Form 10-Q 3/31/07
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
|
(Mark
One)
|
|
|
ý
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007
|
|
| |
|
|
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934 FOR THE TRANSITION PERIOD FROM TO
|
|
COMMISSION
FILE NUMBER: 000-14879
Cytogen
Corporation
(EXACT
NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
|
Delaware
|
22-2322400
|
|
(State
of Incorporation)
|
(I.R.S.
Employer Identification No.)
|
650
College Road East, Suite 3100, Princeton, New Jersey
08540-5308
(Address
of principal executive offices)(Zip Code)
(609)
750-8200
(Registrant's
telephone number, including area code)
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to the filing requirements
for
at least the past 90 days. Yes ý
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.
|
Large
Accelerated Filer o
|
Accelerated
Filer ý
|
Non-
Accelerated Filer o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
o
No
ý
APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d)of the Securities Exchange
Act
of 1934 subsequent to the distribution of securities under a plan confirmed
by a
court.
o
Yes
o
No
APPLICABLE
ONLY TO CORPORATE ISSUERS:
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
|
Class:
Common Stock, $.01 par value
|
Outstanding
at May 4, 2007: 29,644,484
|
QUARTERLY
REPORT ON FORM 10-Q
MARCH
31,
2007
TABLE
OF CONTENTS
| |
Page
|
|
|
1
|
|
|
1
|
|
|
2
|
|
|
3
|
|
|
4
|
|
|
5
|
|
|
13
|
|
|
27
|
|
|
27
|
|
|
29
|
|
|
29
|
|
|
29
|
|
|
41
|
|
|
42
|
PROSTASCINT®,
QUADRAMET® and CAPHOSOL® are registered United States trademarks of Cytogen
Corporation. All other trade names, trademarks or servicemarks appearing in
this
Quarterly Report on Form 10-Q are the property of their respective owners,
and
not the property of Cytogen Corporation or any of its subsidiaries.
CONSOLIDATED
BALANCE SHEETS
(All
amounts in thousands, except share and per share data)
(Unaudited)
| |
|
March
31,
2007
|
|
December
31,
2006
|
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
25,585
|
|
$
|
32,507
|
|
|
Restricted
cash
|
|
|
1,100
|
|
|
1,100
|
|
|
Accounts
receivable, net
|
|
|
2,176
|
|
|
2,113
|
|
|
Inventories
|
|
|
3,889
|
|
|
2,538
|
|
|
Inventories
at wholesalers
|
|
|
157
|
|
|
93
|
|
|
Prepaid
expenses
|
|
|
2,623
|
|
|
1,571
|
|
|
Other
current assets
|
|
|
52
|
|
|
63
|
|
| |
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
35,582
|
|
|
39,985
|
|
| |
|
|
|
|
|
|
|
|
Property
and equipment, less accumulated depreciation and amortization of
$1,535
and $1,409 at March 31, 2007 and December 31, 2006,
respectively
|
|
|
780
|
|
|
691
|
|
|
Product
license fees, less accumulated amortization of $2,889 and $2,577
at March
31, 2007 and December 31, 2006, respectively
|
|
|
11,300
|
|
|
11,612
|
|
|
Other
assets
|
|
|
2,096
|
|
|
2,065
|
|
| |
|
|
|
|
|
|
|
| |
|
$
|
49,758
|
|
$
|
54,353
|
|
| |
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Current
portion of long-term liabilities
|
|
|
86
|
|
|
64
|
|
|
Accounts
payable and accrued liabilities
|
|
|
10,909
|
|
|
10,104
|
|
| |
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
10,995
|
|
|
10,168
|
|
| |
|
|
|
|
|
|
|
|
Warrant
liabilities
|
|
|
5,369
|
|
|
6,464
|
|
|
Other
long-term liabilities
|
|
|
92
|
|
|
59
|
|
|
Total
liabilities
|
|
|
16,456
|
|
|
16,691
|
|
| |
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, $.01 par value, 5,400,000 shares authorized-Series C Junior
Participating Preferred Stock, $.01 par value, 200,000 shares authorized,
none issued and outstanding
|
|
|
--
|
|
|
--
|
|
|
Common
stock, $.01 par value, 50,000,000 shares authorized, 29,623,985 and
29,605,631 shares issued and outstanding at March 31, 2007 and December
31, 2006, respectively
|
|
|
296
|
|
|
296
|
|
|
Additional
paid-in capital
|
|
|
465,478
|
|
|
465,016
|
|
|
Accumulated
other comprehensive income
|
|
|
30
|
|
|
20
|
|
|
Accumulated
deficit
|
|
|
(432,502
|
)
|
|
(427,670
|
)
|
| |
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
33,302
|
|
|
37,662
|
|
| |
|
|
|
|
|
|
|
| |
|
$
|
49,758
|
|
$
|
54,353
|
|
The
accompanying notes are an integral part of these statements.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(All
amounts in thousands, except per share data)
(Unaudited)
| |
|
Three
Months Ended March 31,
|
|
| |
|
2007
|
|
2006
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Product
revenue:
|
|
|
|
|
|
|
|
|
QUADRAMET
|
|
$
|
2,350
|
|
$
|
2,256
|
|
|
PROSTASCINT
|
|
|
2,456
|
|
|
2,184
|
|
|
Total
product revenue
|
|
|
4,806
|
|
|
4,440
|
|
| |
|
|
|
|
|
|
|
|
Contract
revenue
|
|
|
2
|
|
|
2
|
|
| |
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
4,808
|
|
|
4,442
|
|
| |
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Cost
of product revenue
|
|
|
2,902
|
|
|
2,362
|
|
|
General
and administrative
|
|
|
2,410
|
|
|
2,363
|
|
|
Selling
and marketing
|
|
|
8,131
|
|
|
3,874
|
|
|
Research
and development
|
|
|
1,604 |
|
|
3,036 |
|
|
Equity
in loss of joint venture
|
|
|
--
|
|
|
133
|
|
| |
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
15,047
|
|
|
11,768
|
|
| |
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(10,239
|
)
|
|
(7,326
|
)
|
| |
|
|
|
|
|
|
|
|
Interest
income
|
|
|
376
|
|
|
297
|
|
|
Interest
expense
|
|
|
(10
|
)
|
|
(6
|
)
|
|
Advanced
Magnetics Inc. litigation settlement, net
|
|
|
3,946
|
|
|
--
|
|
|
(Increase)
decrease in value of warrant liabilities
|
|
|
1,095
|
|
|
(631
|
)
|
| |
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(4,832
|
)
|
$
|
(7,666
|
)
|
| |
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share
|
|
$
|
(0.16
|
)
|
$
|
(0.34
|
)
|
| |
|
|
|
|
|
|
|
|
Weighted-average
common shares outstanding
|
|
|
29,606
|
|
|
22,474
|
|
| |
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these statements.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(All
amounts in thousands)
(Unaudited)
| |
|
Three
Months Ended March 31,
|
|
| |
|
2007
|
|
2006
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(4,832
|
)
|
$
|
(7,666
|
)
|
|
Adjustments
to reconcile net loss to net cash used
|
|
|
|
|
|
|
|
|
in
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
438
|
|
|
285
|
|
|
Increase
(decrease) in value of warrant liabilities
|
|
|
(1,095
|
)
|
|
631
|
|
|
Share-based
compensation expense
|
|
|
428
|
|
|
462
|
|
|
Other
|
|
|
(11
|
)
|
|
4
|
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivables
|
|
|
(57
|
)
|
|
(210
|
)
|
|
Inventories
|
|
|
(1,351
|
)
|
|
1,493
|
|
|
Other
assets
|
|
|
(1,099
|
)
|
|
389
|
|
|
Accounts
payable and accrued liabilities
|
|
|
792
|
|
|
450
|
|
| |
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(6,787
|
)
|
|
(4,162
|
)
|
| |
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(153
|
)
|
|
(57
|
)
|
| |
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(153
|
)
|
|
(57
|
)
|
| |
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds
from issuances of common stock
|
|
|
34
|
|
|
--
|
|
|
Payment
of long-term liabilities
|
|
|
(16
|
)
|
|
(6
|
)
|
| |
|
|
|
|
|
|
|
|
Net
cash provided by (used in) financing activities
|
|
|
18
|
|
|
(6
|
)
|
| |
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(6,922
|
)
|
|
(4,225
|
)
|
| |
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
32,507
|
|
|
30,337
|
|
| |
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
25,585
|
|
$
|
26,112
|
|
| |
|
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash information:
|
|
|
|
|
|
|
|
|
Capital
lease of equipment
|
|
$
|
71
|
|
$
|
84
|
|
|
Unrealized
holding gain on marketable securities
|
|
$
|
10
|
|
$
|
96
|
|
| |
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash information:
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
10
|
|
$
|
5
|
|
The
accompanying notes are an integral part of these statements.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. THE
COMPANY
Background
Cytogen
Corporation (the "Company") is a specialty pharmaceutical company dedicated
to
advancing the treatment and care of cancer patients by building, developing,
and
commercializing a portfolio of oncology products for underserved markets where
there are unmet needs. The Company's specialized sales force currently markets
three therapeutic products and one diagnostic product to the U.S. oncology
market. The Company introduced CAPHOSOL late in the first quarter of 2007.
CAPHOSOL is an electrolyte solution for the treatment of oral mucositis and
dry
mouth that was approved as a prescription medical device. QUADRAMET is approved
for the treatment of pain in patients whose cancer has spread to the bone.
PROSTASCINT is
a
PSMA-targeting monoclonal antibody-based agent to image the extent and spread
of
prostate cancer. SOLTAMOX, which the Company introduced in the second half
of
2006, is the first liquid hormonal therapy approved in the U.S. for the
treatment of breast cancer in adjuvant and metastatic settings. Currently,
the
Company's clinical development initiatives are focused on new indications for
QUADRAMET and PROSTASCINT, as well as the product candidate, CYT-500, a
radiolabeled antibody in Phase 1 development for the treatment of prostate
cancer.
Cytogen
has a history of operating losses since its inception. The Company currently
relies on two products, PROSTASCINT and QUADRAMET, for substantially all of
its
current revenues. We will depend on market acceptance of SOLTAMOX and CAPHOSOL
for future revenues. If SOLTAMOX or CAPHOSOL does not achieve market acceptance,
either because the Company fails to effectively market such products or
competitors introduce competing products, the Company will not be able to
generate sufficient revenue to become profitable. The Company has, from time
to
time, stopped selling certain products that the Company previously believed
would generate significant revenues. The Company's products are subject to
significant regulatory review by the FDA and other federal and state agencies,
which requires significant time and expenditures in seeking, maintaining and
expanding product approvals. In addition, the Company relies on collaborative
partners to a significant degree, among other things, to manufacture its
products, to secure raw materials, and to provide licensing rights to their
proprietary technologies for the Company to sell and market to others. The
Company is also subject to revenue and credit concentration risks as a small
number of its customers account for a high percentage of total revenues and
corresponding receivables. The loss of one of these customers or changes in
their buying patterns could result in reduced sales, thereby adversely affecting
the operating results.
The
Company has incurred negative cash flows from operations since its inception,
and has expended, and expects to continue to expend, substantial funds to
implement its planned product development efforts, including acquisition of
products and complementary technologies, research and development, clinical
studies and regulatory activities, and to further the Company's marketing and
sales programs including new product launches. The Company expects
its
existing
capital resources at March 31, 2007 should be adequate to fund operations and
commitments at least into 2008. The Company cannot assure you that its business
or operations will not change in a manner that would consume available resources
more rapidly than anticipated. The Company expects that it will have additional
requirements for debt or equity capital, irrespective of whether and when
profitability is reached, for further product development costs, product and
technology acquisition costs, and working capital.
Basis
of Consolidation
The
consolidated financial statements include the financial statements of Cytogen
and its subsidiaries. All intercompany balances and transactions have been
eliminated in consolidation.
Basis
of Presentation
The
consolidated financial statements and notes thereto of Cytogen are unaudited
and
include all adjustments which, in the opinion of management, are necessary
to
present fairly the financial condition and results of operations as of and
for
the periods set forth in the Consolidated Balance Sheets, Consolidated
Statements of Operations and Consolidated Statements of Cash Flows. All such
accounting adjustments are of a normal, recurring nature. The consolidated
financial statements do not include all of the information and footnote
disclosures normally included in financial statements prepared in accordance
with U.S. generally accepted accounting principles and should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K, filed with the Securities
and Exchange Commission, which includes financial statements as of and for
the
year ended December 31, 2006. The results of the Company's operations for any
interim period are not necessarily indicative of the results of the Company's
operations for any other interim period or for a full year.
Summary
of Significant Accounting Policies
Use
of Estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash
and Cash Equivalents
Cash
and
cash equivalents include cash in banks and all highly-liquid investments
with a maturity of three months or less at the time of purchase.
Restricted
Cash
In
connection with the Company's license agreement with InPharma executed in
October 2006, the Company pledged $1.1 million as collateral to secure a letter
of credit for $1.0 million in favor of InPharma to guarantee Cytogen's payment
obligation of $1.0 million, which was paid
on
April
11, 2007 (see Note 6). The cash collateral was released from restriction upon
the expiration of the letter of credit on April 17, 2007.
Inventories
The
Company's inventories include PROSTASCINT, CAPHOSOL, and SOLTAMOX with the
majority of the inventories related to PROSTASCINT. Inventories are stated
at
the lower of cost or market as determined using the first-in, first-out method
and consisted of the following (all amounts in thousands):
| |
|
March
31, 2007
|
|
December
31, 2006
|
|
|
Raw
materials
|
|
$
|
274
|
|
$
|
325
|
|
|
Work-in-process
|
|
|
2,903
|
|
|
1,296
|
|
|
Finished
goods
|
|
|
712
|
|
|
917
|
|
| |
|
$
|
3,889
|
|
$
|
2,538
|
|
Net
Loss Per Share
Basic
net
loss per common share is calculated by dividing the Company’s net loss by the
weighted-average common shares outstanding during each period. Diluted net
loss
per common share is the same as basic net loss per share for each of the three
month periods ended March 31, 2007 and 2006 because the inclusion of common
stock equivalents, which consist of nonvested shares, warrants and options
to
purchase shares of the Company’s common stock, would be antidilutive due to the
Company’s losses.
Other
Comprehensive Income or Loss
Other
comprehensive income consisted of unrealized holding gains on marketable
securities. For the three months ended March 31, 2007, the unrealized holding
gain for these securities was $10,000 and, as a result, the comprehensive loss
for the three months ended March 31, 2007 was $4,822,000. For the three months
ended March 31, 2006, the unrealized holding gain for these securities was
$96,000 and, as a result, the comprehensive loss for the three months ended
March 31, 2006 was $7,570,000.
Recent
Accounting Pronouncements
In
February 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 159 "The Fair Value
Option for Financial Assets and Financial Liabilities, Including an Amendment
of
FASB Statement No. 115" (SFAS No. 159), which will become effective for fiscal
years beginning after November 15, 2007. SFAS No. 159 permits entities to
measure eligible financial assets and financial liabilities at fair value,
on an
instrument-by-instrument basis, that are otherwise not permitted to be accounted
for at fair value under other generally accepted accounting principles. The
fair
value measurement election is irrevocable and subsequent changes in fair value
must be recorded in earnings. The Company will adopt SFAS No. 159 in fiscal
year
2008 and is evaluating if it will elect the fair value option for any of its
eligible financial instruments.
Fair
Value Measurement
In
September 2006, the FASB finalized SFAS No. 157, “Fair Value Measurements” (SFAS
157) which will become effective in 2008. This Statement defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements; however, it does not require any new fair value
measurements. The provisions of SFAS 157 will be applied prospectively to fair
value measurements and disclosures beginning in the first quarter of 2008 and
is
not expected to have a material effect on the Company’s consolidated financial
statements.
Income
Taxes
Effective
January 1, 2007, the Company adopted FASB Interpretation No. 48, "Accounting
for
Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109" ("FIN
48"). FIN 48 prescribes how a company should recognize, measure, present and
disclose uncertain income tax position. A “tax position” is a position taken on
a previously filed tax return, or expected to be taken in a future tax return
that is reflected in the measurement of current and deferred tax assets or
liabilities for interim or annual periods. A tax position can result in a
permanent reduction of income taxes payable, a deferral of income taxes to
future periods, or a change in the expected ability to realize deferred tax
assets. A change in net assets that results from adoption of FIN 48 is recorded
as an adjustment to retained earnings in the period of adoption. The adoption
of
FIN 48 did not have any impact on the Company's consolidated financial
statements.
On
May 2,
2007, the FASB Staff Position amended FIN 48 to provide guidance on how an
enterprise should determine whether a tax position is effectively settled for
the purpose of recognizing previously unrecognized tax benefits. This guidance,
which is effective immediately, had no impact on the Company's consolidated
financial statements as of and for the three month period ended March 31,
2007.
Reclassification
Certain
amounts in prior year’s consolidated financial statements have been reclassified
to conform to the current year presentation.
2.
SHARE-BASED COMPENSATION
The
Company accounts for its share-based compensation according to the provisions
of
SFAS No. 123(R), “Share-Based Payment,” which requires companies to measure and
recognize compensation expense for all share-based payments at fair value.
The
Company's share-based compensation costs are generally based on the fair value
of the option awards calculated using the Black-Scholes option pricing model
on
the date of grant.
For
the
three months ended March 31, 2007, the Company recorded $428,000 of share-based
compensation expense, of which $357,000 was included in selling, general and
administrative expenses and $71,000 was recorded in research and development
expenses. For the three months ended March 31, 2006, the Company recorded
charges of $462,000, for share-based compensation, of which $403,000 was
included in selling, general and administrative expenses and $59,000 in research
and development expenses. During the three month periods
ended
March 31, 2007 and 2006, there were no modifications to the share-based awards
and no compensation cost was capitalized into assets.
The
weighted-average grant date fair value per share of the options granted under
the Cytogen stock option plans during the three months ended March 31, 2007
is
estimated at $1.83 per share, as compared to $2.40 in the same period of 2006,
using the Black-Scholes option pricing model with the following weighted average
assumptions:
| |
Three
Months Ended
March
31, 2007
|
|
Three
Months Ended
March
31, 2006
|
| |
|
|
|
|
Expected
life (years)
|
5.98
|
|
5.95
|
|
Expected
volatility
|
83%
|
|
99%
|
|
Dividend
yield
|
0%
|
|
0%
|
|
Risk-free
interest rate
|
4.7%
|
|
4.6%
|
The
compensation costs for nonvested share awards are based on the fair value of
Cytogen common stock on the date of grant. The weighted-average grant date
fair
value per share of nonvested share awards granted during the three months ended
March 31, 2007 was $2.50, as compared to $2.86 during the three months ended
March 31, 2006.
3.
LAUREATE PHARMA, L.P.
In
September 2006, the Company entered into a non-exclusive manufacturing agreement
with Laureate pursuant to which Laureate shall manufacture PROSTASCINT and
its
primary raw materials for Cytogen in Laureate's Princeton, New Jersey facility.
The agreement will terminate, unless terminated earlier pursuant to its terms,
upon Laureate's completion of the specified production campaign for PROSTASCINT
and shipment of the resulting products from Laureate's facility. Under the
terms
of the agreement, the Company anticipates it will pay at least an aggregate
of
$3.9 million through the end of the term of contract. Approximately $1.9 million
has been incurred under this agreement through March 31, 2007, and was recorded
as inventory when purchased, of which $1.4 million was recorded during the
three
months ended March 31, 2007.
4.
WARRANT LIABILITY
In
July
and August 2005, the Company sold to certain institutional investors shares
of
common stock and 776,096 warrants to purchase shares of its common stock having
an exercise price of $6.00 per share. These warrants are exercisable beginning
six months and ending ten years after their issuance. The shares of common
stock
underlying the warrants were registered under the Company's existing shelf
registration statement. The Company is required to maintain the effectiveness
of
the registration statement as long as any warrants are outstanding.
Under
Emerging Issues Task Force No. 00-19 “Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company's Own Stock”
(“EITF 00-19”), to qualify as permanent equity, the equity derivative must
permit the issuer to settle in unregistered shares. The Company does not have
that ability under the securities purchase agreement for the warrants issued
in
July and August 2005 and, as EITF 00-19 considers the ability to keep
a
registration
statement effective as beyond the Company's control, the warrants cannot be
classified as permanent equity and are instead classified as a liability in
the
accompanying consolidated balance sheets.
In
November
2006,
the Company sold to certain
institutional investors shares
of
its common stock and 3,546,107
warrants
to purchase shares of its common stock with an exercise price of $3.32 per
share. These warrants are exercisable beginning six months and ending five
years
after their issuance. The
warrant agreement contains a cash settlement feature, which is available to
the
warrant holders at their option, upon an acquisition in certain circumstances.
As a result, the warrants cannot be classified as permanent equity and are
instead classified as a liability at their fair value in the accompanying
consolidated balance sheet.
The
Company recorded the warrant liabilities at their fair value at each reporting
date using the Black-Scholes option-pricing model with the following
weighted-average assumptions:
| |
March
31,
2007
|
|
March
31,
2006
|
|
Dividend
yield
|
0%
|
|
0%
|
|
Expected
volatility
|
82%
|
|
106%
|
|
Expected
life(1)
|
5.3
years
|
|
9.3
years
|
|
Risk-free
interest rate
|
4.6%
|
|
4.4%
|
|
Company
Common Stock Price
|
$2.09
|
|
$3.62
|
|
Outstanding
warrants
|
4,322,203
|
|
776,096
|
| |
(1)
|
The
expected life assumptions at March 31, 2007 and 2006 for the
warrants
issued in July and August 2005 were 8.3 years and 9.3 years,
respectively.
The expected life assumption at March 31, 2007 for the warrants
issued in
November 2006 was 4.6
years.
|
Equity
derivatives not qualifying for permanent equity accounting are recorded at
fair
value and are remeasured at each reporting date until the warrants are exercised
or expire. Changes in the fair value of the warrants issued as described
above
will be reported in the consolidated statements of operations as non-operating
income or expense. At March 31, 2007, the fair value of the warrants decreased
to $5.4 million from $6.5 million at December 31, 2006, resulting in a gain
of
$1.1 million for the three months ended March 31, 2007. At March 31, 2006,
the
fair value of the warrants increased to $2.5 million from $1.9 million,
resulting in a charge of $631,000 for the three months ended March 31,
2006.
In
connection with the sale of Cytogen shares and warrants in November 2006,
the
Company
entered into a Registration Rights Agreement with the investors under which
the
Company was obligated to file a registration statement with the SEC for the
resale of Cytogen shares sold to the investors and shares issuable upon exercise
of the warrants within a specified time period. The Company is also required
to
use commercially reasonable efforts to cause the registration to be declared
effective by the SEC and to remain continuously effective until such time when
all of the registered shares are sold or three years from closing date,
whichever is earlier. In the event the Company fails to keep the registration
statement effective, the Company is obligated to pay the investors liquidation
damages equal to 1% of the aggregate purchase price of $20 million for each
thirty-day period that the registration statement is not effective, up to 10%.
On December 28, 2006, the SEC declared the registration statement effective.
The
Company
concluded that the contingent obligation was not probable, and therefore no
contingent liability was recorded as of December 31, 2006 and March 31,
2007.
5. ONCOLOGY
THERAPEUTICS NETWORK, J.V.
In
January 2007, the Company amended the revised purchase and supply agreement
with
Oncology Therapeutics Network, J.V. ("OTN") dated June 20, 2006, as revised
in
August 2006, appointing OTN as the exclusive warehousing agent and non-exclusive
distributor of CAPHOSOL, in addition to SOLTAMOX ("Products"). Under the terms
of the revised agreement, the Company pays OTN management fees based upon a
percentage of the value of Products shipped during the period.
6.
INPHARMA AS
On
October 11, 2006, the
Company and InPharma entered
into a license agreement granting the Company exclusive rights for CAPHOSOL
in
North America and options to license the marketing rights for CAPHOSOL in Europe
and Asia. Under the terms of the Agreement, the Company was obligated to pay
InPharma $1.0 million upon the six-month anniversary of the execution of the
agreement, which payment was made on April 11, 2007. In
addition, the Company is obligated to pay InPharma royalties based on a
percentage of net sales and future milestone payments of up to an aggregate
of
$49.0 million, of which payments totaling $35 million are based upon annual
sales first reaching levels in excess of $30 million. The Company is also
obligated to pay a finder's fee based upon a percentage of milestone payments
made to InPharma.
7.
HOLOPACK VERPACKUNGSTECHNIK GMBH
In
February 2007, the Company entered into a non-exclusive manufacturing agreement
with Holopack Verpackungstechnik GmbH for the manufacture of CAPHOSOL. The
agreement has a term of two years and automatically renews for an additional
year. The agreement is terminable by Holopack or the Company with three months
notice prior to the end of each term period.
8.
LITIGATION
In
January 2006, the Company
filed a
complaint against Advanced Magnetics in the Massachusetts Superior Court for
breach of contract, fraud, unjust enrichment, and breach of the implied covenant
of good faith and fair dealing in connection with the parties' 2000 license
agreement. The complaint sought damages along with a request for specific
performance requiring Advanced Magnetics to take all reasonable steps to secure
FDA approval of COMBIDEX in compliance with the terms of the licensing
agreement. In February 2006, Advanced Magnetics filed an answer to the Company's
complaint and asserted various counterclaims, including tortuous interference,
defamation, consumer fraud and abuse of process. In February 2007, the Company
settled its lawsuit against Advanced Magnetics, as well as Advanced Magnetics'
counterclaims against Cytogen, by mutual agreement. Under
the
terms of the settlement agreement, Advanced Magnetics paid $4 million to the
Company and will release 50,000 shares of Cytogen common stock currently being
held in escrow. In addition, both parties agreed to early termination of the
licensing agreement that would have expired in August
2010. During the three months ended March 31, 2007, the
Company incurred $54,000 of legal fees related to the litigation.
In
addition, the Company is, from time to time, subject to claims and suits
arising
in the ordinary course of business. In the opinion of management, the ultimate
resolution of any such current matters would not have a material effect on
the
Company's financial condition, results of operations or
liquidity.
9.
INCOME TAXES
In
July
2006, the FASB issued FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes
(FIN
48), which is applicable for fiscal years beginning after December 15, 2006.
FIN
48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with SFAS No. 109, Accounting
for Income Taxes.
FIN 48
prescribes a recognition threshold and measurement for financial statement
recognition and measurement of a tax position reported or expected to be
reported on a tax return. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition. The Company adopted the provisions of FIN 48 on
January 1, 2007.
Adoption
of FIN 48 had no impact on the Company’s consolidated results of operations and
financial position.
On
May 2,
2007, the FASB Staff Position amended FIN 48 to provide guidance on how an
enterprise should determine whether a tax position is effectively settled for
the purpose of recognizing previously unrecognized tax benefits. This guidance,
which is effective immediately, also had no impact on the Company's
consolidated financial statements as of and for the three month period ended
March 31, 2007.
The
Company and its subsidiaries file income tax returns in the U.S. federal
jurisdiction and in various states. The Company has tax net operating loss
and
credit carryforwards that are subject to examination for a number of years
beyond the year in which they are utilized for tax purposes. Since a portion
of
these carryforwards may be utilized in the future, many of these attribute
carryforwards will remain subject to examination.
The
Company’s policy is to record interest and penalties on uncertain tax positions
as income tax expense. At March 31, 2007, the Company has no uncertain tax
positions, and no amounts recorded for interest or penalties included in the
financial statements.
We
do not
anticipate any events in the next twelve month period that would require
the Company to record a liability related to any uncertain income tax positions
as prescribed by FIN 48.
This
Quarterly Report on Form 10-Q contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 and Section
21E
of the Securities Exchange Act of 1934, as amended. These forward-looking
statements regarding future events and our future results are based on current
expectations, estimates, forecasts, and projections and the beliefs and
assumptions of our management including, without limitation, our expectations
regarding results of operations, selling, general and administrative expenses,
research and development expenses and the sufficiency of our cash for future
operations. Forward-looking statements may be identified by the use of
forward-looking terminology such as “may,” “will,” “expect,” “estimate,”
“anticipate,” “continue,” or similar terms, variations of such terms or the
negative of those terms. These forward-looking statements include statements
regarding the growth and market penetration for CAPHOSOL, QUADRAMET, PROSTASCINT
and SOLTAMOX, our ability to obtain favorable coverage and reimbursement rates
from government-funded and third party payors for our products, increased
expenses resulting from our sales force and marketing expansion, including
sales
and marketing expenses for CAPHOSOL, QUADRAMET, PROSTASCINT and SOLTAMOX, the
sufficiency of our capital resources and supply of products for sale, the
continued cooperation of our contractual and collaborative partners, our need
for additional capital and other statements included in this Quarterly Report
on
Form 10-Q that are not historical facts. Such forward-looking statements involve
a number of risks and uncertainties and investors are cautioned not to put
any
undue reliance on any forward-looking statement. We cannot guarantee that we
will actually achieve the plans, intentions or expectations disclosed in any
such forward-looking statements. Factors that could cause actual results to
differ materially, include, our ability to launch a new product, market
acceptance of our products, the results of our clinical trials, our ability
to
raise additional capital, our ability to hire and retain employees, economic
and
market conditions generally, our receipt of requisite regulatory approvals
for
our products and product candidates, the continued cooperation of our marketing
and other collaborative and strategic partners, our ability to protect our
intellectual property, and the other risks identified under Item 1A "Risk
Factors" in this Quarterly Report on Form 10-Q and Item 1A “Risk Factors” in our
Annual Report on Form 10-K for the year ended December 31, 2006, and those
under
the caption “Risk Factors,” as included in certain of our other filings, from
time to time, with the Securities and Exchange Commission.
Any
forward-looking statements made by us do not reflect the potential impact of
any
future acquisitions, mergers, dispositions, joint ventures or investments we
may
make. We do not assume, and specifically disclaim, any obligation to update
any
forward-looking statements, and these statements represent our current outlook
only as of the date given.
The
following discussion and analysis should be read in conjunction with the
consolidated financial statements and related notes thereto contained elsewhere
herein, as well as in our Annual Report on Form 10-K for the year ended December
31, 2006 and from time to time in our other filings with the Securities and
Exchange Commission.
Overview
We
are a
specialty pharmaceutical company dedicated to advancing the treatment and care
of cancer patients by building, developing, and commercializing a portfolio
of
oncology products for underserved markets where there are unmet needs. Our
specialized sales force currently markets three therapeutic products and one
diagnostic product to the U.S. oncology market. We introduced CAPHOSOL late
in
the first quarter of 2007. CAPHOSOL is an electrolyte solution for the treatment
of oral mucositis and dry mouth that was approved as a prescription medical
device. QUADRAMET is approved for the treatment of pain in patients whose cancer
has spread to the bone. SOLTAMOX, which we introduced in the second half of
2006, is the first liquid hormonal therapy approved in the U.S. for the
treatment of breast cancer in adjuvant and metastatic settings.
PROSTASCINT is
a
PSMA-targeting monoclonal antibody-based agent to image the extent and spread
of
prostate cancer. Currently, our clinical development initiatives are focused
on
new indications for QUADRAMET and PROSTASCINT, as well as our product candidate,
CYT-500, a radiolabeled antibody in Phase 1 development for the treatment of
prostate cancer.
Significant
Events in 2007
Settlement Agreement
with Advanced Magnetics
In
February 2007, we announced the settlement of our lawsuit against Advanced
Magnetics, Inc., as well as Advanced Magnetics' counterclaims against Cytogen,
by mutual agreement. Under the terms of the settlement agreement, Advanced
Magnetics paid us $4 million and will release 50,000 shares of Cytogen common
stock currently being held in escrow. In addition, both parties agreed to early
termination of the 10-year license and marketing agreement and supply agreement
established in August 2000, as amended, for two imaging agents being developed
by Advanced Magnetics, Combidex® (ferumoxtran-10) and ferumoxytol, previously
Code 7228. The license and marketing agreement and supply agreement would have
expired in August 2010.
Initiation
of Phase 1 Trial for Radiolabeled Antibody for the Treatment of
Hormone-Refractory Prostate Cancer
In
February 2007, we announced the
initiation of the first human clinical study of CYT-500, a radiolabeled
monoclonal antibody targeted to prostate-specific membrane antigen (PSMA).
The
Phase 1 clinical trial will investigate the safety and tolerability of CYT-500
and determine the optimal antibody mass and therapeutic dose for further
studies. The clinical trial is being conducted at Memorial Sloan-Kettering
Cancer Center under a Cytogen-sponsored Investigational New Drug (IND)
application, which was approved by the United States Food and Drug
Administration ("FDA") in May 2006, and is expected to enroll up to 36
patients.
Introduction
of CAPHOSOL in the United States
In
March
2007, we introduced CAPHOSOL, an advanced electrolyte solution indicated in
the
U.S. as an adjunct to standard oral care in treating oral mucositis (OM) caused
by radiation or high dose chemotherapy. CAPHOSOL is also indicated for dryness
of the mouth or throat (hyposalivation, xerostomia), regardless of the cause
or
whether the conditions are temporary or permanent.
Results
of Operations
Three
Months Ended March 31, 2007 and 2006
Revenues
| |
|
|
|
|
|
Increase/(Decrease)
|
|
| |
|
2007
|
|
2006
|
|
$
|
|
%
|
|
|
|
|
(All
amounts in thousands, except percentage
data)
|
|
QUADRAMET
|
|
$
|
2,350
|
|
$
|
2,256
|
|
$
|
94
|
|
|
4
|
%
|
|
PROSTASCINT
|
|
|
2,456
|
|
|
2,184
|
|
|
272
|
|
|
12
|
%
|
|
Contract
revenue
|
|
|
2
|
|
|
2
|
|
|
--
|
|
|
--
|
%
|
|
Total
revenues
|
|
$
|
4,808
|
|
$
|
4,442
|
|
$
|
366
|
|
|
8
|
%
|
Total
revenues for the first quarter of 2007 were $4.8 million compared to $4.4
million for the same period in 2006. Product revenues, which were comprised
of
sales from QUADRAMET and PROSTASCINT, accounted for nearly all of total revenues
for each of the first quarters of 2007 and 2006, respectively. We did not
recognize any revenue from SOLTAMOX or CAPHOSOL which we introduced to the
U.S
market in the second half of 2006 and late in the first quarter of 2007,
respectively, because shipments of these products did not meet the revenue
recognition criteria under the U.S. generally accepted accounting principles
(GAAP). We will defer recognition of revenue until the right of return on these
products no longer exists or until we develop sufficient historical experience
to reliably estimate expected returns. To date, we have shipped $1.3 million
and
$171,000 of SOLTAMOX and CAPHOSOL to wholesalers, respectively, for which we
have not recorded as revenue. We cannot assure you that we will be able to
successfully market SOLTAMOX and CAPHOSOL or that SOLTAMOX and CAPHOSOL will
achieve greater market penetration on a timely basis or result in significant
revenues for us.
QUADRAMET.
QUADRAMET
sales for the first quarter of 2007 were $2.4 million, reflecting a 24% increase
over the $1.9 million reported in the fourth quarter of 2006 and a 4% increase
over the first quarter of 2006. Unit sales for the first quarter of 2007
increased 15% over the fourth quarter of 2006, but decreased 6% from the first
quarter of 2006. Quarterly sales trends for QUADRAMET typically exhibit
variability. QUADRAMET sales accounted for 49% and 51% of product revenues
for
the first quarters of 2007 and 2006, respectively. The sales increase from
the
first quarter of prior year period was due to price increases for QUADRAMET
of
5% and 13% on September 1, 2006 and January 1, 2007, respectively. Currently,
we
market QUADRAMET only in the United States and have no rights to market
QUADRAMET in Europe. We are focusing on multiple key initiatives to position
QUADRAMET for future growth and market penetration, including: (i)
distinguishing the physical properties of QUADRAMET from first-generation agents
within its class; (ii) empowering and marketing to key prescribing audiences;
(iii) broadening palliative use within label beyond prostate cancer to include
breast, lung and multiple myeloma; (iv) evaluating the role of QUADRAMET in
combination with other commonly used oncology agents; and (v) expanding clinical
development to demonstrate the potential tumoricidal versus palliative
attributes of QUADRAMET. We cannot assure you that we will be able to
successfully market
QUADRAMET
or that QUADRAMET will achieve greater market penetration on a timely basis
or
result in significant revenues for us.
PROSTASCINT.
PROSTASCINT
sales for the first quarter of 2007 were $2.5 million, reflecting a 5% decrease
from the $2.6 million reported in the fourth quarter of 2006 and a 12% increase
over the first quarter of 2006. Unit sales for the first quarter of 2007
decreased 12% from the fourth quarter of 2006 and 3% from the first quarter
of
2006. Quarterly sales trends for PROSTASCINT typically exhibit variability.
PROSTASCINT sales accounted for 51% and 49% of product revenues for the first
quarters of 2007 and 2006, respectively. The sales increase from the first
quarter of prior year period was due to price increases for PROSTASCINT of
9%
and 10% on September 1, 2006 and January 1, 2007, respectively. We believe
recent developments in imaging resolution, emerging clinical data, and an
increasing level of recognition of the value of PROSTASCINT fusion imaging
support an important near- and long-term market opportunity for PROSTASCINT.
We
are focusing on multiple key areas to position PROSTASCINT for future growth
and
market penetration, including: (i) positioning PROSTASCINT fusion imaging as
the
standard of care for prostate cancer imaging; (ii) generating awareness of
the
prognostic value of the PSMA antigen; (iii) leveraging the publication and
presentation of outcomes data; (iv) advancing image-guided applications
including brachytherapy, intensity modulated radiation therapy, surgery and
cryotherapy; and (v) evaluating the potential for imaging other PSMA-expressing
cancers. We cannot assure you that we will be able to successfully market
PROSTASCINT, or that PROSTASCINT will achieve greater market penetration on
a
timely basis or result in significant revenues for us.
Operating
Expenses
| |
|
|
|
|
|
Increase/(Decrease)
|
|
| |
|
2007
|
|
2006
|
|
$
|
|
%
|
|
| |
|
(All
amounts in thousands, except percentage
data)
|
|
|
Cost
of product revenue
|
|
$
|
2,902
|
|
$
|
2,362
|
|
$
|
540
|
|
|
23
|
%
|
| General
and administrative |
|
|
2,410 |
|
|
2,363 |
|
|
47 |
|
|
2 |
% |
|
Selling and
marketing
|
|
|
8,131
|
|
|
3,874
|
|
|
4,257
|
|
|
110
|
%
|
|
Research
and development
|
|
|
1,604
|
|
|
3,036
|
|
|
(1,432
|
)
|
|
(47
|
)%
|
|
Equity
in loss of joint venture
|
|
|
--
|
|
|
133
|
|
|
(133
|
)
|
|
(100
|
)%
|
| |
|
$
|
15,047
|
|
$
|
11,768
|
|
$
|
3,279
|
|
|
28
|
%
|
Total
operating expenses for the first quarter of 2007 were $15.0 million compared
to
$11.8 million in the same quarter of 2006.
Cost
of Product Revenue. Cost
of
product revenue for each of the first quarters of 2007 and 2006 was $2.9 million
and $2.4 million, respectively, and primarily reflects: (i) manufacturing and
distribution costs for PROSTASCINT and QUADRAMET; (ii) royalties on our sales
of
products; (iii) amortization of the up-front payments to acquire the marketing
rights to QUADRAMET in 2003, SOLTAMOX in April 2006 and CAPHOSOL in October
2006; and (iv) $319,000 of costs associated with shipments of SOLTAMOX and
CAPHOSOL to wholesalers, including minimum royalties for SOLTAMOX that we do
not
have the ability to recover, if and when products are returned. Recoverable
costs related to SOLTAMOX and CAPHOSOL shipments to wholesalers for which we
have not recognized revenue in accordance
to
GAAP,
are deferred and will be recorded as cost of product revenue when those units
are sold through to customers and recognized as revenue.
Selling,
General and Administrative. Selling,
general and administrative expenses for the first quarter of 2007 were $10.5
million compared to $6.2 million in the same period of 2006. The increase from
the prior year period is primarily driven by: (i) $1.7 million of costs
associated with the launch of CAPHOSOL late in the first quarter of 2007; (ii)
a
$765,000 expense increase in marketing initiatives related to SOLTAMOX which
we
introduced in the second half of 2006; and (iii) the expanded investment for
our
specialty sales force and commercial support of QUADRAMET and
PROSTASCINT.
Research
and Development. Research
and development expenses for the first quarter of 2007 were $1.6 million
compared to $3.0 million in the same period of 2006. The decrease from the
prior
year period is primarily due to preclinical expenditures for CYT-500 incurred
in
2006, as well as the timing of development expenditures for
QUADRAMET.
Equity
in Loss of Joint Venture.
Our
share of the loss of the PSMA Development Company LLC (PDC), our former joint
venture with Progenics Pharmaceuticals Inc., was $133,000 for the three months
ended March 31, 2006. Such amounts represented 50% of the joint venture's net
losses. We equally shared ownership and costs of the joint venture with
Progenics and accounted for the joint venture using the equity method of
accounting until April 20, 2006 when we sold our ownership interest in PDC
to
Progenics. Following the sale of our interest in the joint venture in April
2006, we have no further obligations to the joint venture.
Interest
Income/Expense. Interest
income for the first quarter of 2007 was $376,000 compared to $297,000 in the
same period of 2006. The increase in 2007 from the prior year period was due
to
higher average yields on cash balances in 2007. Interest expense for the first
quarter of 2007 was $10,000 compared to $6,000 in the same period in 2006.
Interest expense includes interest on finance charges related to various
equipment leases that are accounted for as capital leases.
Decrease/Increase
in Warrant Liability.
In
connection with the sale of our common stock and warrants in 2005 and 2006,
we
recorded the warrants as a liability at their fair value at the dates of
issuance using the Black-Scholes option-pricing model and re-measure them at
each reporting date until they are exercised or expire. Changes in the fair
value of the warrants are reported in the statements of operations as
non-operating income or expense. For the three months ended March 31, 2007,
we
reported a gain of $1.1 million related to the decrease in fair value of these
warrants since December 31, 2006, compared to a $631,000 charge for the three
months ended March 31, 2006 related to the increase in fair value of these
warrants since December 31, 2005. The market price for our common stock has been
and may continue to be volatile. Consequently, future fluctuations in the price
of our common stock may cause significant increases or decreases in the fair
value of these warrants.
Net
Loss. Net
loss
for the first quarter of 2007 was $4.8 million compared to $7.7 million reported
in the first quarter of 2006. The basic and diluted net loss per share for
the
first quarter of 2007 was $0.16 based
on
29.6 million weighted average common shares outstanding, compared to a basic
and
diluted net loss per share of $0.34 based
on
22.5 million weighted average common shares outstanding for the same period
in
2006.
COMMITMENTS
We
have
entered into various contractual and commercial commitments. The following
table
summarizes our obligations with respect to theses commitments as of March 31,
2007:
| |
|
Less
Than
1
Year
|
|
1
to 3
Years
|
|
4
to 5
Years
|
|
More
Than
5
Years
|
|
Total
|
|
| |
|
(All
amounts in thousands)
|
|
|
Capital
lease obligations
|
|
$
|
86
|
|
$
|
92
|
|
$ |
-- |
|
$
|
--
|
|
$
|
178
|
|
|
Facility
leases
|
|
|
338
|
|
|
536
|
|
|
-- |
|
|
--
|
|
|
874
|
|
|
Research
and development
|
|
|
95
|
|
|
150
|
|
|
150
|
|
|
463
|
|
|
858
|
|
|
Marketing
and other obligations
|
|
|
3,057
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
3,057
|
|
|
Manufacturing
contracts(1)
|
|
|
5,237
|
|
|
4,859
|
|
|
--
|
|
|
--
|
|
|
10,096
|
|
|
Minimum
royalty payments(2)
|
|
|
1,208
|
|
|
2,416
|
|
|
2,416
|
|
|
2,883
|
|
|
8,923
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,021
|
|
$
|
8,053
|
|
$
|
2,566
|
|
$
|
3,346
|
|
$
|
23,986
|
|
| |
(1)
|
Effective
January 1, 2004, we entered into a manufacturing and supply agreement
with
Bristol-Myers Squibb Medical Imaging, Inc. (“BMSMI”) for QUADRAMET whereby
BMSMI manufactures, distributes and provides order processing and
customer
services for us relating to QUADRAMET. Under the terms of our agreement,
we are obligated to pay at least $4.9 million annually, subject to
future
annual price adjustment, through 2008, unless terminated by BMSMI
or us on
a two year prior written notice. This agreement will automatically
renew
for five successive one-year periods unless terminated by BMSMI or
us on a
two-year prior written notice. Accordingly, we have not included
commitments beyond March 31, 2009.
|
| |
(2)
|
We
acquired an exclusive license from The Dow Chemical Company for QUADRAMET
for the treatment of osteoblastic bone metastases in certain territories.
The agreement requires us to pay Dow royalties based on a percentage
of
net sales of QUADRAMET, or a guaranteed contractual minimum payment,
whichever is greater, and future payments upon achievement of certain
milestones. Future annual minimum royalties due to Dow are $1.0 million
per year in 2007 through 2012 and $833,000 in
2013.
|
We
acquired the exclusive
marketing rights for SOLTAMOX in the United States
under
our
distribution agreement with Rosemont. The agreements with Rosemont require
us to
pay Rosemont
quarterly minimum royalties based on an agreed upon percentage of total
tamoxifen prescriptions in the United States through June 2018.
The
above table includes future
estimated annual minimum royalties based upon tamoxifen prescriptions in the
United States for the quarter ended December 31, 2006.
In
addition to the above, we are obligated to make certain royalty payments based
on sales of the related product and certain milestone payments if we
achieve specific development milestones or commercial milestones. We are also
obligated to pay a finder's fee based upon a percentage of milestone payments
made to InPharma in connection with the licensing of CAPHOSOL. We did not
include in the table above any payments that do not represent fixed
or
minimum
payments but are instead payable only upon the achievement of a milestone,
if
the achievement of that milestone is uncertain or the obligation amount is
not
determinable.
Liquidity
and Capital Resources
Condensed
Statement of Cash Flows:
| |
|
Three
Months Ended
March
31, 2007
|
|
| |
|
(All
amounts in thousands)
|
|
|
Net
loss
|
|
$
|
(4,832
|
)
|
|
Adjustments
to reconcile net loss to net cash used in
operating
activities
|
|
|
(1,955
|
)
|
|
Net
cash used in operating activities
|
|
|
(6,787
|
)
|
|
Net
cash used in investing activities
|
|
|
(153
|
)
|
|
Net
cash provided by financing activities
|
|
|
18
|
|
|
Net
decrease in cash and cash equivalents
|
|
$
|
(6,922
|
)
|
Overview
Our
cash
and cash equivalents were $25.6 million as of March 31, 2007, compared to $32.5
million as of December 31, 2006. During the three months ended March 31, 2007
and 2006, net cash used in operating activities was $6.8 million and $4.2
million, respectively. The increase in cash usage from the prior year period
was
primarily due to the support
of marketing initiatives for our marketed products, including the commercial
launch of CAPHOSOL, partially offset by the receipt of $4.0 million related
to
the Advanced Magnetics, Inc. settlement agreement.
Historically,
our primary sources of cash have been proceeds from the issuance and sale of
our
stock through public offerings and private placements, product-related revenues,
revenues from contract research services, fees paid under license agreements
and
interest earned on cash and short-term investments.
Our
long-term financial objectives are to meet our capital and operating
requirements through revenues from existing products and licensing arrangements.
To achieve these objectives, we may enter into research and development
partnerships and acquire, in-license and develop other technologies, products
or
services. Certain of these strategies may require payments by us in either
cash
or stock in addition to the costs associated with developing and marketing
a
product or technology. However, we believe that, if successful, such strategies
may increase long-term revenues. We cannot assure you of the success of such
strategies or that resulting funds will be sufficient to meet cash requirements
until product revenues are sufficient to cover operating expenses, if ever.
To
fund these strategic and operating activities, we may sell equity, debt or
other
securities as market conditions permit or enter into credit
facilities.
We
have incurred
negative cash flows from operations since our inception, and have expended,
and
expect to continue to expend in the future, substantial funds to implement
our
planned
product development efforts, including acquisition of products and complementary
technologies, research and development, clinical studies and regulatory
activities, and to further our marketing and sales programs. We expect that
our
existing capital resources at March 31, 2007 should be adequate to fund our
operations and commitments into 2008. We cannot assure you that our business
or
operations will not change in a manner that would consume available resources
more rapidly than anticipated. We expect that we will have additional
requirements for debt or equity capital, irrespective of whether and when we
reach profitability, for further product development costs, product and
technology acquisition costs, and working capital.
Our
future capital requirements and the adequacy of available funds will depend
on
numerous factors, including: (i) the successful commercialization of our
products; (ii) the costs associated with the acquisition of complementary
products and technologies; (iii) progress in our product development efforts
and
the magnitude and scope of such efforts; (iv) progress with clinical trials;
(v)
progress with regulatory affairs activities; (vi) the cost of filing,
prosecuting, defending and enforcing patent claims and other intellectual
property rights; (vii) competing technological and market developments; and
(viii) the expansion of strategic alliances for the sales, marketing,
manufacturing and distribution of our products. To the extent that the currently
available funds and revenues are insufficient to meet current or planned
operating requirements, we will be required to obtain additional funds through
equity or debt financing, strategic alliances with corporate partners and
others, or through other sources. We cannot assure you that the financial
sources described above will be available when needed or at terms commercially
acceptable to us. If adequate funds are not available, we may be required to
delay, further scale back or eliminate certain aspects of our operations or
attempt to obtain funds through arrangements with collaborative partners or
others that may require us to relinquish rights to certain of our technologies,
product candidates, products or potential markets. If adequate funds are not
available, our business, financial condition and results of operations will
be
materially and adversely affected.
Other
Liquidity Events
On
April
21, 2006, we entered
into a distribution agreement with Savient granting us exclusive marketing
rights for SOLTAMOX in the United States. In addition, we entered into a supply
agreement with Savient and Rosemont for the manufacture and supply of SOLTAMOX.
Our agreements with Savient were subsequently assigned to Rosemont by Savient.
Under the terms of the agreements, we may pay contingent sales-based payments
of
up to a total of $4.0 million to Rosemont. We are also required to pay Rosemont
royalties on net sales of SOLTAMOX. Beginning in 2007, we are obligated
to pay Rosemont quarterly minimum royalties based on an agreed upon percentage
of total tamoxifen prescriptions in the United States. We paid Rosemont $52,000
in minimum royalties
for the
quarter ended March 31, 2007. Unless terminated earlier, each of the
distribution and supply agreements will terminate upon the expiration of the
last to expire patent covering SOLTAMOX in the United States, which is currently
June 2018. In the event the tamoxifen prescriptions for an agreed upon period
of
time are less than the pre-established minimum, the agreement may be terminated
if we are unable to reach an agreement with Rosemont to amend the terms of
the
contract to account for such impact.
On
October 11, 2006, we
entered
into a license agreement with
InPharma
granting
us exclusive rights for CAPHOSOL in North America and options to license the
marketing rights for CAPHOSOL in Europe and Asia. Under the terms of the
Agreement, we are obligated to pay InPharma $1.0 million after six months,
which
was paid on April 11, 2007 and place $400,000 into an escrow account. In
addition, we are obligated to pay InPharma royalties based on a percentage
of
net sales and future milestone payments of up to an aggregate of $49.0
million, of which payments totaling $35 million are based upon annual
sales first reaching levels in excess of $30 million. We are also
obligated to pay a finder's fee based upon a percentage of milestone payments
made to InPharma.
In
the
event we exercise the options to license marketing rights for CAPHOSOL in Europe
and Asia, we are obligated to pay InPharma additional fees and payments,
including sales-based milestone payments for the respective territories. We
also
shall pay InPharma a portion of any up-front license fees and milestone
payments, but not royalties, received by us in consideration of the grant by
us
to other parties of the right to market CAPHOSOL in Europe and Asia, to the
extent such up-front license fees and milestone payments are in excess of the
respective amounts paid by us to InPharma for such rights.
On
November 10,
2006, we
sold to certain
institutional investors 7,092,203 shares
of
our common stock and 3,546,107
warrants
to purchase shares of our common stock. The warrants have an exercise price
of
$3.32 per share and are exercisable beginning six months and ending five years
after their issuance. The warrant agreement contains a cash settlement feature,
which is available to the warrant holders at their option, upon an acquisition
in certain circumstances. In connection with this sale, we entered into a
Registration Rights Agreement with the investors under which, we were obligated
to file a registration statement with the SEC for the resale of Cytogen shares
sold to the investors and shares issuable upon exercise of the warrants within
a
specified time period. We are also required to use commercially reasonable
efforts to cause the registration to be declared effective by the SEC and to
remain continuously effective until such time when all of the registered shares
are sold or three years from closing date, whichever is earlier. In the event
we
fail to keep the registration statement effective, we are obligated to pay
the
investors liquidation damages equal to 1% of the aggregate purchase price of
$20
million for each thirty-day period that the registration statement is not
effective, up to 10%. On December 28, 2006, the SEC declared the registration
statement effective. We concluded that the contingent obligation was not
probable, and therefore no contingent liability was recorded as of March 31,
2007.
In
September 2006, we entered into a non-exclusive manufacturing agreement with
Laureate pursuant to which Laureate shall manufacture PROSTASCINT and its
primary raw materials for Cytogen in Laureate's Princeton, New Jersey facility.
The agreement will terminate, unless terminated earlier pursuant to its terms,
upon Laureate's completion of the specified production campaign for PROSTASCINT
and shipment of the resulting products from Laureate's facility. Under the
terms
of the agreement, we anticipate paying at least an aggregate of $3.9 million
through the end of the term of contract, of which $1.4 million, of the aggregate
$1.9 million incurred through March 31, 2007, was recorded during the three
months ended March 31, 2007.
Effective
January 1, 2004, we entered into a manufacturing and supply agreement with
BMSMI
whereby BMSMI manufactures, distributes and provides order processing and
customer services for us relating to QUADRAMET. Under the terms of the new
agreement, we are obligated to pay at least $4.9 million annually, subject
to
future annual price adjustment, through 2008, unless terminated by BMSMI or
us
on two years prior written notice. During the three months ended March 31,
2007,
we incurred $1.2 million of manufacturing costs for QUADRAMET. This agreement
will automatically renew for five successive one-year periods unless terminated
by BMSMI or us on a two year prior written notice. We also pay BMSMI a variable
amount per month for each QUADRAMET order placed to cover the costs of customer
service.
We
acquired an exclusive license from The Dow Chemical Company for QUADRAMET for
the treatment of osteoblastic bone metastases in certain territories. The
agreement requires us to pay Dow royalties based on a percentage of net sales
of
QUADRAMET, or a guaranteed contractual minimum payment, whichever is greater,
and future payments upon achievement of certain milestones. Future annual
minimum royalties due to Dow are $1.0 million per year in 2007 through 2012
and
$833,000 in 2013.
On
May 6,
2005, we entered into a license agreement with The Dow Chemical Company to
create a targeted oncology product designed to treat prostate and other cancers.
The agreement applies proprietary MeO-DOTA bifunctional chelant technology
from
Dow to radiolabel our PSMA antibody with a therapeutic radionuclide. Under
the
agreement, proprietary chelation technology and other capabilities, provided
through ChelaMedSM
radiopharmaceutical services from Dow, will be used to attach a therapeutic
radioisotope to the 7E11-C5 monoclonal antibody utilized in our PROSTASCINT
molecular imaging agent. As a result of the agreement, we are obligated to
pay a
minimal license fee and aggregate future milestone payments of $1.9 million
for
each licensed product and royalties based on sales of related products, if
any.
Unless terminated earlier, the Dow agreement terminates at the later of (a)
the
tenth anniversary of the date of first commercial sale for each licensed product
or (b) the expiration of the last to expire valid claim that would be infringed
by the sale of the licensed product. We may terminate the license agreement
with
Dow on 90 days written notice.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Note
1 to
our Consolidated Financial Statements in our Annual Report on Form 10-K for
the
year ended December 31, 2006, includes a summary of our significant accounting
policies and methods used in the preparation of our Consolidated Financial
Statements. The following is a brief discussion of the more significant
accounting policies and methods used by us. The preparation of our Consolidated
Financial Statements requires us to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Our actual results
could differ materially from those estimates.
Revenue
Recognition
Product
revenues include product sales by us to our customers. We recognize revenues
in
accordance with SEC Staff Accounting Bulletin No. 104 (“SAB 104”), “Revenue
Recognition.” We recognize product sales when substantially all the risks and
rewards of ownership have transferred to the customer, which generally occurs
on
the date of shipment. Our revenue recognition policy has a substantial impact
on
our reported results and relies on certain estimates that require subjective
judgments on the part of management. We recognize product sales net of
allowances for estimated returns, rebates and discounts. We estimate allowances
based primarily on our past experience and other available information pertinent
to the use and marketing of the product.
In
the
case of new products like SOLTAMOX, which we introduced in August 2006, and
CAPHOSOL, which we introduced in March 2007, we have no historical return
experience. Since we cannot reliably estimate expected returns of this new
product, we will defer recognition of revenue until the right of return no
longer exists or until we have developed sufficient historical experience to
estimate sales returns. We will recognize revenue of SOLTAMOX and CAPHOSOL
(net
of provisions for estimated reductions to gross sales discussed below, which
may
involve significant estimates and judgments) when we have sufficient information
to estimate expected product returns. We may use information from external
sources to project the prescription demand-based sales and to estimate our
gross
to net sales adjustments.
Provisions
for Estimated Reductions to Gross Sales
At
the
time product sales are made, we reduce gross sales through accruals for product
returns, rebates and volume discounts. We account for these reductions in
accordance with Emerging Issues Task Force Issue No. 01-9, (“EITF 01-9”),
Accounting for Consideration Given by a Vendor to a Customer (Including a
Reseller of the Vendor’s Products) (“EITF 01-9”), and Statement of Financial
Accounting Standard No. 48, Revenue Recognition When Right of Return Exists
(“SFAS 48”), as applicable.
Returns
QUADRAMET
is a radioactive product that is indicated for the relief of pain due to
metastatic bone disease arising from various types of cancer. Due to its rapid
rate of radioactive decay, QUADRAMET has a shelf life of only about 72 hours.
For this reason, QUADRAMET is ordered for a specific patient on a pre-scheduled
visit, and, as such, our customers are unable to maintain stock inventories
of
this product. In addition, because the product is ordered for pre-scheduled
visits for specific patients, product returns are very low. Our methodology
to
estimate sales returns is based on historical experience that demonstrates
that
the vast majority of the returns occur within one month of when product was
shipped. At the time of sale, we estimate the quantity and value of QUADRAMET
that may ultimately be returned. We generally have the exact number of returns
related to prior month sales in the current month, so the provision for returns
is trued up to actual quickly.
We
do not
allow product returns for PROSTASCINT.
Returns
from new products, like SOLTAMOX and CAPHOSOL, are more difficult to assess.
Since we have no historical return experience with these products, we cannot
reliably estimate expected returns of this new product. Therefore, we will
defer
recognition of revenue until the right of return no longer exists or until
we
have developed sufficient historical experience to estimate sales returns.
We
may use information from external sources to estimate our return
provisions.
Volume
Discounts
We
provide volume discounts to certain customers based
on
sales levels of given products during each calendar month. We recognize revenue
net of these volume discounts at the end of each month. There are no volume
discounts based on cumulative sales over more than a one month period.
Accordingly, there is no current need to estimate volume discounts.
Rebates
From
time
to time, we may offer rebates to our customers. We establish a rebate accrual
based on the specific terms in each agreement, in an amount equal to our
reasonable estimate of the expected rebate claims attributable to the sales
in
the current period and adjust the accrual each reporting period to reflect
the
actual experience. If the amount of future rebates cannot be reasonably
estimated, a liability will be recognized for the maximum potential amount
of
the rebates.
License
and contract revenues include milestone payments and fees under collaborative
agreements with third parties, revenues from research services, and revenues
from other miscellaneous sources. We defer non-refundable up-front license
fees
and recognize them over the estimated performance period of the related
agreement, when we have continuing involvement. Since the term of the
performance periods is subject to management's estimates, future revenues to
be
recognized could be affected by changes in such estimates.
Accounts
Receivable
Our
accounts receivable balances are net of an estimated allowance for uncollectible
accounts. We continuously monitor collections and payments from our customers
and maintain an allowance for uncollectible accounts based upon our historical
experience and any specific customer collection issues that we have identified.
While we believe our reserve estimate to be appropriate, we may find it
necessary to adjust our allowance for uncollectible accounts if the future
bad
debt expense exceeds our estimated reserve. We are subject to concentration
risks as a limited number of our customers provide a high percent of total
revenues, and corresponding receivables.
Inventories
Inventories
are stated at the lower of cost or market, as determined using the first-in,
first-out method, which most closely reflects the physical flow of our
inventories. Our products and raw materials are subject to expiration dating.
We
regularly review quantities on hand to determine the need for reserves for
excess and obsolete inventories based primarily on our estimated forecast of
product sales. Our estimate of future product demand may prove to
be
inaccurate,
in which case we may have understated or overstated our reserve for excess
and
obsolete inventories.
Carrying
Value of Fixed and Intangible Assets
Our
fixed
assets and certain of our acquired rights to market our products have been
recorded at cost and are being amortized on a straight-line basis over the
estimated useful life of those assets. We also acquired an option to purchase
marketing rights to CAPHOSOL in Europe which was recorded as other assets and
will transfer the costs to the appropriate asset account, when and if exercised.
If indicators of impairment exist, we assess the recoverability of the affected
long-lived assets by determining whether the carrying value of such assets
can
be recovered through undiscounted future operating cash flows. Regarding the
option to purchase marketing rights to CAPHOSOL in Europe, we also assess our
intent and ability to exercise the option, the option expiry date and market
and
product competitiveness. If impairment is indicated, we measure the amount
of
such impairment by comparing the carrying value of the assets to the present
value of the expected future cash flows associated with the use of the asset.
Adverse changes regarding future cash flows to be received from long-lived
assets could indicate that an impairment exists, and would require the write
down of the carrying value of the impaired asset at that time.
Warrant
Liability
We
follow
Emerging Issues Task Force (EITF) No. 00-19, “Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company's Own
Stock” which provides guidance for distinguishing between permanent equity,
temporary equity and assets and liabilities. Under EITF 00-19, to qualify as
permanent equity, the equity derivative must permit us to settle in unregistered
shares. We do not have that ability under the securities purchase agreement
for
the warrants issued in July and August 2005 and, as EITF 00-19 considers the
ability to keep a registration statement effective as beyond our control, the
warrants cannot be classified as permanent equity and are instead classified
as
a liability in the accompanying consolidated balance sheet. Our warrants issued
in November 2006 which permit net cash settlement at the option of the warrant
holders also require classification as a liability in accordance with EITF
00-19.
We
record
the warrant liability at its fair value using the Black-Scholes option-pricing
model and remeasure it at each reporting date until the warrants are exercised
or expire. Changes in the fair value of the warrants are reported in the
consolidated statements of operations as non-operating income or expense. The
fair value of the warrants is subject to significant fluctuation based on
changes in our stock price, expected volatility, expected life, the risk-free
interest rate and dividend yield. The market price for our common stock has
been
and may continue to be volatile. Consequently, future fluctuations in the price
of our common stock may cause significant increases or decreases in the fair
value of the warrants issued.
We
follow
EITF No. 00-19-2 "Accounting for Registration Payment Arrangement" which
specifies that registration payment arrangements should play no part in
determining the initial classification and subsequent accounting for the
securities they related to. The Staff position requires the contingent
obligation in a registration payment arrangement to be separately
analyzed
under FASB Statement No. 5, "Accounting for Contingencies" and FASB
Interpretation No. 14, "Reasonable Estimation of the Amount of a Loss".
Consequently, if payment in a registration payment arrangement in connection
with the warrants issued in November 2006 is probable and can be reasonably
estimated, a liability will be recorded.
Share-Based
Compensation
We
account for share-based compensation in accordance with SFAS No. 123(R),
"Share-Based Payment." Under the fair value recognition provision of this
statement, the share-based compensation, which is generally based on the fair
value of the awards calculated using the Black-Scholes option pricing model
on
the date of grant, is recognized on a straight-line basis over the requisite
service period, generally the vesting period, for grants on or after January
1,
2006. For nonvested shares, we use the fair value of the underlying common
stock
on the date of grant. Determining the fair value of share-based awards at the
grant date requires judgment, including estimating expected dividend yield,
expected forfeiture rates, expected volatility, the expected term and expected
risk-free interest rates. If we were to use different estimates or a different
valuation model, our share-based compensation expense and our results of
operations could be materially impacted.
Recent
Accounting Pronouncements
In
February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
159 "The Fair Value Option for Financial Assets and Financial Liabilities,
Including an Amendment of FASB Statement No. 115" (SFAS No. 159), which will
become effective for fiscal years beginning after November 15, 2007. SFAS No.
159 permits entities to measure eligible financial assets and financial
liabilities at fair value, on an instrument-by-instrument basis, that are
otherwise not permitted to be accounted for at fair value under other generally
accepted accounting principles. The fair value measurement election is
irrevocable and subsequent changes in fair value must be recorded in earnings.
We will adopt SFAS No. 159 in fiscal year 2008 and are evaluating if we will
elect the fair value option for any of our eligible financial
instruments.
Fair
Value Measurement
In
September 2006, the FASB finalized SFAS No. 157, “Fair Value Measurements” (SFAS
157) which will become effective in fiscal year 2008. This Statement defines
fair value, establishes a framework for measuring fair value and expands
disclosure about fair value measurements; however, it does not require any
new
fair value measurements. The provisions of SFAS 157 will be applied
prospectively to fair value measurements and disclosures beginning in the first
quarter of 2008 and is not expected to have a material effect on our
consolidated financial statements.
Income
Taxes
Effective
January 1, 2007, we adopted FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109" ("FIN
48"). FIN 48 prescribes how a company should recognize, measure, present and
disclose uncertain income position. A “tax position” is a position taken on a
previously filed tax return, or expected to be
taken
in
a future tax return that is reflected in the measurement of current and deferred
tax assets or liabilities for interim or annual periods. A tax position can
result in a permanent reduction of income taxes payable, a deferral of income
taxes to future periods, or a change in the expected ability to realize deferred
tax assets. A change in net assets that results from adoption of FIN 48 is
recorded as an adjustment to retained earnings in the period of adoption. The
adoption of FIN 48 did not have any impact on our consolidated financial
statements.
On
May 2,
2007, the FASB Staff Position amended FIN 48 to provide guidance on how an
enterprise should determine whether a tax position is effectively settled for
the purpose of recognizing previously unrecognized tax benefits. This guidance,
which is effective immediately, also had no impact on our consolidated financial
statements as of and for the three month period ended March 31,
2007.
We
do not
have operations subject to risks of foreign currency fluctuations, nor do we
use
derivative financial instruments in our operations. Our exposure to market
risk
is principally confined to interest rate sensitivity. Our cash equivalents
are
conservative in nature, with a focus on preservation of capital. Due to the
short-term nature of our investments and our investment policies and procedures,
we have determined that the risks associated with interest rate fluctuations
related to these financial instruments are not material to our
business.
We
are
exposed to certain risks arising from changes in the price of our common stock,
primarily due to potential effect of changes in fair value of the warrant
liabilities related to the warrants issued in 2005 and 2006. The warrant
liabilities are measured at fair value using the Black-Scholes option-pricing
model at each reporting date and are subject to significant increases or
decreases in value and a corresponding loss or gain in the statement of
operations due to the effects of changes in the price of common stock at period
end and the related calculation of volatility.
(a)
Disclosure Controls and Procedures
Our
management, with the participation of our chief executive officer and chief
financial officer, evaluated the effectiveness of our disclosure controls and
procedures as of March 31, 2007. The term “disclosure controls and procedures,”
as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of
1934, means controls and other procedures of a company that are designed to
ensure that information required to be disclosed by the Company in the reports
that it files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported, within the time periods specified in the
SEC’s rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by a company in the reports that it files or submits under
the
Securities Exchange Act of 1934 is accumulated and communicated to the company's
management, including its principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required disclosure.
Management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving their
objectives and management necessarily applied its
judgment
in evaluating the cost-benefit relationship of possible controls and procedures.
Based on this evaluation, our chief executive officer and chief financial
officer concluded that, as of March 31, 2007, our controls and procedures were
effective.
(b)
Changes in Internal Control Over Financial Reporting
No
change
in our internal control over financial reporting (as defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended
as of March 31, 2007 that has materially affected, or is reasonably likely
to
materially affect, our internal control over financial reporting.
In
February 2007, we settled our lawsuit against Advanced Magnetics, Inc., as
well
as Advanced Magnetics' counterclaims against Cytogen, by mutual agreement.
Under
the settlement agreement, Advanced Magnetics paid us $4 million and will release
50,000 shares of Cytogen common stock currently being held in escrow. In
addition, both parties agreed to early termination of the 10-year license and
marketing agreement and supply agreement established in August 2000, as amended,
for two imaging agents being developed by Advanced Magnetics, COMBIDEX and
ferumoxytol, previously Code 7228. The license and marketing agreement and
supply agreement would have expired in August 2010.
This
section sets forth changes in the risks factors previously disclosed in our
Annual Report on Form 10-K due to our activities during the quarter ended March
31, 2007.
Investing
in our common stock involves a high degree of risk. You should carefully
consider the risks and uncertainties described below together with the other
risks described in our Annual Report on Form 10-K for the year ended December
31, 2006 and the information included or incorporated by reference in this
Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year
ended December 31, 2006 in your decision as to whether or not to invest in
our
common stock. If any of the risks or uncertainties described below or in our
Annual Report on Form 10-K for the year ended December 31, 2006 actually occur,
our business, financial condition or results of operations would likely suffer.
In that case, the trading price of our common stock could fall, and you may
lose
all or part of the money you paid to buy our common stock.
We
have a history of operating losses and an accumulated deficit and expect to
incur losses in the future.
Given
the
high level of expenditures associated with our business and our inability to
generate revenues sufficient to cover such expenditures, we have had a history
of operating losses since our inception. We had a net loss of $4.8 million
for
the quarter ended March 31, 2007. We had a net loss of $7.7 million for the
three months ended March 31, 2006. We had an accumulated deficit of $433 million
as of March 31, 2007.
In
order
to develop and commercialize our technologies, particularly our
prostate-specific membrane antigen technology, and launch and expand our
products, we expect to incur significant increases in our expenses over the
next
several years. As a result, we will need to generate significant additional
revenue to become profitable.
To
date,
we have taken affirmative steps to address our trend of operating losses. Such
steps include, among other things:
| |
·
|
undergoing
steps to realign and implement our focus as a product-driven
biopharmaceutical company.
|
| |
·
|
establishing
and maintaining our in-house specialty sales force;
and
|
| |
·
|
enhancing
our marketed product portfolio through marketing alliances and
strategic
arrangements.
|
Although
we have taken these affirmative steps, we may never be able to successfully
implement them, and our ability to generate and sustain significant additional
revenues or achieve profitability will depend upon the risk factors discussed
elsewhere in this section entitled, “Risk Factors” or in our Annual Report on
Form 10-K for the year ended December 31, 2006. As a result, we may never be
able to generate or sustain significant additional revenue or achieve
profitability.
We
depend on sales of QUADRAMET and PROSTASCINT for substantially all of our
near-term revenues.
We
expect
QUADRAMET and PROSTASCINT to account for substantially all of our product
revenues in the near future. For the quarter ended March 31, 2007, revenues
from
QUADRAMET and PROSTASCINT accounted for approximately 49% and 51%, respectively,
of our product revenues. If QUADRAMET or PROSTASCINT does not achieve broader
market acceptance, either because we fail to effectively market such products
or
our competitors introduce competing products, we may not be able to generate
sufficient revenue to become profitable.
We
will depend on market acceptance of SOLTAMOX and CAPHOSOL for future
revenues.
On
April
21, 2006, we and Savient
entered into a distribution agreement granting us exclusive marketing rights
for
SOLTAMOX in the United States. We introduced SOLTAMOX to the U.S. oncology
market in the second half of 2006.
On
October 11, 2006, we entered
into a license agreement with InPharma granting us exclusive marketing rights
for CAPHOSOL in North America. We introduced CAPHOSOL late in the first quarter
of 2007.
Our
future growth and success will depend on market acceptance of SOLTAMOX and
CAPHOSOL by healthcare providers, third-party payors and patients. Market
acceptance will depend, in part, on our ability to demonstrate to these parties
the effectiveness of these products. Sales of these products will also depend
on
the availability of favorable coverage and reimbursement by governmental
healthcare programs such as Medicare and Medicaid as well as private health
insurance plans. If SOLTAMOX or CAPHOSOL does not achieve market acceptance,
either because we fail to effectively market such products or our competitors
introduce competing products, we may not be able to generate sufficient revenue
to become profitable.
A
small number of customers account for the majority of our sales, and the loss
of
one of them, or changes in their purchasing
patterns, could result in reduced sales, thereby adversely affecting our
operating results.
We
sell
our products to a
small
number of radiopharmacy
networks.
During
the three months ended March 31, 2007, we received 63% of our total revenues
from three customers, as follows: 40% from Cardinal Health (formerly Syncor
International Corporation); 16% from Mallinckrodt Inc.; and 7% from GE
Healthcare (formerly Amersham Health). During the year ended December 31, 2006,
we received 64% of our total revenues from three customers, as follows: 41%
from
Cardinal Health; 14% from Mallinckrodt Inc.; and 9% from GE Healthcare. During
the year ended December 31, 2005, we received 67% of our total revenues from
three customers, as follows: 47% from Cardinal Health; 11% from Mallinckrodt
Inc.; and 9% from GE Healthcare.
The
small
number of radiopharmacies,
consolidation in this industry or financial difficulties of these radiopharmacies
could
result in the combination or elimination of customers
for
our
products. We
anticipate that our results of operations in any given period will continue
to
depend to a significant extent upon sales to a small number of customers. As
a
result of this customer concentration, our revenues from quarter to quarter
and
business, financial condition and results of operations may be subject to
substantial period-to-period fluctuations. In addition, our business, financial
condition and results of operations could be materially adversely affected
by
the failure of customer orders to materialize as and when anticipated. None
of
our customers have entered into an agreement requiring on-going minimum
purchases from us. We cannot assure you that our principal customers will
continue to purchase products from us at current levels, if at all. The loss
of
one or more major customers could have a material adverse effect on our
business, financial condition and results of operations.
There
are risks associated with the manufacture and supply of our products.
If
we are
to be successful, our products will have to be manufactured by contract
manufacturers in compliance with regulatory requirements and at costs acceptable
to us. If we are unable to successfully arrange for the manufacture of our
products and product candidates, either because potential manufacturers are
not
cGMP compliant, are not available or charge excessive amounts, we will not
be
able to successfully commercialize our products and our business, financial
condition and results of operations will be significantly and adversely
affected.
PROSTASCINT
is currently manufactured at a current Good Manufacturing Practices, or cGMP,
compliant manufacturing facility operated by Laureate Pharma, L.P. Although
we
entered into another agreement with Laureate in September 2006 which provides
for Laureate’s manufacture of PROSTASCINT for us, our failure to maintain a long
term supply agreement on commercially reasonable terms will have a material
adverse effect on our business, financial condition and results of
operations.
We
have
an agreement with BMSMI to manufacture QUADRAMET for us. Both primary components
of QUADRAMET, particularly Samarium-153 and EDTMP, are provided to BMSMI by
outside suppliers. Due to radioactive decay, Samarium-153 must be produced
on
a
weekly
basis. BMSMI obtains its requirements for Samarium-153 from a sole supplier
and
EDTMP from another sole supplier. Alternative sources for these components
may
not be readily available, and any alternative supplier would have to be
identified and qualified, subject to all applicable regulatory guidelines.
If
BMSMI cannot obtain sufficient quantities of the components on commercially
reasonable terms, or in a timely manner, it would be unable to manufacture
QUADRAMET on a timely and cost-effective basis, which would have a material
adverse effect on our business, financial condition and results of
operations.
We
have a
supply agreement with Rosemont to manufacture SOLTAMOX for us. The supply
agreement with Rosemont will terminate upon the expiration of the last to expire
patent covering SOLTAMOX in the United States, which is currently June 2018.
Our
failure to maintain a long term supply agreement for SOLTAMOX on commercially
reasonable terms will have a material adverse effect on our business, financial
condition and results of operations.
We
have a
manufacturing agreement with Holopack to manufacture CAPHOSOL for us.
The
agreement has a term of two years and automatically renews for an additional
year. Such agreement is terminable by Holopack or us on three months notice
prior to the end of each term period. Our
failure to maintain a long term supply agreement for CAPHOSOL on commercially
reasonable terms will have a material adverse effect on our business, financial
condition and results of operations.
We,
along
with our contract manufacturers and testing laboratories are required to adhere
to FDA regulations setting forth requirements for cGMP, and similar regulations
in other countries, which include extensive testing, control and documentation
requirements. Ongoing compliance with cGMP, labeling and other applicable
regulatory requirements is monitored through periodic inspections and market
surveillance by state and federal agencies, including the FDA, and by comparable
agencies in other countries. Failure of our contract vendors or us to comply
with applicable regulations could result in sanctions being imposed on us,
including fines, injunctions, civil penalties, failure of the government to
grant pre-market clearance or pre-market approval of drugs, delays, suspension
or withdrawal of approvals, seizures or recalls of products, operating
restrictions and criminal prosecutions any of which could significantly and
adversely affect our business, financial condition and results of operations.
We
rely heavily on our collaborative partners.
Our
success depends largely upon the success and financial stability of our
collaborative partners. We have entered into the following agreements for the
development, sale, marketing, distribution and manufacture of our products,
product candidates and technologies:
| |
·
|
a
license agreement with The Dow Chemical Company relating to the
QUADRAMET
technology;
|
| |
·
|
a
manufacturing and supply agreement for the manufacture of QUADRAMET
with
BMSMI;
|
| |
·
|
a
manufacturing agreement for the manufacture of PROSTASCINT with
Laureate
Pharma, L.P.;
|
| |
·
|
a
distribution services agreement with Cardinal Health 105, Inc.
(formerly
CORD Logistics, Inc.) for
PROSTASCINT;
|
| |
·
|
a
license agreement with The Dow Chemical Company relating to Dow's
proprietary MeO-DOTA bifunctional chelant technology for use with
our
CYT-500 program;
|
| |
·
|
a
distribution agreement and a manufacture and supply agreement with
Rosemont Pharmaceuticals Limited related to the supply and marketing
of
SOLTAMOX;
|
| |
·
|
a
purchase and supply agreement with OTN for the distribution of
SOLTAMOX
and CAPHOSOL;
|
| |
·
|
a
license agreement with InPharma AS for the marketing of CAPHOSOL;
and
|
| |
·
|
a
manufacturing agreement with Holopack for the manufacturing and
supply of
CAPHOSOL.
|
Because
our collaborative partners are responsible for certain manufacturing and
distribution activities, among others, these activities are outside our direct
control and we rely on our partners to perform their obligations. In the event
that our collaborative partners are entitled to enter into third party
arrangements that may economically disadvantage us, or do not perform their
obligations as expected under our agreements, our products may not be
commercially successful. As a result, any success may be delayed and new product
development could be inhibited with the result that our business, financial
condition and results of operation could be significantly and adversely
affected.
If
our
collaborative agreements expire or are terminated and we cannot renew or replace
them on commercially reasonable terms, our business and financial results may
suffer. If the agreements described above expire or are terminated, we may
not
be able to find suitable alternatives to them on a timely basis or on reasonable
terms, if at all. The loss of the right to use these technologies that we have
licensed or the loss of any services provided to us under these agreements
would
significantly and adversely affect our business, financial condition and results
of operations.
Certain
of our products are in the early stages of development and commercialization
and
we may never achieve the revenue goals set forth in our business plan.
We
began
operations in 1980 and have since been engaged primarily in research directed
toward the development, commercialization and marketing of products to improve
the diagnosis and treatment of cancer.
In
April
2006, we executed
a distribution agreement with Savient
granting us exclusive marketing rights for SOLTAMOX in the United States.
SOLTAMOX, an oral liquid hormonal therapy, is approved for marketing in the
United States. We introduced SOLTAMOX in the United States in the second half
of
2006.
In
October 2006, we entered
into a license agreement with InPharma granting us exclusive marketing rights
for CAPHOSOL in North America. We introduced CAPHOSOL late in the first quarter
of 2007.
In
May
2006, the U.S. Food and Drug Administration cleared an Investigational New
Drug
application for CYT-500, our lead therapeutic candidate targeting PSMA.
In
February 2007, we announced the
initiation of the first human clinical study of CYT-500. CYT-500 uses the same
monoclonal antibody from our PROSTASCINT molecular imaging agent, but is linked
through a higher affinity linker than is used for PROSTASCINT to a therapeutic
as opposed to an imaging radionuclide. This PSMA technology is still in the
early stages of development. We cannot assure you that we will be able to
commercialize this product.
In
July
2004, as part of our continuing efforts to reduce non-strategic expenses, we
initiated the closure of facilities at our AxCell Biosciences subsidiary.
Research projects through academic, governmental and corporate collaborators
will continue to be supported and additional applications for the intellectual
property and technology at AxCell are being pursued. We may be unable to further
develop or commercialize any of these products and technologies in the
future.
Our
business is therefore subject to the risks inherent in an early-stage
biopharmaceutical business enterprise, such as the need:
| |
·
|
to
obtain sufficient capital to support the expenses of developing
our
technology and commercializing our
products;
|
| |
·
|
to
ensure that our products are safe and
effective;
|
| |
·
|
to
obtain regulatory approval for the use and sale of our
products;
|
| |
·
|
to
manufacture our products in sufficient quantities and at a reasonable
cost;
|
| |
·
|
to
develop a sufficient market for our products;
and
|
| |
·
|
to
attract and retain qualified management, sales, technical and scientific
staff.
|
The
problems frequently encountered using new technologies and operating in a
competitive environment also may affect our business, financial condition and
results of operations. If we fail to properly address these risks and attain
our
business objectives, our business could be significantly and adversely affected.
We
depend on attracting and retaining key personnel.
We
are
highly dependent on the principal members of our management and scientific
staff. The loss of their services might significantly delay or prevent the
achievement of development or strategic objectives. Our success depends on
our
ability to retain key employees and to attract additional qualified employees.
Competition for personnel is intense, and therefore we may not be able to retain
existing personnel or attract and retain additional highly qualified employees
in the future.
We
do not
carry key person life insurance policies and we do not typically enter into
long-term arrangements with our key personnel. If we are unable to hire and
retain personnel in key positions, our business, financial condition and results
of operations could be significantly and adversely affected unless qualified
replacements can be found.
Failure
of third party payors to provide adequate coverage and reimbursement for our
products could limit market acceptance and affect pricing of our products and
affect our revenues.
Sales
of
our products depend in part on the availability of favorable coverage and
reimbursement by governmental healthcare programs such as Medicare and Medicaid
as well as private health insurance plans. Each payor has its own process and
standards for determining whether and, if so, to what extent it will cover
and
reimburse a particular product or service. Whether and to what extent a product
may be deemed covered by a particular payor depends upon a number of factors,
including the payor's determination that the product is reasonable and necessary
for the diagnosis or treatment of the illness or injury for which it is
administered according to accepted standards of medical practice, cost
effective, not experimental or investigational, not found by the FDA to be
less
than effective, and not otherwise excluded from coverage by law, regulation,
or
contract. There may be significant delays in obtaining coverage for
newly-approved products, and coverage may not be available or could be more
limited than the purposes for which the product is approved by the
FDA.
Moreover,
eligibility for coverage does not imply that any product will be reimbursed
in
all cases or at a rate that allows us to make a profit or even cover our costs,
which include, for example, research, development, production, sales, and
distribution costs. Interim payments for new products, if applicable, also
may
not be sufficient to cover our costs and may not be made permanent.
Reimbursement rates may vary according to the use of the product and the
clinical setting in which it is used, may be based on payments allowed for
lower-cost products that are already reimbursed, may be incorporated into
existing payments for other products or services, and may reflect budgetary
constraints and/or imperfections in Medicare or Medicaid data. Net prices for
products may be reduced by mandatory discounts or rebates required by government
healthcare programs, or other payors, or by any future relaxation of laws that
restrict imports of certain medical products from countries where they may
be
sold at lower prices than in the United States.
Third
party payors often follow Medicare coverage policy and payment limitations
in
setting their own coverage policies and reimbursement rates, and may have
sufficient market power to demand significant price reductions. Even if
successful, securing coverage at adequate reimbursement rates from government
and third party payors can be a time consuming and costly
process
that could require us to provide supporting scientific, clinical and
cost-effectiveness data for the use of our products among other data and
materials to each payor. Our inability to promptly obtain favorable coverage
and
profitable reimbursement rates from government-funded and private payors for
our
products could have a material adverse effect on our business, financial
condition and results of operations, and our ability to raise capital needed
to
commercialize products.
Our
business, financial condition and results of operations will continue to be
affected by the efforts of governmental and third-party payors to contain or
reduce the costs of healthcare. There have been, and we expect that there will
continue to be, a number of federal and state proposals to regulate expenditures
for medical products and services, which may affect payments for therapeutic
and
diagnostic imaging agents such as our products. In addition, an emphasis on
managed care increases possible pressure on the pricing of these products.
While
we cannot predict whether these legislative or regulatory proposals will be
adopted, or the effects these proposals or managed care efforts may have on
our
business, the announcement of these proposals and the adoption of these
proposals or efforts could affect our stock price or our business. Further,
to
the extent these proposals or efforts have an adverse effect on other companies
that are our prospective corporate partners, our ability to establish necessary
strategic alliances may be harmed.
We
will need to raise additional capital which may not be available or only
available on less favorable terms.
Our
cash
and cash equivalents were $25.6 million at March 31, 2007. We expect that our
existing capital resources at March 31, 2007, should be adequate to fund our
operations and commitments into 2008.
Our
business or operations may change in a manner that would consume available
resources more rapidly than anticipated. We expect that we will have additional
requirements for debt or equity capital, irrespective of whether and when we
reach profitability, for further product development costs, product and
technology acquisition costs and working capital. To the extent that our
currently available funds and revenues are insufficient to meet current or
planned operating requirements, we will be required to obtain additional funds
through equity or debt financing, strategic alliances with corporate partners
and others, or through other sources. These financial sources may not be
available when we need them or they may be available, but on terms that are
not
commercially acceptable to us. If adequate funds are not available, we may
be
required to delay further scale back or eliminate certain aspects of our
operations or attempt to obtain funds through arrangements with collaborative
partners or others that may require us to relinquish rights to certain of our
technologies, product candidates, products or potential markets. If adequate
funds are not available, our business, financial condition and results of
operations will be materially and adversely affected.
We
have
incurred negative cash flows from operations since our inception and have
expended, and expect to continue to expend in the future, substantial funds
based upon the:
| |
·
|
success
of our product commercialization
efforts;
|
| |
·
|
success
of any future acquisitions of complementary products and technologies
we
may make;
|
| |
·
|
magnitude,
scope and results of our product development and research and development
efforts;
|
| |
·
|
progress
of preclinical studies and clinical
trials;
|
| |
·
|
progress
toward regulatory approval for our
products;
|
| |
·
|
costs
of filing, prosecuting, defending and enforcing patent claims and
other
intellectual property rights;
|
| |
·
|
competing
technological and market developments;
and
|
| |
·
|
expansion
of strategic alliances for the sale, marketing and distribution
of our
products.
|
Our
capital raising efforts may dilute stockholder interests.
If
we
raise additional capital by issuing equity securities or convertible debentures,
such issuance will result in ownership dilution to our existing stockholders,
and new investors could have rights superior to those of our existing
stockholders. The extent of such dilution will vary based upon the amount of
capital raised.
We
have limited sales, marketing and distribution capabilities for our products.
We
have
established an internal sales force that is responsible for marketing and
selling CAPHOSOL, QUADRAMET, PROSTASCINT and SOLTAMOX. Although we are
continuing to expand our internal sales force, it still has limited sales,
marketing and distribution capabilities compared to those of many of our
competitors. If our internal sales force is unable to successfully market
CAPHOSOL, QUADRAMET, PROSTASCINT and SOLTAMOX, our business and financial
condition may be adversely affected. If we are unable to establish and maintain
significant sales, marketing and distribution efforts within the United States,
either internally or through arrangements with third parties, our business
may
be significantly and adversely affected. In locations outside of the United
States, we have not established a selling presence. To the extent that our
sales
force, from time to time, markets and sells additional products, we cannot
be
certain that adequate resources or sales capacity will be available to
effectively accomplish these tasks.
We
may need to raise funds other than through the issuance of equity securities.
If
we
raise additional funds through collaborations and licensing arrangements, we
may
be required to relinquish rights to certain of our technologies or product
candidates or to grant licenses on unfavorable terms. If we relinquish rights
or
grant licenses on unfavorable terms, we may not be able to develop or market
products in a manner that is profitable to us.
A
significant portion of our total outstanding shares of common stock may be
sold
in the market in the near future, which could cause the market price of our
common stock to drop significantly.
As
of
March 31, 2007, we had 29,623,985 shares of our common stock issued and
outstanding, all of which are either eligible to be sold under SEC Rule 144
or
are in the public float. In addition, we have registered shares of our Common
Stock underlying warrants previously issued on numerous Form S-3 registration
statements, and we have also registered shares of our common stock underlying
options granted or to be granted under our stock option plans. Consequently,
sales of substantial amounts of our common stock in the public market, or the
perception that such sales could occur, may have a material adverse effect
on
our stock price.
Our
common stock has a limited trading market, which could limit your ability to
resell your shares of common stock at or above your purchase
price.
Our
common stock is quoted on the NASDAQ Global Market and currently has a limited
trading market. The NASDAQ Global Market requires us to meet minimum financial
requirements in order to maintain our listing. Currently, we believe that we
meet the continued listing requirements of the NASDAQ Global Market. We cannot
assure you that an active trading market will develop or, if developed, will
be
maintained. As a result, our stockholders may find it difficult to dispose
of
shares of our common stock and, as a result, may suffer a loss of all or a
substantial portion of their investment.
Our
common stock may be subject to the "penny stock" regulations which may affect
the ability of our stockholders to sell their shares.
The
NASDAQ Global Market requires us to meet minimum financial requirements in
order
to maintain our listing. Currently, we believe we meet the continued listing
requirements of the NASDAQ Global Market. If we do not continue to meet the
continued listing requirements, we could be delisted. If we are delisted from
the NASDAQ Global Market, our common stock likely will become a "penny stock."
In general, regulations of the SEC define a "penny stock" to be an equity
security that is not listed on a national securities exchange or the NASDAQ
Stock Market and that has a market price of less than $5.00 per share or with
an
exercise price of less than $5.00 per share, subject to certain exceptions.
If
our common stock becomes a penny stock, additional sales practice requirements
would be imposed on broker-dealers that sell such securities to persons other
than certain qualified investors. For transactions involving a penny stock,
unless exempt, a broker-dealer must make a special suitability determination
for
the purchaser and receive the purchaser's written consent to the transaction
prior to the sale. In addition, the rules on penny stocks require delivery,
prior to and after any penny stock transaction, of disclosures required by
the
SEC.
If
our
common stock were subject to the rules on penny stocks, the market liquidity
for
our common stock could be severely and adversely affected. Accordingly, the
ability of holders of our common stock to sell their shares in the secondary
market may also be adversely affected.
The
liquidity of our common stock could be adversely affected if we are delisted
from the NASDAQ Global Market.
In
the
event that we are unable to maintain compliance with all relevant NASDAQ Listing
Standards, our securities may be subject to delisting from the NASDAQ Global
Market. If such delisting occurs, the market price and market liquidity of
our
common stock may be adversely affected. Such listing standards include, among
other things, requirements related to the market value of our listed securities
and publicly-held shares, and the minimum bid price for such shares. The minimum
bid requirement is $1.00 per share. On May 4, 2007, the closing sale price
of
our common stock as reported by NASDAQ was $2.16.
If
faced
with delisting, we may submit an application to transfer the listing of our
common stock to the NASDAQ Capital Market. Alternatively, if our common stock
is
delisted by NASDAQ, our common stock would be eligible to trade on the OTC
Bulletin Board maintained by NASDAQ, another over-the-counter quotation system,
or on the pink sheets where an investor may find it more difficult to dispose
of
or obtain accurate quotations as to the market value of our common stock. In
addition, we would be subject to a rule promulgated by the Securities and
Exchange Commission that, if we fail to meet criteria set forth in such rule,
imposes various practice requirements on broker-dealers who sell securities
governed by the rule to persons other than established customers and accredited
investors. Consequently, such rule may deter broker-dealers from recommending
or
selling our common stock, which may further affect the liquidity of our common
stock.
Delisting
from NASDAQ would make trading our common stock more difficult for investors,
potentially leading to further declines in our share price. It would also make
it more difficult for us to raise additional capital. Further, if we are
delisted, we would also incur additional costs under state blue sky laws in
connection with any sales of our securities. These requirements could severely
limit the market liquidity of our common stock and the ability of our
shareholders to sell our common stock in the secondary market.
Our
stock price has been and may continue to be volatile, and your investment in
our
stock could decline in value or fluctuate significantly.
The
market prices for securities of biotechnology and pharmaceutical companies
have
historically been highly volatile, and the market has from time to time
experienced significant price and volume fluctuations that are unrelated to
the
operating performance of particular companies. The market price of our common
stock has fluctuated over a wide range and may continue to fluctuate for various
reasons, including, but not limited to, announcements concerning our competitors
or us regarding:
| |
Ÿ
|
results
of clinical trials;
|
| |
Ÿ
|
technological
innovations or new commercial
products;
|
| |
Ÿ
|
changes
in governmental regulation or the status of our regulatory approvals
or
applications;
|
| |
Ÿ
|
changes
in health care policies and
practices;
|
| |
Ÿ
|
developments
or disputes concerning proprietary
rights;
|
| |
Ÿ
|
litigation
or public concern as to safety of the our potential products;
and
|
| |
Ÿ
|
changes
in general market conditions.
|
These
fluctuations may be exaggerated if the trading volume of our common stock is
low. These fluctuations may or may not be based upon any of our business or
operating results. Our common stock may experience similar or even more dramatic
price and volume fluctuations which may continue indefinitely.
|
Exhibit
No.
|
Description
|
|
10.1
|
Settlement
and Release Agreement dated February 15, 2007 between the Company
and
Advanced Magnetics, Inc. Filed as an exhibit to the Company's Annual
Report on Form 10-K, filed with the Commission on March 16, 2007,
and
incorporated herein by reference.
|
|
10.2
|
Contract
Manufacturing Agreement dated as of January 8, 2007 between the Company
and Holopack Verpackungstechnik GmbH*. Filed as an exhibit to the
Company's Annual Report on Form 10-K, filed with the Commission on
March
16, 2007, and incorporated herein by reference.
|
|
31.1
|
Certification
of President and Chief Executive Officer, pursuant to Rule 13a-14(a)
or
15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant
to
Section 302 of the Sarbanes-Oxley Act of 2002. Filed
herewith.
|
|
31.2
|
Certification
of Senior Vice President, Finance and Chief Financial Officer, pursuant
to
Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934,
as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Filed
herewith.
|
|
32.1
|
Certification
of President and Chief Executive Officer, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of
2002. Furnished herewith.
|
|
32.2
|
Certification
of Senior Vice President, Finance and Chief Financial Officer, pursuant
to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. Furnished
herewith.
|
|
*
|
The
Company has submitted an application for confidential treatment with
the
Securities and Exchange Commission with respect to certain provisions
contained in this exhibit. The copy filed as an exhibit omits the
information subject to the confidentiality
application.
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
Date:
May 10, 2007
|
CYTOGEN
CORPORATION
|
| |
|
|
| |
By:
|
/s/ MICHAEL
D. BECKER
|
| |
|
Michael
D. Becker,
|
| |
|
President
and Chief Executive Officer
|
|
Date:
May 10, 2007
|
CYTOGEN
CORPORATION
|
| |
|
|
| |
By:
|
/s/ KEVIN
J. BRATTON
|
| |
|
Kevin
J. Bratton
|
| |
|
Senior
Vice President, Finance, and
Chief
Financial Officer
(Principal
Financial and Accounting Officer)
|