanying notes.

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EYETECH PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes.

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EYETECH PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes.

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EYETECH PHARMACEUTICALS, INC.

NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Description of Business

Eyetech Pharmaceuticals, Inc., together with its wholly owned subsidiary (“Eyetech” or the “Company”), is a biopharmaceutical company that specializes in the development and commercialization of novel therapeutics to treat diseases of the eye. The Company’s initial focus is on diseases affecting the back of the eye, particularly the retina. The Company’s most advanced product candidate is Macugen™ (pegaptanib sodium injection), which it is developing in a collaboration with Pfizer Inc. (“Pfizer”) for the treatment of neovascular age-related macular degeneration, known as AMD, diabetic macular edema, known as DME, and retinal vein occlusion, known as RVO. In the second half of 2001, the Company initiated two Phase 2/3 pivotal clinical trials of Macugen for the treatment of AMD. Based on the results from the first year of these trials, the Company filed a new drug application with the United States Food and Drug Administration, or FDA, seeking marketing approval of Macugen for the treatment of AMD. The Company is also currently conducting a Phase 2 clinical trial for the use of Macugen in the treatment of DME and a Phase 2 clinical trial for use in the treatment of RVO.

The Company formed a wholly owned subsidiary in Ireland in 2002. There has been no activity in this company since inception in 2002. The Company operates in a single business segment.

Prior to February 2003, the Company operated as a development-stage company and did not generate any revenue. Effective February 2003, the Company exited the development stage when its several concurrent agreements with Pfizer became effective.

On February 4, 2004, the Company successfully completed an initial public offering of its common stock. The initial public offering consisted of the sale of 6,500,000 shares of common stock at a price of $21.00 per share. As part of the offering, the Company granted to the underwriters an option to purchase an additional 975,000 shares within 30 days of the initial public offering to cover over-allotments. This option was exercised in full in February 2004. Net proceeds from the initial public offering after deducting underwriters’ discounts and expenses were $142.9 million, including the exercise of the over-allotment option. In addition, 476,190 shares of common stock were purchased concurrently with the initial public offering by Pfizer for $10 million as part of its commitment under Pfizer’s collaboration with the Company.

The Company issued 5,073,435 warrants in connection with original issuances of preferred stock from April 2000 to August 2002 and the in-licensing of Macugen in April 2000. Prior to the closing of the Company’s initial public offering, 1,511,381 shares of preferred stock were issued in connection with warrant exercises providing $10.4 million in aggregate proceeds. Included in this amount were 73,581 shares issued pursuant to conditional exercises received during the quarter ended December 31, 2003 for proceeds of $0.5 million. An additional 1,867,124 shares of preferred stock were issued on a cashless basis to the holders of 2,728,721 preferred stock warrants, who surrendered 861,597 preferred stock warrants as payment for those shares. All outstanding shares of preferred stock, including those shares issued in connection with warrant exercises, were automatically converted to an equivalent number of shares of common stock upon the closing of the Company’s initial public offering. Additionally, warrants to purchase 833,333 shares of Series B preferred stock converted to an equal number of warrants to purchase an equal number of shares of common stock upon the closing of the initial public offering. These warrants were exercised during the quarter ended March 31, 2004 on a cashless basis, resulting in the issuance of 680,509 shares of common stock in exchange for the surrender of warrants to purchase 152,824 shares of common stock. No warrants are outstanding at September 30, 2004.

On June 2, 2004, the Company successfully completed a secondary public offering of its common stock. All shares sold in the offering were sold by existing stockholders, including employees, and employees through exercise of options. The secondary public offering consisted of the sale of 3,860,000 shares of common stock at a price of $38.50 per share. As part of the offering, the selling stockholders granted to the underwriters an option to purchase an additional

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579,000 shares within 30 days of the secondary public offering to cover over-allotments. This option was exercised in full in June 2004. Shares outstanding increased by 106,735 shares after the offering as a result of option exercises, which provided proceeds to the Company of $0.1 million. The costs associated with the offering, excluding underwriters’ discounts and commissions payable by the selling stockholders, were approximately $1.0 million and have been paid by the Company.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying financial statements include all adjustments considered necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows for the periods presented.

The results of operations for the three-month and nine month periods ended September 30, 2004 are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 31, 2004. These condensed consolidated financial statements should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 filed with the Securities and Exchange Commission.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reclassification

Certain reclassifications have been made to prior period information to conform to the most recent 2004 presentation.

Cash Equivalents

The Company considers all highly-liquid investments with an original maturity of three months or less to be cash equivalents. At September 30, 2004, the Company had substantially all of its cash and cash equivalents in investment grade obligations. Cash and cash equivalents at September 30, 2004 consisted of $65.1 million in demand deposits, money market funds and money market instruments. Cash and cash equivalents at December 31, 2003 consisted of $25.0 million in demand deposits, money market funds and money market instruments. These investments are carried at cost, which approximates fair value.

Marketable Securities

Marketable securities are classified as “available-for-sale” and are carried at market value with unrealized gains and losses reported as other comprehensive income or loss, which is a separate component of stockholders’ (deficit) equity. At September 30, 2004, the Company held available for sale securities with fair value totaling $172.0 million. These available for sale securities included various certificates of deposit, corporate debt securities and United States government securities, $137.5 million of which mature within one year and $34.5 million of which mature in between one year and up to two years. At December 31, 2003, the Company held available for sale securities with fair value totaling $106.4 million. These available for sale securities included various certificates of deposit, corporate debt securities and United States government securities, $80.5 million of which mature within one year and $25.9 million of which mature in between one year and up to two years.

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Restricted Cash

Restricted cash collateralizes outstanding letters of credit associated with the leases of the Company’s office and laboratory facilities. The funds are invested in certificates of deposit.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash equivalents and marketable securities. The Company has established guidelines relating to diversification and maturities that allow the Company to manage risk.

Revenue Recognition

In accordance with criteria outlined in Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements,” and Emerging Issues Task Force Issue 00-21, “Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”), the Company records non-refundable license fees associated with its collaboration agreements with Pfizer as deferred license revenue when all contractual obligations have been satisfied and the related amounts become due. The deferred license revenue is recognized ratably over the Company’s performance period, which in the case of the Company’s collaboration agreements with Pfizer is the remaining term of the collaboration agreements. The Company continually reviews such estimates, which could result in a change in the amortization period and could impact the timing and the amount of revenue recognized. At September 30, 2004, deferred license revenue was $82.0 million with a remaining amortization period of 13 years and 4 months.

The Company also receives reimbursement from Pfizer of Pfizer’s share of the development cost of Macugen. In accordance with EITF Issue 01-14, “Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred,” the Company reports the reimbursement as revenues because, among other factors, the Company has the primary obligation to conduct all clinical studies associated with Macugen and bears all the risk for selection of and payment to vendors. The Company records expenses for the costs incurred by Pfizer for which the Company is contractually liable. In addition, Pfizer has agreed to pay a portion of the costs associated with the purchase of certain equipment. When the Company receives payment from Pfizer for this equipment the Company records the reimbursement as deferred equipment revenue and amortizes it over the equipment’s expected useful life. At September 30, 2004, deferred equipment revenue was $2.5 million

Upon commercial availability and launch of Macugen, the Company plans to report revenue on a gross basis for sales in the United States. The Company has determined that it is qualified as a principal under the criteria set forth in EITF, Issue 99-19, “Reporting Gross Revenue as a Principal vs. Net as an Agent,” based on the Company’s responsibilities under the Company’s contracts with Pfizer to manage and assume responsibilities for obtaining FDA approvals for Macugen, including the Company’s separate contractual relationships and responsibilities to its clinical development contractors and its interaction with monitors and patients.

Research and Development Costs

Research and development costs are expensed as incurred.

Inventory

For all periods presented, the Company expensed all of its manufacturing costs as research and development. Upon any regulatory approval of Macugen, the Company will begin capitalizing all costs associated with the manufacturing of Macugen.

Stock-Based Compensation

In December 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of FASB Statement No. 123” (“SFAS 148”). SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation from the intrinsic value-based method of

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accounting prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). In addition, SFAS 148 amends the disclosure requirements of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). The Company adopted the disclosure requirements of SFAS 148 effective December 31, 2002. As allowed by SFAS 123, the Company has elected to continue to apply the intrinsic value-based method of accounting prescribed in APB 25 and, accordingly, does not recognize compensation expense for stock option grants made at an exercise price equal to or in excess of the fair market value of the stock at the date of grant.

Had compensation cost for the Company’s outstanding employee stock options been determined based on the fair value at the grant dates for those options consistent with SFAS 123, the Company’s net loss and basic and diluted net loss per share, would have been changed to the following pro forma amounts:

SFAS 123 pro forma information regarding net loss is required by SFAS 123, and has been determined as if the Company had accounted for its stock-based employee compensation under the fair value method prescribed in SFAS 123. The fair value of the options prior to completion of the Company’s initial public offering was estimated at the date of grant using the minimum value pricing model. Upon completion of the initial public offering in February 2004, the Company began using the Black-Scholes model to estimate fair value. The following assumptions were utilized for the calculations during each period:

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The effects of applying SFAS 123 in this pro forma disclosure are not indicative of future amounts. Pro forma compensation related to stock option grants is expensed over their respective vesting periods.

The Company accounts for options issued to non-employees under SFAS 123 and EITF Issue 96-18, “Accounting for Equity Investments that are Issued to Other than Employees for Acquiring or in Conjunction with Selling Goods or Services”. As such, the value of such unvested options is periodically re-measured and income or expense is recognized during their vesting terms.

In March 2004, the FASB issued an Exposure Draft of a proposed Statement of Financial Accounting Standards entitled “Share-Based Payment.” This proposed standard addresses accounting for stock-based compensation and would result in stock-based compensation costs, including options, being recognized as an expense in the financial statements. The proposed standard would eliminate the ability to account for stock based compensation transactions using APB 25, and generally would require that such transactions be accounted for using a fair value based method. In October 2004, the FASB elected to delay the effective date of this proposed standard. If the proposed standard is approved, it would be applied prospectively to public entities for periods beginning after June 15, 2005. The Company is still evaluating the impact of the proposed standards on our results of operations.

Income Taxes

The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.

Recently Issued Accounting Pronouncements

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” “SFAS . 146”). This standard addresses financial accounting and reporting for costs associated with an exit or disposal activities and requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. This standard nullifies EITF Issue 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring.” This Standard is effective for exit or disposal activities initiated after December 31, 2002. Adoption of this statement resulted in the recognition of a loss of $1.5 million during the quarter ended June 30, 2004. The loss was incurred because the Company has not subleased its previous corporate offices at 500 Seventh Avenue in New York City and office equipment associated with that facility. The Company reevaluates its assumptions relating to this loss on a periodic basis and may be required to record additional losses in the future.

3. Net Loss Per Share

The Company computes net loss per share in accordance with SFAS No. 128, “Earnings per Share” (“SFAS 128”). Under the provisions of SFAS 128, basic net loss per common share (“Basic EPS”) is computed by dividing net loss by the weighted-average number of common shares outstanding. Diluted net loss per common share (“Diluted EPS”) is computed by dividing net loss by the weighted-average number of common shares and dilutive common share

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equivalents then outstanding. Common equivalent shares consist of the incremental common shares issuable upon the conversion of preferred stock, shares issuable upon the exercise of stock options and the conversion of preferred stock upon the exercise of warrants. Diluted EPS is identical to Basic EPS since common equivalent shares are excluded from the calculation, as their effect is anti-dilutive.

The following table sets forth the computation of basic and diluted net loss per share for the three-month and nine-month periods ended September 30, 2003 and 2004:

Pro forma basic and diluted net loss per share is computed using the weighted average number of common shares outstanding, including the pro forma effects of the automatic conversion of all outstanding convertible preferred stock into shares of the Company’s common stock effective upon the closing of the Company’s initial public offering, as if such conversion had occurred at the date of the original issuance. Accordingly, pro forma basic and diluted net loss per common share has been calculated assuming the preferred stock was converted as of the original date of issuance of the preferred stock.

The following table shows dilutive common share equivalents outstanding on a weighted average basis, which are not included in the above historical calculations, as the effect of their inclusion is anti-dilutive during each period:

4. Comprehensive Loss

Comprehensive losses are primarily comprised of net losses and unrealized gains and losses on available for sales securities. Comprehensive losses for the nine months ended September 30, 2003 and 2004 are detailed below.

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5. Pfizer Collaboration

In December 2002, Pfizer and the Company entered into several concurrent agreements to jointly develop and commercialize Macugen.

Macugen will be co-promoted by the Company and Pfizer in the United States, where the Company and Pfizer will each use its own ophthalmology sales force, and the Company will maintain the inventory and record all United States product sales. The Company and Pfizer will share in profits and losses from the sale of Macugen products in the United States. Outside the United States, Pfizer will market the product exclusively under a license, for which the Company will receive royalty income.

At commencement of the collaboration, which became effective February 3, 2003 when U.S. government approval was obtained, Pfizer made initial payments of $100 million, which included the purchase of 2,747,253 shares of the Company’s Series D preferred stock for $24.7 million, net of issuance costs and a $75 million initial license fee which is being amortized over the expected term of the agreement (estimated at 15 years). In addition, the Company agreed to sell to Pfizer and Pfizer agreed to purchase from the Company, up to an additional $25 million of the Company’s capital stock at the then current market price upon the completion of certain events. Pursuant to this agreement, concurrent with the initial public offering, Pfizer purchased 476,190 shares of common stock at $21.00 per share, resulting in gross proceeds to the Company of approximately $10 million.

Under the terms of the agreement, both parties will expend funds related to the co-promotion and development of Macugen. Pfizer will generally fund a majority of the ongoing development costs incurred pursuant to an agreed upon development plan covering the development of Macugen for AMD, DME, RVO and other agreed upon ophthalmic indications. In certain instances, the Company will reimburse Pfizer for the Company’s share of costs that Pfizer incurs. This funding resulted in the recognition by the Company of $11.1 million in revenue during the three month period ended September 30, 2003 and $12.1 million in revenue during the three month period ended September 30, 2004. The Company recognized $27.6 million in revenue for the nine month period ended September 30, 2003 and $33.8&