MIRAVANT MEDICAL TECHNOLOGIES - 10-Q Quarterly Report

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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 March 31, 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
________________________________________________________________________________
(Exact name of Registrant as specified in its charter)

Delaware 77-0222872
________________________________________________________________________________
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)

336 Bollay Drive, Santa Barbara, California 93117
________________________________________________________________________________
(Address of principal executive offices, including zip code)

(805) 685-9880
________________________________________________________________________________
(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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes |_| No |X|.

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 9, 2003
----- --------------------------
Common Stock, $.01 par value 24,282,743

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Page
----

Item 1. Condensed Consolidated Financial Statements

Condensed consolidated balance sheets as of March 31, 2003 and
December 31, 2002................................................ 3

Condensed consolidated statements of operations for the three
months ended March 31, 2003 and 2002............................. 4

Condensed consolidated statement of stockholders' equity for the
three months ended March 31, 2003................................ 5

Condensed consolidated statements of cash flows for the three
months ended March 31, 2003 and 2002............................. 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........ 40

PART II. OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds......................... 40

Item 6. Exhibits and Reports on Form 8-K.................................. 40

Signatures........................................................ 41

2

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MIRAVANT MEDICAL TECHNOLOGIES
CONDENSED CONSOLIDATED BALANCE SHEETS

3

MIRAVANT MEDICAL TECHNOLOGIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months
ended
March 31,
----------------------------
2003 2002
------------ ------------

Revenues:
License-contract research and development .......... $ -- $ 20,000
Bulk active pharmaceutical ingredient (API) sales... -- 479,000
------------ ------------
Total revenues ...................................... -- 499,000

Costs and expenses:
Cost of API sales .................................. -- 479,000
Research and development ........................... 1,875,000 2,917,000
Selling, general and administrative ................ 1,373,000 1,371,000
------------ ------------
Total costs and expenses ........................... 3,248,000 4,767,000

Loss from operations ............................... (3,248,000) (4,268,000)

Interest and other income (expense):
Interest and other income .......................... 20,000 74,000
Interest expense ................................... (106,000) (281,000)
Loss on sale of assets ............................. (18,000) --
------------ ------------
Total net interest and other expense ............... (104,000) (207,000)
------------ ------------

Net loss ........................................... $ (3,352,000) $ (4,475,000)
============ ============
Net loss per share - basic and diluted ............. $ (0.14) $ (0.24)
============ ============
Shares used in computing net loss per share ........ 24,250,735 18,876,474
============ ============
See accompanying notes.

4

MIRAVANT MEDICAL TECHNOLOGIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)

5

MIRAVANT MEDICAL TECHNOLOGIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended March 31,
2003 2002
--------------- -------------

Operating activities:
Net loss ......................................................... $ (3,352,000) $ (4,475,000)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization .................................... 146,000 255,000
Amortization of deferred compensation ............................ 116,000 142,000
Loss on sale of equipment ........................................ 18,000 --
Stock awards ..................................................... 11,000 --
Non-cash interest and amortization of deferred
financing costs on long-term debt................................ 86,000 338,000
Provision for employee and officer loans, net of non-cash
interest on related loans........................................ 13,000 --
Changes in operating assets and liabilities:
Accounts receivable ............................................. -- 4,438,000
Inventories ..................................................... -- 395,000
Prepaid expenses and other assets ............................... 211,000 (45,000)
Accounts payable and accrued payroll ............................ (95,000) (569,000)
------------ ------------
Net cash provided by (used in) operating activities................ (2,846,000) 479,000

Investing activities:
Purchases of marketable securities ............................... -- (19,080,000)
Proceeds from sales of marketable securities ..................... -- 19,084,000
Purchases of patents ............................................. (16,000) --
Purchases of property, plant and equipment ....................... (85,000) --
------------ ------------
Net cash provided by (used in) investing activities .............. (101,000) 4,000

Financing activities:
Proceeds from promissory notes, net .............................. 2,910,000 --
Payment on short-term debt ....................................... (105,000) --
Advances of note to officer ...................................... -- (90,000)
------------ ------------
Net cash provided by (used in) financing activities............... 2,805,000 (90,000)

Net (decrease) increase in cash and cash equivalents.............. (142,000) 393,000
Cash and cash equivalents at beginning of period.................. 723,000 1,458,000
------------ ------------
Cash and cash equivalents at end of period ........................ $ 581,000 $ 1,851,000
============ ============
Supplemental disclosures:
Cash paid for:
State taxes ...................................................... $ 3,000 $ 3,000
============ ============
Interest ......................................................... $ 125,000 $ 1,000
============ ============
See accompanying notes.

6

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, 2003 and for the three
month period ended March 31, 2003 and 2002, 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 financial
statements should be read in conjunction with the audited consolidated
financial statements for the year ended December 31, 2002 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, 2002 consolidated financial statements
that, based on generally accepted auditing standards, our viability as a
going concern is in question. Through March 31, 2003, the Company had an
accumulated deficit of $192.9 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 of preparing and filing a New Drug Application, or NDA, and related
follow-up expenses, 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 preparing an 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 December 2002, the Company
entered into a $12.0 million Convertible Debt and Warrant Agreement, or Debt
Agreement, with a group of private accredited investors, or the Lenders,
that provides the Company the availability to borrow up to $1.0 million per
month through November 2003. The monthly borrowing request can be limited if
certain requirements are not met or are not satisfactory to the Lenders. As
of May 14, 2003, the Company had borrowed $5.0 million under the Debt
Agreement. Also, the Company's first payment on the debt due to Pharmacia
Corporation, or Pharmacia, in the amount of $5.0 million, plus interest from
March 5, 2003 to the payment date, is due on June 30, 2003. On April 16,
2003, Pharmacia was acquired by Pfizer Inc. Pharmacia survived the
transaction as a wholly owned subsidiary of Pfizer Inc. If the Company
cannot make the scheduled payment or negotiate new terms for the debt
repayment with Pharmacia, then Pharmacia can exercise all of its rights to
secure all of the collateral under the agreement, which includes all of the
Company's assets. Executive management of Miravant believes the Company 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, 2003, especially
based on the Company's announcement that it intends to file an NDA in 2003.
However, there can be no assurance that the Company will receive the
remaining $7.0 million under the Debt Agreement, if certain requirements are
not met or are not satisfactory to the Lenders, there is no guarantee that
the Company will be able to make the scheduled debt payment to Pharmacia or

7

that new debt repayment terms will be timely negotiated, if at all, and
there is no guarantee 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, the Company's
executive management believes that as long as Miravant receives the
remaining $7.0 million available to the Company under the Debt Agreement and
the debt payment due to Pharmacia on June 30, 2003 has been paid or is
extended into 2004, then the Company has the ability to conserve cash
required for operations through December 31, 2003 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.

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, 2003 and 2002, comprehensive loss
amounted to approximately $3.3 million and $4.5 million, respectively. The
difference between net loss and comprehensive loss relates to the change in
the unrealized loss or gain the Company recorded for its available-for-sale
securities on its investment in its 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 Agreement
--------------------------

In December 2002, the Company entered into a Convertible Debt and Warrant
Purchase Agreement, or Debt Agreement, with a group of private accredited
investors, or the Lenders. The $12.0 million Debt Agreement allows the
Company to borrow up to $1.0 million per month, with any unused monthly
borrowings to be carried forward. The maximum aggregate loan amount is $12.0
million with the last available borrowing in November 2003. The Lenders'
obligation to fund each borrowing request is subject to material conditions
described in the Debt Agreement. In addition, the Lenders may terminate
their obligations under the Debt Agreement if: (i) Miravant has not filed an
NDA by March 31, 2003, (ii) such filing has been rejected by the U.S. Food
and Drug Administration, or FDA, or (iii) Miravant, in the reasonable
judgment of the Lenders, is not meeting its business objectives. In March
2003, the Company received a waiver from the Lenders with regard to the NDA
filing deadline of March 31, 2003 and extended the deadline to the end of
the third quarter of 2003.

In connection with the Debt Agreement, the Lenders will withhold from each
borrowing a 3% drawdown fee and the Company will issue to the Lenders a
warrant to purchase one-quarter (1/4) of a share of Miravant Common Stock
for every $1.00 borrowed. The exercise price of each warrant will be equal
to the greater of $1.00 per share or 150% of the average of the closing
prices of Miravant's Common Stock for the ten (10) trading days preceding
the date of the Note. In addition, upon execution of the Debt Agreement the
Company issued to the Lenders a warrant to acquire 250,000 shares of the
Company's Common Stock, with an exercise price of $0.50 per share. Each
warrant will terminate on December 31, 2008, unless previously exercised.
The Company has also agreed to provide to the Lenders certain registration
rights in connection with this transaction.

8

In January 2003, February 2003 and March 2003, the Company received
borrowings of $1.0 million in each of those months under the Debt Agreement
and the Company issued to the Lenders a Note convertible into Common Stock
at a per share price of $0.97, $1.62 and $1.53, respectively. In addition,
in connection with these borrowings, the Company issued three separate
warrants of 250,000 shares each at exercise prices of $1.16 per share, $1.95
per share and $1.83 per share, related to the January 2003, February 2003
and March 2003 borrowings, respectively. The Company had previously received
the first $1.0 million borrowing pursuant to the Debt Agreement in December
2002 and issued the Lenders a warrant exercisable for 250,000 shares of our
Common Stock at $1.17 per share. As of March 31, 2003, the Company has
borrowed a total of $4.0 million which is convertible into Common Stock at
an average price per share of $1.27 and has accrued interest of $60,000
which is also convertible. The Company has also issued warrants to purchase
a total of 1,250,000 shares of Common Stock at an average exercise price of
$1.32. Subsequent to the March 31, 2003, the Company received the April 2003
borrowing of $1.0 million and issued to the Lenders a Note convertible into
Common Stock at a per share price of $1.32 and issued a warrant exercisable
for 250,000 shares of Miravant's Common Stock at $1.58 per share.

5. 2002 Pharmacia Agreement
------------------------

In connection with the Company's Contract Modification and Termination
Agreement with Pharmacia, which provided for the first debt payment to be
paid on March 5, 2003, the Company negotiated an extension on this $5.0
million debt payment to June 30, 2003. In connection with the extension of
the first debt payment date, the Company agreed to pay a total of $250,000
payable in two installments of $125,000 paid on March 24, 2003 and April 17,
2003, respectively. This amount related to the interest due through March 5,
2003 of $229,000 and an extension fee of $21,000.

6. 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:

9

7. New Accounting Pronouncements: SFAS No.'s 145 and 146 Adoption
--------------------------------------------------------------

In April 2002, SFAS No. 145, "Recission of FASB statements No. 4, 44 and 64,
Amendment of FASB statement No. 13 and Technical corrections", was issued
and becomes effective for fiscal years beginning after May 15, 2002. SFAS
No. 4 and No. 64 related to reporting gains and losses from debt
extinguishment. Under prior guidance, if material gains and losses were
recognized from debt extinguishment, the amount was not included in income
from operations, but was shown as an extraordinary item net of related
income tax cost or benefit, as the case may be. Under the new guidance, all
gains and losses from debt extinguishment are subject to criteria prescribed
under APB No. 30 in determining an extraordinary item classification. SFAS
No. 44 is not applicable to the Company's operations. SFAS No. 13 was
amended to require certain lease modifications with similar economic effects
to be accounted for the same way as a sale-leaseback. The Company adopted
this statement effective January 1, 2003 and the adoption did not have a
material effect on its consolidated results of operations or consolidated
financial position.

SFAS No. 146 "Accounting for the costs associated with Exit or Disposal
Activities", was issued in June 2002. This statement is effective for any
disposal or exit of business activities started after December 31, 2002. The
statement nullifies EITF 94-3, which required that once a plan of disposal
was put in motion, a liability for the estimated costs needed to be
recorded. SFAS No. 146 states that a liability should not be recorded until
the liability is incurred. This statement does not affect any liabilities
established related to exiting an operation with duplicate facilities when
acquired in a business combination. The Company adopted this accounting
guidance at the prescribed date of January 1, 2003. SFAS No. 146 currently
does not affect the Company's consolidated results of operations or
consolidated financial position.

8. Reclassifications
-----------------

Certain reclassifications have been made to the 2002 condensed consolidated
financial statements to conform to the current period presentation.

10

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 may be identified by the use of words such as "may," "will,"
"should," "potential," "expects," "anticipates," "intends," "plans," "believes"
and similar expressions. These statements are based on our current beliefs,
expectations and assumptions and are subject to a number of risks and
uncertainties and include statements regarding our general beliefs concerning
the efficacy and potential benefits of photodynamic therapy; our ability to
raise funds to continue operations; the timing and our ability to complete our
planned New Drug Application, or NDA, filing for the use of SnET2 to treat wet
age-related macular degeneration, or AMD, with the U.S. Food and Drug
Administration, or FDA; our ability to make or negotiate new debt repayment
terms for our first debt payment due to Pharmacia Corporation, or Pharmacia, on
June 30, 2003; our ability to continue to receive the $1.0 million monthly
borrowings through November 2003 under the December 2002 Convertible Debt
Agreement, or the Debt Agreement; our ability to resolve any issues or
contingencies associated with our NDA after it is filed with the FDA; the
assumption that we will continue as a going concern; our ability to regain our
listing status on Nasdaq; 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 light production 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: failure to
obtain additional funding timely, if at all; failure to make our scheduled
payment or negotiate new debt repayment terms with Pharmacia prior to June 30,
2003 resulting in foreclosure on all of our assets; we may be unable to continue
borrowing under the Debt Agreement if we fail to meet certain requirements or if
these requirements are not met to the satisfaction of the Lenders; unanticipated
complexity or difficulty preparing and completing the NDA filing; a failure of
our drugs and devices to receive regulatory approval; other parties may decline
to collaborate with us due to our financial condition or other reasons beyond
our control; our existing light production and delivery technology may prove to
be inapplicable or inappropriate for future studies; we may be unable to obtain
the necessary funding to further our research and development activities and the
government may change its past practices and exercise 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

Since our inception, we have been principally engaged in the research and
development of drugs and medical device products for use in PhotoPoint(TM) PDT,
our proprietary technologies for photodynamic therapy. We have been unprofitable
since our founding and have incurred a cumulative net loss of approximately
$192.9 million as of March 31, 2003. As we currently do not have any sources of
revenues, we expect 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 of preparing and filing a New Drug
Application, or NDA, and related follow-up expenses, the funding of preclinical
studies, clinical trials and regulatory activities and the costs of
manufacturing and administrative activities. We also expect these operating
losses to fluctuate due to our ability to fund the research and development
programs as well as the operating expenses of the Company.

We are continuing 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 an 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. In

11

December 2002, we entered into a $12.0 million Convertible Debt and Warrant
Agreement, or Debt Agreement, with a group of private accredited investors, or
the Lenders, that provides us the availability to borrow up to $1.0 million per
month through November 2003. The monthly borrowing request can be limited if
certain requirements are not met or are not satisfactory to the Lenders. As of
May 14, 2003, we had borrowed $5.0 million under the Debt Agreement. Also, our
first payment on our debt to Pharmacia Corporation, or Pharmacia, in the amount
of $5.0 million, plus interest from March 5, 2003 to the payment date, is due on
June 30, 2003. On April 16, 2003, Pharmacia was acquired by Pfizer Inc.
Pharmacia survived the transaction as a wholly owned subsidiary of Pfizer Inc.
If we cannot make the scheduled payment or negotiate new terms for the debt
repayment with Pharmacia, then Pharmacia can exercise all of its rights to
secure all of the collateral under the agreement, which includes all of our
assets. Our executive management believes 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, 2003, especially based on our announcement that we intend to file
an NDA in 2003. However, there can be no assurance that we will receive the
remaining $7.0 million under the Debt Agreement, if certain requirements are not
met or are not satisfactory to the Lenders, there is no guarantee that we will
be able to make the scheduled debt payment to Pharmacia or that new debt
repayment terms will be timely negotiated, if at all, and there is no guarantee
that we will be successful in obtaining additional financing or that financing
will be available on favorable terms. If additional funding is not available
when required, our executive management believes that as long as we receive the
remaining $7.0 million available to us under the Debt Agreement and the debt
payment due to Pharmacia on June 30, 2003 has been paid or is extended into
2004, we then have the ability to conserve cash required for operations through
December 31, 2003 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 to
conserve cash to be used in operations.

Our historical revenues primarily reflect income earned from licensing
agreements, grants awarded, royalties from device product sales, milestone
payments, non-commercial drug sales to Pharmacia and interest income. During
2001 and through January 2002, we sold approximately $4.8 million of the SnET2
bulk active pharmaceutical ingredient, or bulk API, to Pharmacia to be used in
preclinical studies and clinical trials and in anticipation of a potential NDA
filing for SnET2 for the treatment of wet age-related macular degeneration, or
AMD. The January 2002 sales of bulk API of $479,000 was the final amount sold to
Pharmacia.

Any other future potential new revenues such as license income from new
collaborative agreements, revenues from contracted services, grants awarded
and/or royalties or revenues from potential drug and device sales, if any, will
depend on, among other factors, the results from our ongoing preclinical studies
and clinical trials, the timing and outcome of applications for regulatory
approvals, including our NDA for SnET2 to be filed in 2003, our ability to
re-license SnET2 and establish new collaborative partnerships and their
subsequent level of participation in our preclinical studies and clinical
trials, our ability to have any of our potential drug and related device
products successfully manufactured, marketed and distributed, the restructuring
or establishment of collaborative arrangements for the development,
manufacturing, marketing and distribution of some of our future products. Based
on the above mentioned factors, among others, we anticipate our operating
activities will result in substantial, and possibly increasing, operating losses
for the next several years.

In December 2002, we entered into a $12.0 million Debt Agreement. The
$12.0 million Debt Agreement allows us to borrow up to $1.0 million per month,
with any unused monthly borrowings to be carried forward. The maximum aggregate
loan amount is $12.0 million with the last available borrowing in November 2003.
The Lenders' obligation to fund each borrowing request is subject to material
conditions described in the Debt Agreement. In addition, the Lenders may
terminate its obligations under the Debt Agreement if: (i) Miravant has not
filed an NDA by March 31, 2003, (ii) such filing has been rejected by the U.S.
Food and Drug Administration, or FDA, or (iii) Miravant, in the reasonable
judgment of the Lenders, is not meeting its business objectives. We have
received a waiver from the Lenders with regard to the NDA filing deadline of
March 31, 2003. This deadline has been extended to the end of the third quarter
of 2003.

In January 2002, Pharmacia, after an analysis 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 filing 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.

12

We completed our own detailed analysis of the clinical data during 2002,
including an analysis of the subset groups. In January 2003, based on the
results of our analysis and certain discussions with regulatory and FDA
consultants, we announced our plans to move forward with an NDA filing for SnET2
for the treatment of AMD. We are currently in the process of preparing the NDA
filing and expect to have it completed and filed in 2003. In addition, we are
currently seeking a new collaborative partner for PhotoPoint PDT in
ophthalmology.

We were delisted by Nasdaq on July 11, 2002 and our Common Stock began
trading on the OTC Bulletin Board(R), or OTCBB, effective as of the opening of
business on July 12, 2002. The OTCBB is a regulated quotation service that
displays real-time quotes, last-sale prices and volume information in
over-the-counter equity securities. OTCBB securities are traded by a community
of market makers that enter quotes and trade reports. Our Common Stock trades
under the ticker symbol MRVT and can be viewed at www.otcbb.com. Management
continues to review our ability to regain our listing status with Nasdaq,
however, there are no assurances 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 Nasdaq
Small Cap Market on a timely basis, if at all.

In ophthalmology, besides the possible use of SnET2 alone or in
combination with other therapies, we have identified a few 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 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 currently ongoing and has been expanded
and we expect to complete the treatment of the patients by the third quarter
2003, with some follow-up required. If we are unable to see any satisfactory
results from the clinical trial, we will likely put any further development on
hold.

We are also conducting preclinical studies of SnET2 with existing and 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
with some existing photoselective drugs and financial considerations and other
factors, we may prepare an Investigational New Drug application, or IND, in
cardiovascular disease for MV0633 or existing photoselective drugs. The timing
of the IND is dependent on numerous factors including preclinical results and
available funding and personnel. We are currently pursuing various potential
strategic partners in 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
stenosis in arterial-venous grafts, or AV grafts. AV grafts are placed in
patients with End Stage Renal Disease to provide access for hemodialysis.
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 oncology, we are conducting preclinical research of our photoselective
therapy to destroy abnormal blood vessels in tumors. We are pursuing this tumor
research with some of our photoselective drugs and also investigating
combination therapies using PhotoPoint PDT with other types of compounds.

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" contains forward-looking statements regarding timing of completion of
product development phases. The actual timing of completion of those phases

13

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
Program Description/Indication Phase of Completion of
Development Phase
-------------- ---------------------- ------------------ --------------
Ophthalmology AMD (SnET2) Preparing an NDA Q3 2003
New drug compounds Research studies Completed
Dermatology Psoriasis (MV9411) Phase II Q3 2003
VP and Restenosis
Cardiovascular (MV0633 and other Preclinical studies **
disease compounds)
AV Graft (SnET2) Preclinical studies **
Oncology Tumor research Research studies **

** 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 file an NDA for SnET2, our ability to reduce operating costs as needed, our
ability to regain our listing status on Nasdaq 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.

PHARMACIA CORPORATION

Over time we have entered into a number of agreements with Pharmacia to
fund our operations and develop and market SnET2. On April 16, 2003, Pharmacia
was acquired by Pfizer Inc. Pharmacia survived the transaction as a wholly owned
subsidiary of Pfizer Inc. In March 2002, we entered into a Contract Modification
and Termination Agreement with Pharmacia under which we regained all of the
rights and related data and assets to our lead drug candidate, SnET2, and we
restructured our outstanding debt to Pharmacia. Under the terms of the Contract
Modification and Termination Agreement, various agreements and side letters
between Miravant and Pharmacia have been terminated, most of which are related
to SnET2 license agreements and related drug and device supply agreements, side
letters, the Manufacturing Facility Asset Purchase Agreement and various
supporting agreements. We also modified our 2001 Credit Agreement with
Pharmacia.

The termination of the various agreements provided that all ownership of
the rights, related data and assets to SnET2 and the Phase III AMD clinical
trials for the treatment of AMD revert back to us. The rights transferred back
to us include the ophthalmology IND and the related filings, data and reports
and the ability to license the rights to SnET2. The assets include the lasers
utilized in the Phase III AMD clinical trials, the bulk API manufacturing
equipment, all of the bulk API inventory sold to Pharmacia in 2001 and 2002 and
the finished dose formulation, or FDF, inventory. In addition, we reassumed the
lease obligations and related property taxes for our bulk API manufacturing
facility. The lease agreement expires in March 2006 and currently has a base

14

rent of approximately $26,000 per month. In January 2003, we sublet this
facility through December 2005.

Under the Manufacturing Facility Asset Purchase Agreement, which was
entered into in May 2001 and subsequently terminated in March 2002, Pharmacia
satisfied the following obligations:

. Pharmacia agreed to buy our existing bulk API inventory at cost for
$2.2 million. During 2001, the entire $2.2 million of the existing
bulk API inventory had been delivered to Pharmacia, recorded as
revenue and the payment had been received into the inventory escrow
account;
. Pharmacia committed, through two other purchase orders, to buy up to
an additional $2.8 million of the bulk API which would be manufactured
by us. As of December 31, 2002, we had sold $2.5 million during 2001
and 2002 of newly manufactured bulk API inventory, which had been
delivered to Pharmacia, recorded as revenue and the payment had been
received into the inventory escrow account. No further bulk API will
be sold to Pharmacia;
. Pharmacia agreed to purchase the manufacturing equipment necessary to
produce bulk API. The manufacturing equipment was purchased for
$863,000, its fair market value as appraised by an independent
appraisal firm. The payment for the purchase of the equipment was made
into an equipment escrow account;
. The interest earned by the inventory and equipment escrow accounts
accrued to us and was released in full from each escrow account in
January 2002 and March 2002, respectively. All amounts received into
escrow were recorded as accounts receivable until the amounts were
released.

The Contract Modification and Termination Agreement also modified the 2001
Credit Agreement as follows:

. The outstanding debt that we owed to Pharmacia of approximately $26.8
million, was reduced to $10.0 million plus accrued interest;
. The first payment of $5.0 million, plus interest, was due on March 5,
2003 and was subsequently extended to June 30, 2003. The second
payment of $5.0 million, plus interest, is due on June 4, 2004.
Interest on the debt will be recorded at the prime rate, which was
4.75% on March 5, 2002 and 4.25% at March 31, 2003;
. In exchange for these changes and the rights to SnET2, we terminated
our right to receive a $3.2 million loan that was available under the
2001 Credit Agreement. Also, as Pharmacia has determined that they
will not file an NDA for the SnET2 PhotoPoint PDT for AMD, based upon
their overall analysis of the Phase III AMD data, we will not have
available to us an additional $10.0 million of borrowings as provided
for under the 2001 Credit Agreement. Pharmacia has no obligation to
make any further milestone payments, equity investments or to extend
us additional credit;
. The early repayment provisions were modified and many of the covenants
were eliminated or modified. Our requirement to allocate one-half of
the net proceeds from any public or private equity financings and/or
asset dispositions towards the early repayment of our debt to
Pharmacia was modified as follows:
. If our aggregate net equity financing and/or assets disposition
proceeds are less than or equal to $7.0 million, we are not
required to make an early repayment towards our Pharmacia debt. As
of March 31, 2003, our aggregate equity financings amount to $2.5
million;
. If our aggregate net equity financing and/or assets disposition
proceeds are greater than $7.0 million but less than or equal to
$15.0 million, then we are required to apply one-third of the net
proceeds from the amount in excess of $7.0 million up to $15.0
million, or a maximum repayment of $2.7 million towards our
Pharmacia debt;
. If our aggregate net equity financing and/or assets disposition
proceeds are greater than $15.0 million but less than or equal to
$25.0 million, then we are required to apply one-half of the net
proceeds from the amount in excess of $15.0 million up to $25.0
million, or a maximum repayment of $7.7 million towards our
Pharmacia debt;
. If our aggregate net equity financing and/or assets disposition
proceeds are greater than $25.0 million, then we are required to

15

apply all of the net proceeds from the amount in excess of $25.0
million, or repay the entire $10.0 million plus accrued interest
towards our Pharmacia debt; and
. Any early repayment of our Pharmacia debt applies first to the
loan amount due on June 30, 2003, then to the remaining loan
amount due on June 4, 2004.

Aside from the changes made under the Contract Modification and
Termination Agreement discussed above, there were no changes made to the Warrant
Agreement, the Equity Investment Agreement and the Registration Rights Agreement
with Pharmacia.

Our first payment on our debt to Pharmacia in the amount of $5.0 million
plus interest is due on June 30, 2003. If we cannot make the scheduled payment
or negotiate new terms for the debt repayment with Pharmacia, then Pharmacia can
exercise all of its rights to secure all the collateral under the agreement,
which includes all of our assets. There is no guarantee that we will be able to
make the scheduled payment or that new debt repayment terms will be negotiated
timely, if at all.

RESULTS OF OPERATIONS

REVENUES. Our revenues decreased from $499,000 for the three months ended
March 31, 2002 to no revenues for the three months ended March 31, 2003. The
fluctuations in revenues are due to the following:

BULK ACTIVE PHARMACEUTICAL INGREDIENT SALES. In May 2001, we entered into
an Asset Purchase Agreement with Pharmacia whereby they agreed to buy bulk API
inventory through March 2002. In 2002, we recorded revenue of $479,000 related
to the newly manufactured bulk API inventory. There were no bulk API sales in
first quarter 2003.

LICENSE INCOME. License income, which represents reimbursements of
out-of-pocket or direct costs incurred in preclinical studies and Phase III AMD
clinical trials, decreased from $20,000 for the three months ended March 31,
2002 to no reimbursement income for the three months ended March 31, 2003. The
decrease in license income is specifically related to the termination of the
Pharmacia relationship. Reimbursements received during the three months ended
March 31, 2002 were primarily for costs incurred to complete preclinical studies
for AMD.

We will receive no further reimbursements from Pharmacia related to any of
our ongoing preclinical studies and clinical trials and Pharmacia will not make
any more purchases of bulk API. 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.

COST OF API SALES. In connection with the newly manufactured bulk API sold
under the terms of the Asset Purchase Agreement with Pharmacia, we recorded
$479,000 in manufacturing costs for the three months ended March 31, 2002. The
amounts recorded as cost of API sales represent the costs incurred for only the
newly manufactured bulk API in first quarter 2002. Pharmacia will not be making
any further purchases of bulk API. No cost of API sales were incurred for the
three months ended March 31, 2003 and no further cost of API sales are expected
until regulatory approval is received and commercial sales commence.

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 preclinical studies, clinical trials and related
clinical drug and device development and manufacturing costs, drug formulation
expenses, contract services and other research and development expenditures.
Indirect costs consist of salaries and benefits, overhead and facility costs,
and other support service expenses. Our research and development expenses
decreased from $2.9 million for the three months ended March 31, 2002 to $1.9
million for the same period in 2003. The overall decrease in research and
development expenses is specifically related to the conclusion of the Phase III
AMD clinical trials and the completion of the preclinical studies and our AMD
clinical trial responsibilities. Our research and development expenses, net of
license reimbursement, were $2.9 million for the three months ended March 31,
2002 and $1.9 million for the same period in 2003. Research and development
expenses for the three months ended March 31, 2002 and 2003 related primarily to

16

payroll, payroll taxes, employee benefits and allocated operating costs.
Additionally, the Company incurred research and development expenses for:

. Work associated with the development of new devices, delivery systems,
drug compounds and formulations for the dermatology and cardiovascular
programs;
. Preclinical studies and clinical trial costs for our Phase II
dermatology program; and
. Costs incurred to prepare the NDA for AMD in 2003.

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 2003 2002
------------------------------------ -------------- --------------
Direct costs:
Ophthalmology.................. $ 196,000 $ 20,000
Dermatology.................... 156,000 58,000
Cardiovascular disease......... 185,000 173,000
Oncology....................... 7,000 20,000
-------------- ---------------
Total direct costs................ $ 544,000 $ 271,000

Indirect costs ................... 1,331,000 2,646,000
-------------- ---------------
Total research and development costs $ 1,875,000 $ 2,917,000
============== ===============

OPHTHALMOLOGY. Our direct ophthalmology program costs have increased from
$20,000 for the three months ended March 31, 2002 to $196,000 for the same
period in 2003. Costs incurred for the ophthalmology program have consisted of
clinical trial expenses for the screening, treatment and monitoring of
individuals participating in the AMD clinical trials, internal and external
preclinical study costs, drug and device development and manufacturing costs and
preparation costs for the NDA. The costs incurred and the increase for the three
month period ended March 31, 2003 are specifically related to the preparation of
the NDA filing for SnET2 in AMD compared to minimal ophthalmology activities for
the same period in 2002.

DERMATOLOGY. Our direct dermatology program costs increased from $58,000
for the three months ended March 31, 2002 to $156,000 for the same period in
2003. 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 increase for the three months ended
March 31, 2003 as compared to the same period in 2002 is related to increased
activities and costs of the Phase II clinical trial in 2003, while 2002
consisted primarily of the costs for the preparation of the Phase II clinical
trial, as well as minimal expenditures related to preclinical studies and device
and drug formulation development and manufacturing.

CARDIOVASCULAR DISEASE. Our direct cardiovascular disease program costs
increased from $173,000 for the three months ended March 31, 2002 to $185,000
for the same period in 2003. 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 slight increase from 2002 to 2003 is
related to the progress of the program, which required preclinical studies, as
well as an increase in development and manufacturing activities for drugs and
devices used in the preclinical studies and in preparation for future clinical
trials.

17

ONCOLOGY. Our direct oncology program costs have decreased from $20,000
for the three months ended March 31, 2002, to $7,000 for the same period in
2003. Our oncology program costs have 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 2002 to 2003 is
related to our decision to focus on discovery and research programs for use of
PhotoPoint PDT in oncology, rather than focus on development programs.

INDIRECT COSTS. Our indirect costs have decreased from $2.6 million for
the three months ended March 31, 2002 to $1.3 million for the same period in
2003. Generally, the decrease from 2002 to 2003 was attributed to a reduction in
our program activities, as well as a continued reduction in labor costs due to
employee attrition. The decrease was also related to the sublease of one of our
buildings, which reduced facility and overhead costs.

We expect that future research and development expenses may fluctuate
depending on available funds, continued expenses incurred in our preparation of
the NDA, our 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.

SELLING, GENERAL AND ADMINISTRATIVE. Our selling, general and
administrative expenses have remained consistent at $1.4 million for both the
three months ended March 31, 2002 and March 31, 2003. Selling, general and
administrative expenses for the three months ended March 31, 2002 and 2003
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 decreased from 2002 to 2003 due to the decrease in the
number of administrative employees and a decrease in facility related costs due
to the reduction in facilities. These decreases in 2003 were offset by an
increase in stock compensation costs incurred during the first quarter of 2003.

We expect future selling, general and administrative expenses to remain
consistent with prior periods although they may fluctuate depending on available
funds, and the need to perform our own 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, compensation expense associated with
stock options and warrants granted to consultants and expenses for general
corporate matters.

INTEREST AND OTHER INCOME. Interest and other income decreased from
$74,000 for the three months ended March 31, 2002 to $20,000 for the three
months ended March 31, 2003. The fluctuations in interest and other income are
directly related to the levels of cash and marketable securities earning
interest and the rates of interest being earned. 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 decreased from $281,000 for the three
months ended March 31, 2002 to $106,000 for the three months ended March 31,
2003. The decrease is primarily related to the restructuring of the Pharmacia
loans in March 2002. In accordance with Statement of Financial Accounting
Standard, or SFAS No. 15, with the restructuring of the Pharmacia debt in March
2002, we reduced our outstanding debt to the total future cash payments of the
debt, which included $792,000 designated as interest and $10.0 million as
principal. Also, with the restructuring of the debt, the value of the warrants
issued to Pharmacia was reduced to zero. In the first quarter of 2003, interest
expense consisted of the $20,000 debt extension fee related to the Pharmacia
debt payment extension, interest earned from the promissory notes received
during the quarter in connection with the Debt Agreement which accrues interest
at 9.4%, and the amortization of the warrants issued in connection with each
promissory note. The level of interest expense in future periods is expected to
increase as monthly borrowings on the promissory notes are continued.

18

LIQUIDITY AND CAPITAL RESOURCES

Since inception through March 31, 2003, we have accumulated a deficit of
approximately $192.9 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, Pharmacia's purchases
of Common Stock and credit arrangements. As of March 31, 2003, we have received
proceeds from the sale of equity securities, convertible notes and credit
arrangements of approximately $229.5 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, 2003, 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,
2002 consolidated financial statements that, based on generally accepted
auditing standards, our viability as a going concern is in question.

In March 2002, Miravant and Pharmacia entered into a Contract Modification
and Termination Agreement pursuant to which we regained all of the rights and
related data and assets to our lead drug candidate, SnET2, and restructured our
outstanding debt to Pharmacia.

Under the terms of the Contract Modification and Termination Agreement,
various agreements and side letters between Miravant and Pharmacia have been
terminated. Most of these agreements related to SnET2 license agreements and
related drug and device supply agreements, side letters, the Manufacturing
Facility Asset Purchase Agreement and various supporting agreements. The
termination of the various agreements provided that all ownership of the rights,
data and assets related to SnET2 and the Phase III AMD clinical trials will
revert back to us. The rights transferred back to us include the ophthalmology
IND and the related filings, data and reports and the ability to license the
rights to SnET2. The assets which we received ownership rights to include the
lasers utilized in the Phase III AMD clinical trials, the bulk API manufacturing
equipment, all of the bulk API inventory sold to Pharmacia in 2001 and 2002 and
the FDF inventory. In addition to receiving back all of the bulk API inventory
sold to Pharmacia in 2001, we also received a payment of approximately $479,000
for the costs of the in-process and finished bulk API inventory manufactured
through January 23, 2002. We reassumed the lease obligations and related
property taxes for our bulk API manufacturing facility. The lease agreement
expires in October 2006 and currently has a base rent of approximately $26,000
per month. In January 2003, we sublet this facility through December 2005.

As a condition of the Contract Modification and Termination Agreement,
Pharmacia released to us in March 2002 the $880,000, which included accrued
interest, held in an equipment escrow account, which was originally scheduled
for release in June 2002. These funds represent the $863,000 purchase price that
Pharmacia paid under the Manufacturing Facility Asset Purchase Agreement for the
purchase of our bulk API manufacturing equipment in May 2001 plus interest
earned through the release date.

The Contract Modification and Termination Agreement also modified the 2001
Credit Agreement. The outstanding debt that we owed to Pharmacia of
approximately $26.8 million was reduced to $10.0 million plus accrued interest.
We will be required to make a payment of $5.0 million, plus interest, on each of
June 30, 2003 and June 4, 2004. Interest on the debt will be recorded at the
prime rate, which was 4.75% at March 5, 2002 and 4.25% on March 31, 2003.
Additionally, the early repayment provisions and many of the covenants were
eliminated or modified. In exchange for these changes and the rights to SnET2,
we terminated our right to receive a $3.2 million loan that was available under
the 2001 Credit Agreement. Also, as Pharmacia has determined that they will not
file an NDA for the SnET2 PhotoPoint PDT for AMD and the Phase III clinical
trial data did not meet certain clinical statistical standards, as defined by
the clinical trial protocols, we will not have available an additional $10.0
million of borrowings as provided for under the 2001 Credit Agreement.

STATEMENT OF CASH FLOWS

Net cash provided by operations for the three months ended March 31, 2002
was $479,000. For the three months ended March 31, 2003 net cash used in
operations was $2.8 million. The net cash provided by operations in 2002 is
primarily related to the release of the $5.1 million contained in the inventory

19

and equipment escrow accounts which was offset by an overall decrease in
accounts payable and accrued wages. For the three months ended March 31, 2003,
the net cash used for operations was increased due to an increase in prepaid and
other assets and a decrease in accounts payable and accrued wages.

For the three months ended March 31, 2002, net cash provided by investing
activities was $4,000 and was related to the proceeds from the net sales of
marketable securities. For the three months ended March 31, 2003, net cash used
in investing activities was $101,000 and consisted of the purchases of patents
and property, plant and equipment.

For the three months ended March 31, 2002, net cash required for financing
activities was $90,000 and related to a loan provided to an executive officer of
the Company. The net cash provided by financing activities for the three months
ended March 31, 2003 was $2.8 million and primarily related to the net proceeds
received from the three monthly $1.0 million borrowings received during the
quarter.

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 make the $5.0 million, plus interest, payments on the
debt due to Pharmacia on the related payment dates of June 30, 2003
and June 4, 2004;
. Our ability to successfully negotiate new debt repayment terms on our
$10.0 million debt plus interest due to Pharmacia if we cannot make
the scheduled payments;
. Our ability to continue our efforts to reduce our use of cash, while
continuing to advance programs;
. Our ability to meet our obligations under the Debt Agreement;
. The viability of SnET2 for future use;
. The costs and time involved in preparing a New Drug Application, or
NDA, filing;
. Our ability to obtain regulatory approval for our NDA when, and if,
filed;
. Our ability to establish additional collaborations and/or license
SnET2;
. The cost of performing pre-commercialization activities;
. 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, 2003, 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
preparing an 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. In December 2002, we
entered into a Debt Agreement that provides us the availability to borrow up to
$1.0 million per month through November 2003. The monthly borrowing request can
be limited if certain requirements are not met or are not satisfactory to the
Lenders. As of May 14, 2003, we had borrowed $5.0 million under the Debt
Agreement. Also, our first payment on our debt to Pharmacia, in the amount of
$5.0 million, plus interest from March 5, 2003 to the payment date, is due on
June 30, 2003. If we cannot make the scheduled payment or negotiate new terms
for the debt repayment with Pharmacia, then Pharmacia can exercise all of its
rights to secure all of the collateral under the agreement, which includes all
of our assets. Our executive management 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

20

prior to December 31, 2003, especially based on our announcement that we intend
to file an NDA in 2003. However, there can be no assurance that we will receive
the remaining $7.0 million under the Debt Agreement, if certain requirements are
not met or are not satisfactory to the Lenders, there is no guarantee that we
will be able to make the scheduled debt payment to Pharmacia or that new debt
repayment terms will be timely negotiated, if at all, and there is no guarantee
that we will be successful in obtaining additional financing or that financing
will available on favorable terms. If additional funding is not available when
required, our executive management believes as long as we receive the remaining
$7.0 million available to us under the Debt Agreement and the debt payment due
to Pharmacia on June 30, 2003 has been paid or is extended into 2004, we then
have the ability to conserve cash required for operations through December 31,
2003 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 to conserve cash
to be used in operations. 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 prepare and file an NDA for SnET2 in 2003;
. The outcome from the FDA upon 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 extent to which our obligation to pay Pharmacia a portion of the
funds received in our financing activities will hinder our fundraising
efforts;
. Our requirement to allocate certain percentages of net proceeds from
any public or private equity financings and/or asset dispositions, as
defined earlier, towards the repayment of our debt of $10.0 million
plus interest due to Pharmacia under the Contract Modification and
Termination Agreement;
. 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;
. Our ability to maintain, renegotiate, or terminate our existing
collaborative arrangements;
. Our ability to receive any funds from the sale of our 33% equity
investment in Ramus, consisting of 2,000,000 shares of Ramus Preferred
Stock and 59,112 shares of Ramus Common Stock, neither of which are
publicly traded and the fair market value of which is currently
negligible;
. Our ability to liquidate our equity investment in Xillix, consisting
of 2,691,904 shares of Xillix Common Stock, which is publicly traded
on the Toronto Stock Exchange under the symbol (XLX.TO), but has
historically had very small trading volume; and
. Our ability to collect the loan provided to Ramus under their credit
agreement with us.

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, 2002 consolidated financial
statements that, based on generally accepted auditing standards, our viability
as a going concern is in question.

21

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

OUR BUSINESS IS NOT EXPECTED TO BE PROFITABLE FOR THE FORESEEABLE FUTURE AND WE
WILL NEED ADDITIONAL FUNDS TO CONTINUE OUR OPERATIONS PAST DECEMBER 31, 2003. IF
WE FAIL TO OBTAIN ADDITIONAL FUNDING OR MEET THE REQUIREMENTS OF OUR DECEMBER
2002 CONVERTIBLE DEBT AND WARRANT AGREEMENT, OR DEBT AGREEMENT, WE COULD BE
FORCED TO SIGNIFICANTLY SCALE BACK OR CEASE OPERATIONS.

Since our inception we have incurred losses totaling $192.9 million as of
March 31, 2003 and have never generated enough funds through our operations to
support our business. We are continuing our efforts in research and development
and the preclinical studies and clinical trials of our products. These efforts,
along with the cost of preparing a New Drug Application, or 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. In December 2002, we entered into a $12.0 million
Debt Agreement with a group of private accredited investors, or the Lenders,
that provides us the availability to borrow up to $1.0 million per month through
November 2003, subject to certain limitations. The monthly borrowing request can
be limited if certain requirements are not met or are not satisfactory to the
Lenders. As of May 14, 2003, we have borrowed $5.0 million under the Debt
Agreement. Our executive management believes that as long as the remaining $7.0
million remains available to us under the Debt Agreement and the debt payment
due to Pharmacia on June 30, 2003 has been paid or is extended into 2004, we
then have the ability to conserve cash required for operations through December
31, 2003 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.

In addition, our first payment on our debt to Pharmacia Corporation, or
Pharmacia, in the amount of $5.0 million, plus interest, was due on March 5,
2003, and was extended to June 30, 2003. Executive management also believes 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, 2003, especially due
to our announcement that we intend to file an NDA, for SnET2 in 2003. However,
there can be no assurance that we will receive the remaining $7.0 million under
the Debt Agreement, if certain requirements are not met or are not satisfactory
to the Lenders, or that we will be able to make our first payment to Pharmacia
on June 30, 2003 or again negotiate new payment terms, and there is no guarantee
that we will be successful in obtaining additional financing or that financing
will available on favorable terms. Our independent auditors, Ernst & Young LLP,
have indicated in their report accompanying our December 31, 2002 consolidated
financial statements that, based on generally accepted auditing standards, our
viability as a going concern is in question.

We will need additional resources in the near term to complete the NDA
filing, to develop our products and to continue our operations. If we do not
receive sufficient funding prior to December 2003, and can not extend the debt
payment due to Pharmacia into 2004 and are required to pay it on June 30, 2003,
we may be forced to significantly reduce or cease operations. The timing and
magnitude of our future capital requirements will depend on many factors,
including:

. Our ability to make the $5.0 million, plus interest, payments on the
debt due to Pharmacia on the related payment dates of June 30, 2003
and June 4, 2004;

22

. Our ability to successfully negotiate new debt repayment terms on our
$10.0 million debt plus interest due to Pharmacia if we cannot make
the scheduled payments;
. Our ability to continue our efforts to reduce our use of cash, while
continuing to advance programs;
. Our ability to meet our obligations under the Debt Agreement;
. The viability of SnET2 for future use;
. The costs and time involved in preparing an NDA filing;
. Our ability to obtain regulatory approval for our NDA when, and if,
filed;
. Our ability to establish additional collaborations and/or license
SnET2;
. The cost of performing pre-commercialization activities;
. 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 are actively seeking 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. No
commitments for such corporate collaborations are currently in place. Any
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 may
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.

UNDER THE CONTRACT MODIFICATION AND TERMINATION AGREEMENT ENTERED INTO WITH
PHARMACIA IN MARCH 2002, OUR OUTSTANDING DEBT TO PHARMACIA OF $10.0 MILLION
REMAINS SECURED BY ALL OF OUR ASSETS. THE FIRST $5.0 MILLION WAS DUE ON MARCH 5,
2003 AND HAS BEEN EXTENDED TO JUNE 30, 2003. IF WE BECOME UNABLE TO REPAY OUR
BORROWINGS OR ARE UNABLE TO NEGOTIATE NEW DEBT REPAYMENT TERMS OR VIOLATE THE
COVENANTS UNDER THIS AGREEMENT, PHARMACIA COULD FORECLOSE ON OUR ASSETS, WHICH
WOULD HAVE A MATERIAL ADVERSE AFFECT ON OUR BUSINESS AND WE MAY BE FORCED TO
CEASE OPERATIONS.

Under the terms of the Contract Modification and Termination Agreement
with Pharmacia, who was acquired by Pfizer Inc. on April 16, 2003 and is now a
wholly-owned subsidiary of Pfizer Inc., we have outstanding debt to Pharmacia of
$10.0 million which is secured by all of our assets. Our first payment was due
on our debt to Pharmacia in the amount of $5.0 million, plus interest, on March
5, 2003 and was extended to June 30, 2003. If we cannot make the scheduled
payments or are unable to negotiate new terms for the debt repayment with
Pharmacia, then Pharmacia can exercise all of its rights to secure all of the
collateral under the agreement, which includes all of our assets. There is no
guarantee that if we cannot make this payment new debt repayment terms will be
timely negotiated, if at all. Our ability to comply with all covenants and to
make scheduled payments, early repayments as required or to refinance our debt
obligations will depend on our financial and operating performance, which in
turn will be subject to prevailing economic conditions and certain financial,
business and other factors, including factors that are beyond our control. If
our cash flow and capital resources become insufficient to fund our debt service
obligations or we otherwise default under the Contract Modification and
Termination Agreement, Pharmacia could accelerate the debt and foreclose on our
assets. As a result, we could be forced to obtain additional financing at very
unfavorable terms or significantly reduce or cease operations.

OUR ABILITY TO CONTINUE TO BORROW $1.0 MILLION PER MONTH THROUGH NOVEMBER 2003
UNDER THE DEBT AGREEMENT ENTERED INTO IN DECEMBER 2002, IS CONTINGENT ON US
MEETING CERTAIN OBLIGATIONS. IF THESE OBLIGATIONS ARE NOT MET OR ARE NOT
SATISFACTORY TO THE LENDERS, WE MAY BE UNABLE TO BORROW THE FUNDS AS PLANNED AND
THIS MAY FORCE US TO SIGNIFICANTLY REDUCE OR CEASE OPERATIONS.

23

In December 2002, we entered into a Debt Agreement with a group of private
accredited investors, or the Lenders. The $12.0 million Debt Agreement allows us
to borrow up to $1.0 million per month, with any unused monthly borrowings to be
carried forward. We have borrowed $5.0 million under this agreement through May
14, 2003. The maximum aggregate loan amount is $12.0 million with the last
available borrowing in November 2003. The Lenders' obligation to fund each
borrowing request is subject to material conditions described in the Debt
Agreement. In addition, the Lenders may terminate its obligations under the Debt
Agreement if: (i) Miravant has not filed an NDA by March 31, 2003, (ii) such
filing has been rejected by the U.S. Food and Drug Administration, or FDA, or
(iii) Miravant, in the reasonable judgment of the Lenders, is not meeting its
business objectives. We have received a waiver from the Lenders with regard to
the March 31, 2003 NDA filing deadline. This deadline has been extended to the
end of the third quarter 2003. However, there is no guarantee we will receive
the remaining $7.0 million under this agreement, and if we are unable to borrow
the remaining $7.0 million as planned we may be forced to significantly reduce
or cease operations.

OUR EXISTING LOAN OBLIGATIONS TO PHARMACIA, OVERALL CURRENT MARKET ENVIRONMENT
AND OUR OTC BULLETIN BOARD(R), OR OTCBB, LISTING STATUS WILL MAKE OBTAINING
ADDITIONAL FUNDING DIFFICULT.

Our ability to obtain additional funding by December 31, 2003 to operate
our business may be impeded by a number of factors including:

. We currently owe Pharmacia $10.0 million, and are obligated to pay a
portion of net proceeds from any public or private equity financings
and/or asset dispositions towards the repayment of the $10.0 million
plus accrued interest due to Pharmacia under the Contract Modification
and Termination Agreement:
. If our aggregate net equity financing and/or assets disposition
proceeds are less than or equal to $7.0 million, we are not
required to make an early repayment towards our Pharmacia debt. As
of March 31, 2003, our aggregate equity financings amount to $2.5
million;
. If our aggregate net equity financing and/or assets disposition
proceeds are greater than $7.0 million but less than or equal to
$15.0 million, then we are required to apply one-third of the net
proceeds from the amount in excess of $7.0 million up to $15.0
million, or a maximum repayment of $2.7 million towards our
Pharmacia debt;
. If our aggregate net equity financing and/or assets disposition
proceeds are greater than $15.0 million but less than or equal to
$25.0 million, then we are required to apply one-half of the net
proceeds from the amount in excess of $15.0 million up to $25.0
million, or a maximum repayment of $7.7 million towards our
Pharmacia debt;
. If our aggregate net equity financing and/or assets disposition
proceeds are greater than $25.0 million, then we are required to
apply all of the net proceeds from the amount in excess of $25.0
million, or repay the entire $10.0 million plus accrued interest
towards our Pharmacia debt; and
. Any early repayment of our Pharmacia debt applies first to the
loan due on June 30, 2003, then to the remaining loan amount due
on June 4, 2004;
. Our Common Stock is currently being traded on the OTCBB and there is
no guarantee we will be able to regain our listing status on Nasdaq,
in the near term or at all; and
. As a result of many current economic and political factors, the
present market for raising capital is relatively difficult and we may
be unable to raise the funding we need timely, if at all, if certain
economic and political factors do not improve.

We will need a substantial amount of funding to further our programs and
to complete our planned NDA filing for SnET2 in 2003, and investors may be
reluctant to invest in our equity securities if the funds necessary to grow our
business are instead used to pay down our existing debt obligations to
Pharmacia. Investors may also be reluctant to provide us funds for fear that
Pharmacia may foreclose on our assets. The fact that our Common Stock is no
longer listed for trading on Nasdaq may also discourage investors or result in a
discount on the price that investors may pay for our securities. We will also
have to overcome investor concerns about many current economic and political
factors. These and other factors may prevent us from obtaining additional
financing as required in the near term on favorable terms or at all.

24

PREPARING AND FILING AN NDA REQUIRES SIGNIFICANT EXPENSES, THE APPROPRIATE
PERSONNEL AND ACCESS TO CONSULTANTS AND OTHER RESOURCES AS NEEDED. OUR PLANS TO
COMPLETE AN NDA FILING WITH THE FDA FOR SNET2 FOR THE TREATMENT OF AMD IN 2003
IS DEPENDENT ON OUR ABILITY TO SUCCESSFULLY RAISE SUBSTANTIAL ADDITIONAL
FUNDING, OR ENGAGE A COLLABORATIVE PARTNER, AND TO ENGAGE CONSULTANTS AND
PERSONNEL AS NEEDED ALL IN A TIMELY MANNER. IF WE ARE UNABLE TO MEET THESE
REQUIREMENTS OUR PLANS TO FILE AN NDA WITH THE FDA MAY BE SIGNIFICANTLY DELAYED
OR MAY NOT GET FILED AT ALL.

In January 2002, Pharmacia, after an analysis 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 filing 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.
We completed our own detailed analysis of the clinical data during 2002,
including an analysis of the subset groups. In January 2003, based on the
results of our analysis and certain discussions with regulatory and FDA
consultants, we announced our plans to move forward with an NDA filing for SnET2
for the treatment of AMD. We are currently in the process of preparing the NDA
filing and expect to have it completed and filed in 2003. In addition, we are
currently seeking a new collaborative partner for PhotoPoint PDT in
ophthalmology. The cost of preparing an NDA requires a significant amount of
funding and personnel. We will have to engage numerous consultants and clinical
research organizations, or CROs, to assist in the preparation of the NDA. Our
ability to engage the appropriate CROs and consultants in a timely manner and
have them available to us when we need them is costly and may cause delays in
the filing of the NDA. Additionally, our ability to raise funding or engage a
collaborative partner to assist us in the funding and preparation of the NDA may
not be available to us timely or not at all. If we are unable to raise adequate
funding, we will likely have to further reduce our funding and development
efforts of our other programs and adjust our overall business structure to
reduce expenses. If we are unable to file an NDA for SnET2 as a result of
funding or other constraints or if the FDA does not accept our filing, this
could severely harm our business.

ONCE OUR NDA FOR SNET2 FOR THE TREATMENT OF AMD IS FILED, IF FILED AT ALL, THERE
CAN BE NO ASSURANCE THAT WE WILL BE ABLE TO GET APPROVAL FROM THE FDA OR THAT
ISSUES UNDERLYING ANY CONTINGENT APPROVAL RECEIVED WILL BE ADEQUATELY AND TIMELY
RESOLVED BY US OR THAT SUCH APPROVAL WILL MEET OUR MARKETING AND REVENUE
EXPECTATIONS. ADDITIONALLY, WE CAN NOT 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.

If we are able to file our NDA for SnET2 for the treatment of AMD, there
can be no guarantee the we will be able to get an approval from the FDA or that
we will be able to resolve any issues or contingent requirements requested by
the FDA. For instance, the FDA may require follow-up clinical 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.

THE CURRENT TRADING PRICE OF OUR COMMON STOCK, OUR MARKET CAPITALIZATION AND THE
AMOUNT OF OUR STOCKHOLDER'S EQUITY AND NET TANGIBLE ASSETS, HAS RESULTED IN OUR
SHARES BEING DELISTED FROM TRADING ON NASDAQ. AS A RESULT OF BEING DELISTED FROM
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 OTCBB effective as of the opening of business on July 12, 2002.
The OTCBB is a regulated quotation service that displays real-time quotes,
last-sale prices and volume information in over-the-counter equity securities.
OTCBB securities are traded by a community of market makers that enter quotes
and trade reports. Our Common Stock trades under the ticker symbol MRVT and can
be viewed at www.otcbb.com. Our management continues to review our ability to
regain our listing status with Nasdaq, however, there are no guarantees we will
be able to raise the additional capital needed or to increase the current

25

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 on a timely basis,
if at all, and there is no guarantee that Nasdaq would approve our relisting
request even if we met all the listing requirements.

OUR FINANCIAL CONDITION AND COST REDUCTION EFFORTS COULD RESULT IN DECREASED
EMPLOYEE MORALE AND LOSS OF EMPLOYEES AND CONSULTANTS 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 that our current stock options outstanding are
significantly de-valued, the current value of our stock is low 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. These efforts may not be successful; and

26

. 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. 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