SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended March 31, 2002
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OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to
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Commission file number 000-14879
Cytogen Corporation
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(Exact name of Registrant as specified in its charter)
Delaware 22-2322400
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
600 College Road East, CN 5308, Princeton, NJ 08540-5308
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(Address of Principal Executive Offices and Zip Code)
Registrant's telephone number, including area code (609) 750-8200
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes X No .
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Class Outstanding at May 1, 2002
---------------------------- ---------------------------
Common Stock, $.01 par value 82,513,215
PART I - FINANCIAL INFORMATION
-------------------------------
Item 1 - Consolidated Financial Statements
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except share data)
(Unaudited)
March 31, December 31,
2002 2001
---------- ------------
ASSETS:
Current Assets:
Cash and cash equivalents.............................................. $ 16,843 $ 11,309
Marketable securities.................................................. 1,060 1,376
Receivable on income tax benefit sold.................................. - 1,103
Accounts receivable, net .............................................. 1,763 1,621
Inventories ........................................................... 1,689 1,889
Other current assets .................................................. 829 508
--------- ---------
Total current assets ................................................ 22,184 17,806
Property and Equipment, net ............................................. 1,748 1,831
Other Assets............................................................. 1,345 1,855
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$ 25,277 $ 21,492
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Current portion of long-term debt...................................... $ 125 $ 77
Accounts payable and accrued liabilities............................... 3,670 5,315
Accrued stock liability ............................................... 2,000 -
Deferred revenue ...................................................... 385 534
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Total current liabilities............................................ 6,180 5,926
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Long-Term Debt........................................................... 2,444 2,291
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Deferred Revenue ........................................................ 1,996 2,061
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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, $.01 par value, 250,000,000 shares authorized,
82,015,000 and 78,937,000 shares issued and outstanding
at March 31, 2002 and December 31, 2001, respectively ............... 820 789
Additional paid-in capital ............................................ 359,498 350,867
Deferred compensation ................................................. (526) (621)
Accumulated other comprehensive income................................. 544 860
Accumulated deficit ................................................... (345,679) (340,681)
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Total stockholders' equity........................................... 14,657 11,214
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$ 25,277 $ 21,492
========= =========
The accompanying notes are an integral part of these statements.
2
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands, except per share data)
(Unaudited)
Three Months Ended March 31,
----------------------------
2002 2001
----------- -----------
Revenues:
Product related:
ProstaScint .............................................. $ 2,076 $ 2,244
BrachySeed ............................................... 452 34
OncoScint ................................................ 54 80
-------- --------
Total product sales .............................. 2,582 2,358
Quadramet royalties ...................................... 499 441
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Total product related ............................ 3,081 2,799
License revenue .......................................... 215 215
-------- --------
Total revenues ................................... 3,296 3,014
-------- --------
Operating Expenses:
Cost of product ............................................ 1,054 1,175
Research and development ................................... 3,799 1,739
Equity loss in PSMA LLC .................................... 513 -
Selling and marketing ...................................... 1,453 1,754
General and administrative ................................. 1,510 1,172
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Total operating expenses ......................... 8,329 5,840
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Operating loss ................................... (5,033) (2,826)
Interest income ............................................. 77 220
Interest expense ............................................. (42) (48)
-------- --------
Net loss ..................................................... $ (4,998) $ (2,654)
======== ========
Basic and diluted net loss per share ......................... $ (0.06) $ (0.03)
======== ========
Weighted average common shares outstanding ................... 81,222 76,244
======== ========
The accompanying notes are an integral part of these statements.
3
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
(Unaudited)
Three Months Ended March 31,
----------------------------
2002 2001
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................................... $ (4,998) $ (2,654)
--------- ---------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................ 194 302
Imputed interest......................................... - (22)
Stock-based compensation expenses........................ 376 96
Warrants, stock and stock option grants.................. 125 -
Amortization of deferred revenue ........................ (215) (215)
Stock-based milestone ................................... 2,000 -
Changes in assets and liabilites:
Accounts receivable, net............................... 961 (292)
Inventories............................................ 200 (114)
Other assets........................................... 189 797
Accounts payable and accrued liabilities............... (1,380) (2,051)
Other liabilities...................................... 39 39
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Total adjustments.............................. 2,489 (1,460)
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Net cash used in operating activities.................... (2,509) (4,114)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of equipment............................ 100 -
Purchases of property and equipment............................ (24) (95)
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Net cash provided by (used in) investing activities ..... 76 (95)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock......................... 7,991 6,536
Payment of long-term liabilities ............................ (24) (49)
--------- ---------
Net cash provided by financing activities................ 7,967 6,487
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Net increase in cash and cash equivalents...................... 5,534 2,278
Cash and cash equivalents, beginning of period................. 11,309 11,993
--------- ---------
Cash and cash equivalents, end of period....................... $ 16,843 $ 14,271
========= =========
The accompanying notes are an integral part of these statements.
4
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company
Cytogen Corporation ("Cytogen" or the "Company") is a biopharmaceutical
company with an established and growing product line in prostate cancer and
other areas of oncology. FDA-approved products include ProstaScint(R) (a
monoclonal antibody-based imaging agent used to image the extent and spread of
prostate cancer); BrachySeed(TM) I-125 and Pd-103, (uniquely designed,
next-generation radioactive seed implants for the treatment of localized
prostate cancer); and Quadramet(R) (a therapeutic agent marketed for the relief
of bone pain in prostate and other types of cancer). Cytogen is evolving a
pipeline of oncology product candidates by developing its prostate specific
membrane antigen, or PSMA technologies, which are exclusively licensed from
Memorial Sloan-Kettering Cancer Center.
AxCell Biosciences Corporation, a subsidiary of Cytogen Corporation, is
engaged in the research and development of novel biopharmaceutical products
using its growing portfolio of functional proteomics solutions and collection of
proprietary signal transduction pathway information. Through the systematic and
industrialized measurement of protein-to-protein interactions, AxCell is
assembling ProChart(TM), a proprietary database of signal transduction pathway
information that is relevant in a number of therapeutically important classes of
molecules including growth factors, receptors and other potential protein
therapeutics or drug targets. AxCell's database content and functional
proteomics tools are available on a non-exclusive basis to biotechnology,
pharmaceutical and academic researchers. AxCell is expanding its research
activities to further elucidate the role of novel proteins through both external
collaborations and data mining.
Basis of Consolidation
The consolidated financial statements include the accounts of Cytogen and
its subsidiaries. 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 generally accepted accounting principles and should be read in
5
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, 2001. 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.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash in banks and all
highly-liquid investments with a maturity of three months or less at the time of
purchase.
Marketable Securities
In connection with the acquisition of Prostagen Inc. in June 1999, the
Company received 275,350 shares of Northwest Biotherapeutics, Inc. common stock.
The Company has classified this investment as available-for-sale securities in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
Available-for-sale securities are carried at fair value, based on quoted market
prices, with unrealized gains or losses reported as a separate component of
stockholders' equity. As of March 31, 2002 and December 31, 2001, the Company
had an unrealized gain of $544,000 and $860,000 related to this investment,
respectively. There is no assurance, however that the Company can sell these
securities within a reasonable amount of time without negatively effecting the
price of the stock since the daily trading volume has been low.
Inventories
The Company's inventories are primarily related to ProstaScint and
OncoScint CR/OV. Inventories are stated at the lower of cost or market using the
first-in, first-out method and consisted of the following:
March 31, December 31,
2002 2001
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Raw materials................. $ 506,000 $ 506,000
Work-in process............... 681,000 1,371,000
Finished goods................ 502,000 12,000
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$1,689,000 $1,889,000
========== ==========
Other Comprehensive Income (Loss)
Other comprehensive income (loss) consists of unrealized gains or
losses on marketable securities. As of March 31, 2002, the fair market value of
these securities decreased $316,000, and as a result, the comprehensive loss for
the three months ended March 31, 2002 was $5,314,000. There were no marketable
securities outstanding during the first quarter of 2001 and therefore no other
comprehensive gains or losses.
6
Accrued Stock Liability
In connection with the acquisition of Prostagen Inc. in June 1999, the
Company agreed to issue up to an additional $4.0 million worth of Cytogen common
stock if certain milestones are achieved in the dendritic cell therapy and PSMA
development programs. Based on the progress of the dendritic cell prostate
cancer clinical trials at Northwest Biotherapeutics Inc., management believes
that the initial milestone was met in the first quarter of 2002 and has accrued
$2.0 million of expenses, which are recorded as research and development in the
accompanying statement of operations. The actual number of shares to be issued
will be based on the fair market value of Cytogen common stock on the date to be
determined by the parties to the Prostagen Agreement and the Company.
Net Loss Per Share
Basic net loss per share is based upon the weighted average common
shares outstanding during each period. Diluted net loss per share is the same as
basic net loss per share, as the inclusion of common stock equivalents would be
antidilutive.
Reclassifications
Certain reclassifications have been made to the 2001 financial
statements to conform with the 2002 presentation.
2. EQUITY LOSS IN PSMA DEVELOPMENT CO. LLC:
In June 1999, Cytogen entered into a joint venture called the PSMA
Development Co. LLC (the "Joint Venture"), with Progenics Pharmaceuticals Inc.
("Progenics"), to develop vaccine and antibody-based immunotherapeutic products
utilizing Cytogen's proprietary PSMA technology. The Joint Venture is owned
equally by Cytogen and Progenics. The Company accounts for the Joint Venture
using the equity method of accounting. Progenics was obligated to fund the
initial $3.0 million of development costs of the Joint Venture. Beginning in
December 2001, the Company and Progenics began to equally share the costs of the
Joint Venture. Since December 2001, Cytogen has recognized 50% of the Joint
Venture's operating results in its consolidated statement of operations.
Selected financial statement information of the Joint Venture is as follows:
Statement of Operations Data:
Three Months Ended
March 31,
----------------------------------
2002 2001
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Total revenue $ - $ 14,000
Total expenses 1,027,000 441,000
----------- ----------
Net loss $(1,027,000) $ (427,000)
============ ===========
7
3. SALES OF CYTOGEN COMMON STOCK:
In January 2002, the Company sold 2,970,665 shares of Cytogen common
stock to the State of Wisconsin Investment Board ("SWIB") for an aggregate
purchase price of $8.0 million or $2.69 per share pursuant to a January 2002
Share Purchase Agreement between SWIB and the Company. In connection with such
sale and issuance to SWIB as well as the Company's previous sale and issuance of
its common stock to SWIB in June 2001, the Company agreed not to enter into
equity line arrangements in the future, issue certain securities at less than
fair market value or undertake certain other securities issuances without
requisite stockholder approval.
8
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion contains historical information as well as
forward looking statements that involve a number of risks and uncertainties.
Statements contained or incorporated by reference in this Quarterly Report on
Form 10-Q that are not based on historical facts are "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended. Generally, forward looking statements can be identified by the
use of phrases like "believe", "expect", "anticipate", "plan", "may", "will",
"could", "estimate", "potential", "opportunity" and "project" and similar terms.
The Company's actual results could differ materially from the Company's
historical results of operations and those discussed in the forward looking
statements. Factors that could cause actual results to differ materially,
include, but are not limited to those identified in the Company's Annual Report
on Form 10-K for the year ended December 31, 2001 under the caption "Additional
Factors That May Affect Future Results". Investors are cautioned not to put
undue reliance on any forward looking statement.
Cautionary Statement
In addition to the risks discussed under the caption referred to above,
among other factors that could cause actual results to differ materially from
expected results are the following: (i) the Company's ability to access the
capital markets in the near term and in the future for continued funding of its
operations including existing projects and for the pursuit of new projects; (ii)
the ability to attract and retain personnel needed for business operations and
strategic plans; (iii) the timing and results of clinical studies, and
regulatory approvals; (iv) market acceptance of the Company's products,
including programs designed to facilitate use of the products, such as the
Partners in Excellence or PIE Program; (v) demonstration over time of the
efficacy and safety of the Company's products; (vi) the degree of competition
from existing or new products; (vii) the decision by the majority of public and
private insurance carriers on whether to reimburse patients for the Company's
products; (viii) the ability of the Company and its partners to comply with
applicable governmental regulations and changes thereto; (ix) the profitability
of its products; (x) the ability to attract, and the ultimate success of,
strategic partnering arrangements, collaborations, and acquisition candidates;
(xi) the ability of the Company and its partners to identify new products as a
result of those collaborations that are capable of achieving FDA approval, that
are cost-effective alternatives to existing products and that are ultimately
accepted by the key users of the product; (xii) the success of the Company in
obtaining marketing approvals for its products in Canada and Europe; (xiii) the
ability of the Company to protect its proprietary technology, trade secrets or
know-how under the patent and other intellectual property laws of the United
States and other countries; and (xiv) the ability of Advanced Magnetics Inc. to
satisfy the conditions specified by the FDA regarding approval to market
Combidex in the United States.
The following discussion and analysis should be read in conjunction with
the Financial Statements and related notes thereto contained elsewhere herein,
as well as the Company's Annual Report on Form 10-K for the year ended December
31, 2001 and from time to time the Company's other filings with the Securities
and Exchange Commission.
9
Significant Events in 2002
During 2002, the Company received regulatory approval in Canada for
ProstaScint(R), the Company's radio-labeled monoclonal antibody prostate cancer
imaging agent. ProstaScint was approved for marketing in the United States in
1996. In both Canada and United States, ProstaScint is indicated for use in
patients newly diagnosed with prostate cancer who are at risk for lymph node
metastases and for patients with recurrent prostate cancer following a radical
prostatectomy who are suspected of having occult metastatic disease. In Canada,
ProstaScint is also indicated for use in identifying those patients with
recurrent prostate cancer who are likely to benefit from receiving local salvage
radiation therapy. The Company plans to launch both ProstaScint and Quadramet in
Canada, alone or with a partner during 2002.
The Company also expects to introduce, during the first half of 2002, the
palladium version of BrachySeed(TM), a uniquely designed next generation
radioactive seed implant for treatment of localized prostate cancer. The iodine
version of BrachySeed was introduced in 2001. The Company is utilizing its
existing oncology sales force to market BrachySeed. There can be no assurance,
however, regarding the timing of launch for ProstaScint and Quadramet in Canada
and the palladium version of BrachySeed in the United States, the market
acceptance of these products and whether these products will significantly
increase the revenues of the Company.
Results of Operations
Three Months Ended March 31, 2002 and 2001
Revenues. Total revenues for the first quarter of 2002 were $3.3 million
compared to $3.0 million for the same period in 2001. The increase from the
prior year period is due to higher product related revenues. Product related
revenues, which included product sales and royalties, accounted for 93% of total
revenues in both 2001 and 2002. License revenues accounted for the remainder of
revenues.
Product related revenues for the first quarter of 2002 were $3.1 million
compared to $2.8 million for the same period in 2001. Sales of ProstaScint
accounted for 67% and 80% of product related revenues in the first quarters of
2002 and 2001, respectively, while Quadramet royalties accounted for 16% of
product related revenues in each such quarter. Sales of ProstaScint were $2.1
million in the first quarter of 2002, which were slightly below the $2.2 million
recorded in the first quarter of 2001. Future growth of ProstaScint is dependent
upon increased marketing and sales initiatives by Cytogen's in-house sales
force, entry in additional markets and the implementation of new product
applications, such as using ProstaScint scans to guide the placement of
brachytherapy seeds and/or external beam radiation. There can be no assurance,
however, that the Company's new sales initiatives will significantly increase
the sales of ProstaScint.
Sales of BrachySeed during the first quarter of 2002 were $452,000 and
accounted for 15% of product related revenues, compared to $34,000 recorded in
the same period of 2001. Since the market introduction of BrachySeed I-125 in
February 2001, the Company has increased its market penetration of the
brachytherapy iodine market, which has contributed to consistent
quarter-over-quarter growth since launch. The Company plans to utilize Cytogen's
10
sales and marketing organization for the launch of the palladium version of
BrachySeed during the first half of 2002. There can be no assurance, however, as
to the timing of launch or market acceptance of the BrachySeed palladium product
or whether the sale of the iodine and palladium products will significantly
increase the revenues of the Company.
Sales of OncoScint CR/OV during the first quarter of 2002 were $54,000
compared to $80,000 in the same period of 2001. The market for OncoScint CR/OV
for colorectal cancer diagnosis has been negatively affected by positron
emission tomography or "PET" scans which have shown the same or higher
sensitivity than OncoScint CR/OV. Accordingly, the Company is decreasing its
emphasis on OncoScint in order to focus on its prostate cancer products.
Quadramet royalties for the first quarter of 2002 increased to $499,000
from $441,000 in the same period of 2001. Quadramet is currently marketed by the
Company's marketing partner, Berlex Laboratories ("Berlex"). Although Cytogen
believes that Berlex is an advantageous partner, there can be no assurance that
Quadramet will achieve greater market penetration on a timely basis or result in
significant revenues for Cytogen.
License revenues were $215,000 for both 2002 and 2001. As a result of the
adoption of Securities and Exchange Commission's Staff Accounting Bulletin
No.101, license revenues include the recognition of deferred revenues from
certain up-front, non-refundable license fees previously recognized in prior
years.
Operating Expenses. Total operating expenses for the first quarter of 2002
were $8.3 million compared to $5.8 million recorded in the same quarter of 2001.
The increase from the prior year period is attributable primarily to a one-time,
non-cash milestone accrual of $2.0 million related to the progress of dendritic
cell prostate cancer clinical trials at Northwest Biotherapeutics, Inc. and
increased development costs associated with the PSMA Development Company LLC
(see Notes 1 and 2 to Consolidated Financial Statements).
Cost of product for the first quarter of 2002 was $1.1 million compared to
$1.2 million recorded in the same period of 2001. The decrease from the prior
year period is primarily due to lower facility related costs associated with the
manufacturing of ProstaScint, but partially offset by increased costs as a
result of increased BrachySeed sales.
Research and development expenses for the first quarter of 2002 were $3.8
million compared to $1.7 million recorded in the same period of 2001. The
increase from the prior year period is attributable primarily to a one-time,
non-cash milestone accrual of $2.0 million related to the progress of dendritic
cell prostate cancer clinical trials at Northwest Biotherapeutics, Inc.,
increased funding for AxCell's signal transduction inhibitors and increased
costs associated with the development of a new manufacturing and purification
process for ProstaScint. During the first quarters of 2002 and 2001, the Company
invested $1.3 million and $1.1 million, respectively, in AxCell's signal
transduction research activities, and $231,000 and $44,000, respectively, in the
development of a new manufacturing process for ProstaScint. The Company
anticipates that funding for these two programs will continue at the current
level over the remainder of this year.
11
The Company's share in the equity loss in the PSMA Development LLC, our
joint venture with Progenics Pharmaceuticals, Inc., was $513,000 for the first
quarter of 2002 and represented 50% of the Joint Venture's operating results.
The Joint Venture is equally owned by Cytogen and Progenics. The Company
accounts for the Joint Venture using the equity method of accounting. Progenics
was obligated to fund the initial $3.0 million of development costs of the Joint
Venture. Beginning in December 2001, the Company and Progenics began to equally
share the costs of the Joint Venture. The Company expects to incur significant
costs going forward to fund its share of the development costs from the Joint
Venture (see Note 2 to the Consolidated Financial Statements).
Selling and marketing expenses were $1.5 million for the first quarter of
2002 compared to $1.8 million for the same period of 2001. The decrease from the
prior year period is primarily due to costs associated with the 2001 launch of
BrachySeed I-125 and timing of certain expenses related to various marketing
functions which will be held at a later time than last year.
General and administrative expenses for the first quarter of 2002 were
$1.5 million compared to $1.2 million for the comparable period in 2001. The
increase from the prior year period is due primarily to a charge related to
stock based compensation for a key employee.
Interest Income/Expense. Interest income for the first quarter of 2002 was
$77,000 compared to $220,000 recorded in the same period of 2001. The decrease
from the prior year period is due to a lower average yield on investments during
2002. Interest expense for the first quarter of 2002 was $42,000 compared to
$48,000 recorded in the same period of 2001. The interest expenses included
finance charges related with various equipment leases.
Net Loss. Net loss for the first quarter of 2002 was $5.0 million compared
to $2.7 million recorded in the same period of 2001. The net loss per share for
the first quarter of 2002 was $0.06 based on average common shares outstanding
of 81.2 million compared to a net loss per share of $0.03 based on average
common shares outstanding of 76.2 million for the same period in 2001. The 2002
net loss included a one-time, non-cash milestone accrual of $2.0 million related
to the progress of dendritic cell prostate cancer clinical trials at Northwest
Biotherapeutics, Inc. as described above.
Liquidity and Capital Resources
The Company's cash and cash equivalents were $16.8 million as of March 31,
2002, compared to $11.3 million as of December 31, 2001. The cash used for
operating activities for the three months ended March 31, 2002 was $2.5 million
compared to $4.1 million in the same period of 2001. The decrease from the prior
year period is due primarily to the improved working capital management and a
milestone payment to Draximage Inc. related to the 2001 launch of the iodine
version of BrachySeed.
Historically, the Company's primary sources of cash have been proceeds
from the issuance and sale of its stock through public offerings and private
placements, product related revenues, revenues from contract manufacturing and
research services, fees paid under license agreements and interest earned on
cash and short-term investments.
12
The Company filed a shelf Registration Statement on Form S-3 to
register 10,000,000 shares of its common stock in October 2001. Such
Registration Statement was declared effective by the Securities and Exchange
Commission in November 2001. The Company may issue such registered shares of
common stock from time to time and may use the proceeds thereof for general
corporate purposes, including, but not limited to, continued development and
commercialization of its proteomics technologies, research and development of
additional products and expansion of its sales and marketing capabilities.
In January 2002, the Company sold 2,970,665 shares of Cytogen common
stock to the State of Wisconsin Investment Board ("SWIB") for an aggregate
purchase price of $8.0 million or $2.69 per share. In connection with such sale
and issuance to SWIB as well as the Company's previous sale and issuance of its
common stock to SWIB in June 2001, we agreed not to enter into equity line
arrangements in the future, issue certain securities at less than fair market
value or undertake certain other securities issuances without requisite
stockholder approval.
In order to effect such restrictions that have not already been
incorporated into the Company's By-Laws and Stock Option Plans, the Company has
submitted certain amendments to its By-Laws, 1995 Stock Option Plan and 1999
Non-Employee Director Plan for approval by the stockholders of the Company at
the Company's Annual Meeting of Stockholders to be held on June 18, 2002.
In January 2002, the Company received cash of $1.1 million relating to
the December 2001 sale of New Jersey State net operating losses and research and
development credits. Under the current legislation, the Company may be able to
sell a minimum $634,000 of its remaining approved $2.4 million of tax benefits
in 2002 assuming the State of New Jersey continues to fund this program. The
actual amount of net operating losses and tax credits the Company may sell will
also depend upon the allocation among qualifying companies of an annual pool
established by the State of New Jersey.
In connection with the acquisition of Prostagen Inc. in June 1999, the
Company agreed to issue up to an additional $4.0 million worth of Cytogen common
stock if certain milestones are achieved in the dendritic cell therapy and PSMA
development programs. Based on the progress of the dendritic cell prostate
cancer clinical trials at Northwest Biotherapeutics Inc., the Company believes
that the initial milestone was met in the first quarter of 2002 and has,
accordingly, accrued $2.0 million of expenses, which were recorded as research
and development expenses. The recognition of the remaining $2.0 million of
expenses, and the resulting additional issuance of Cytogen common stock, will be
made if and when the remaining milestones are achieved.
Beginning in December 2001, the Cytogen and Progenics began to equally
share the costs of the Joint Venture. Since that date, Cytogen has recognized
50% of the Joint Venture's operating results, which, during the first quarter of
2002 was a loss of $513,000. The Company expects its share of losses in the PSMA
Development Co. LLC to continue at even higher levels in subsequent periods.
The Company's capital and operating requirements may change depending
upon various factors, including: (i) whether the Company and its strategic
partners achieve success in manufacturing, marketing and commercialization of
its products; (ii) the amount of resources which the Company devotes to clinical
13
evaluations and the expansion of marketing and sales capabilities; (iii) results
of clinical trials and research and development activities; and (iv) competitive
and technological developments, in particular, the Company expects to incur
significant costs for the development of its proteomics and PSMA technologies.
The Company's financial objectives are to meet its capital and operating
requirements through revenues from existing products and licensing arrangements.
To achieve its strategic objectives, the Company 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 the
Company in either cash or stock in addition to the costs associated with
developing and marketing a product or technology. There can be no assurance as
to the success of such strategies or that resulting funds will be sufficient to
meet cash requirements until such time as product revenues are sufficient to
cover operating expenses, if ever. To fund these strategic and operating
activities, the Company may sell assets, equity or debt securities as market
conditions permit or enter into credit facilities.
The Company has incurred negative cash flows from operations since its
inception, and has expended, and expects to continue to expend in the future,
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 its
marketing and sales programs. The Company expects that its existing capital
resources should be adequate to fund the Company's operations for the
foreseeable future. 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 it
reaches profitability, for further product development costs, product and
technology acquisition costs, and working capital.
The Company's future capital requirements and the adequacy of available
funds will depend on numerous factors, including the successful
commercialization of its products, the costs associated with the acquisition of
complementary products and technologies, progress in its product development
efforts, the magnitude and scope of such efforts, progress with clinical trials,
progress with regulatory affairs activities, the cost of filing, prosecuting,
defending and enforcing patent claims and other intellectual property rights,
competing technological and market developments, and the expansion of strategic
alliances for the sales, marketing, manufacturing and distribution of its
products. To the extent that the currently available funds and revenues are
insufficient to meet current or planned operating requirements, the Company will
be required to obtain additional funds through asset sales, equity or debt
financing, strategic alliances with corporate partners and others, or through
other sources. There can be no assurance that the financial sources described
above will be available when needed or at terms commercially acceptable to the
Company. If adequate funds are not available, the Company may be required to
delay, further scale back or eliminate certain aspects of its operations or
attempt to obtain funds through arrangements with collaborative partners or
others that may require the Company to relinquish rights to certain of its
technologies, product candidates, products or potential markets. If adequate
funds are not available, the Company's business, financial condition and results
of operations will be materially and adversely affected.
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CRITICAL ACCOUNTING POLICIES
Financial Reporting Release No. 60, which was recently released by the
Securities and Exchange Commission, requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. Note 1 to our Consolidated Financial Statements in this
Quarterly Report on Form 10-Q and Note 1 to our Consolidated Financial
Statements in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001, include 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 from those
estimates.
Revenue Recognition
We recognize revenue from the sale of our products upon shipment. We do
not grant price protection to customers. Quadramet royalties are recognized when
earned. The Securities and Exchange Commission has issued Staff Accounting
Bulletin (SAB) No. 101, "Revenue Recognition", which provides guidance on the
recognition of up-front, non-refundable license fees. Accordingly, we defer
up-front license fees and recognize them over the estimated performance period
of the related agreement. 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 doubtful accounts if our 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 our 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.
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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. In accordance with SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," 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. 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.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
The Company does not have operations subject to risks of foreign currency
fluctuations, nor does it use derivative financial instruments in its operations
or investment portfolio. The Company does not have exposure to market risks
associated with changes in interest rates, as it has no variable interest rate
debt outstanding. The Company does not believe it has any other material
exposure to market risks associated with interest rates.
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PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Amendment No. 1 to Limited Liability Company Agreement of PSMA
Development Company LLC by and between Cytogen Corporation,
Progenics Pharmaceuticals, Inc. and PSMA Development Company LLC
dated as of March 22, 2002. Filed herewith.
(b) Reports on Form 8-K:
On January 24, 2002, we filed a Current Report on Form 8-K
relating to the issuance and sale of 2,970,665 shares of our Common Stock to the
State of Wisconsin Investment Board for an aggregate purchase price of
approximately $8.0 million pursuant to a share purchase agreement dated January
18, 2002.
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SIGNATURES
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.
CYTOGEN CORPORATION
Date May 14, 2002 By /s/ H. Joseph Reiser
----------------- --------------------------------------------
H. Joseph Reiser
President and Chief Executive Officer
Date May 14, 2002 By /s/ Lawrence R. Hoffman
----------------- --------------------------------------------
Lawrence R. Hoffman
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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