UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-K
FOR
ANNUAL AND TRANSITION REPORTS
PURSUANT
TO SECTIONS 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
(Mark
One)
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x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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For
the
fiscal year ended December 31, 2006
OR
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¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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For
the
transition period from _____________ to _____________
Commission
File Number 000-14879
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(Exact
Name of Registrant as Specified in Its
Charter)
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Delaware
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22-2322400
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(State
or Other Jurisdiction of
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(I.R.S.
Employer Identification No.)
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Incorporation
or Organization)
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650
College Road East, Suite 3100
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Princeton,
New Jersey
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08540
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(Address
of Principal Executive Offices)
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(Zip
Code)
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Registrant's
telephone number, including area code: (609) 750-8200
Securities
registered pursuant to Section 12(b) of the Act:
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Title
of Class
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Name
of Exchange on which
Registered
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Common
Stock, $0.01 par value per share
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The
NASDAQ
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Stock
Market LLC
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Securities registered pursuant to Section 12(g) of the
Act: Preferred
Stock Purchase Rights, $0.01 par value per share
Indicate
by check mark whether the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act. Yes ¨ No
x
Indicate
by check mark whether the registrant is not required to file reports pursuant
to
Section 13 or Section 15(d) of the Act. Yes ¨ No
x
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.
Yesx
No¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this
Form 10-K.x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.
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Large
Accelerated Filer ¨
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Accelerated
Filer x
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Non-
Accelerated Filer ¨
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes
¨ No
x
The
aggregate market value of the registrant's voting shares of Common Stock held
by
non-affiliates of the registrant on June 30, 2006, based on $2.50 per share,
the
last reported sale price on the NASDAQ Global Market on that date, was
$56,119,227.
The
number of shares of Common Stock, $.01 par value, of the registrant outstanding
as of March 9, 2007 was 29,605,631 shares.
The
following documents are incorporated by reference into this Annual Report on
Form 10-K: Portions of the registrant's definitive Proxy Statement for its
2007
Annual Meeting of Stockholders are incorporated by reference into Part III
hereof.
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Item
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Page
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PART
I
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1.
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3
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1.A
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40
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1.B
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64
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2.
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65
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3.
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65
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4.
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65
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PART
II
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5.
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66
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6.
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68
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7.
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69
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7A.
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91
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8.
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92
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9.
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92
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9A.
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9.B
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96
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PART
III
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10.
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96
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11.
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96
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12.
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96
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13.
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96
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14.
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97
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PART
IV
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15.
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97
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111
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F-1
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This
Annual Report contains forward-looking statements, which can be identified
by
the use of forward-looking terminology such as, "believe," "expect," "may,"
"plan," "estimate," "intend," "will," "should," "potential" or "anticipate"
or
the negative thereof, or other variations thereof, or comparable terminology,
or
by discussions of strategy. No assurance can be given that the future
results covered by such forward-looking statements will be
achieved. The matters set forth in Item 1A. Risk Factors
constitute cautionary statements identifying important factors with respect
to
such forward-looking statements, including certain risks and uncertainties
that
could cause actual results, events or developments to differ materially from
those indicated in such forward-looking statements. All information
in this Annual Report on Form 10-K is as of March 16, 2007. We
undertake no obligation to update this information to reflect events after
the
date of this report.
CAPHOSOL®,
QUADRAMET® (samarium
Sm-153 lexidronam injection) and PROSTASCINT® (capromab
pendetide) are registered United States trademarks of Cytogen
Corporation. Other trademarks and trade names used in this Annual
Report are the property of their respective owners.
We
are
sponsoring or supporting certain clinical investigations to explore potential
new indications for the use of QUADRAMET
and PROSTASCINT.
This Annual Report contains discussions that include investigational
clinical applications that differ from those reported in the package inserts
for
QUADRAMET and PROSTASCINT and have not been reviewed or approved by
FDA. QUADRAMET is indicated for the relief of pain in patients with
confirmed osteoblastic metastatic bone lesions that enhance on a radionuclide
bone scan. PROSTASCINT is approved for marketing in the United States in two
clinical settings: (i) as a diagnostic imaging agent in newly diagnosed patients
with biopsy-proven prostate cancer thought to be clinically localized after
standard diagnostic evaluation and who are at high risk for spread of their
disease to pelvic lymph nodes; and (ii) for use in post-prostatectomy patients
with a rising PSA and a negative or equivocal standard metastatic evaluation
in
whom there is a high clinical suspicion of occult metastatic
disease.
SOLTAMOX™
(tamoxifen citrate, oral solution 10mg/5mL) is indicated for the treatment
of
metastatic breast cancer and to reduce the incidence of breast cancer in women
who are at high risk for the disease. As with other versions of
tamoxifen, the product label for SOLTAMOX includes a black box warning with
information on the potential risk of adverse events. The boxed
warning states, in part, that: "Serious and life threatening events associated
with tamoxifen in the risk reduction setting (women at high risk for cancer
and
women with ductal carcinoma in situ) include uterine malignancies, stroke and
pulmonary embolism."
A
copy of
the full prescribing information for CAPHOSOL, QUADRAMET, PROSTASCINT and
SOLTAMOX in the United States may be obtained from us by calling us toll free
at
800-833-3533 or by visiting our website at
www.cytogen.com. Our website is not part of this Annual Report
on Form 10-K.
We
maintain www.cytogen.com to provide information to the general public and our
stockholders on our products, as well as general information on Cytogen and
its
management, strategy, career opportunities, financial results and press
releases. Copies of our most recent Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, and other reports filed with the
Securities
and Exchange Commission, or the SEC, can be obtained, free of charge as soon
as
reasonably practicable after such material is electronically filed with, or
furnished to the SEC, from our Investor Relations Department by calling
609-750-8213, through the Investor Relations page on our website at
www.cytogen.com or directly from the SEC's website at
www.sec.gov. Our website and the information contained therein
or connected thereto are not intended to be incorporated into this Annual Report
on Form 10-K.
We
were
incorporated in Delaware on March 3, 1980 under the name Hybridex, Inc. and
changed our name to Cytogen Corporation on April 1, 1980. Our
executive offices are located at 650 College Road East, Suite 3100, Princeton,
New Jersey, 08540 and our telephone number is 609-750-8200.
PART
I
Overview
Cytogen
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. Our product portfolio includes four oncology products approved
by the United States Food and Drug Administration ("FDA"), CAPHOSOL®, QUADRAMET®,
PROSTASCINT®, and SOLTAMOX™,
which are marketed
solely by our specialized sales force to the U.S. oncology
market. We introduced our fourth product, CAPHOSOL, in the first
quarter of 2007. CAPHOSOL is an advanced 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 prostate-specific membrane antigen
(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 our
product candidate, CYT-500, a radiolabeled antibody in Phase 1 development
for
the treatment of prostate cancer.
In
2003,
we realigned our corporate direction to focus on building a successful oncology
franchise with a specialized commercial infrastructure equipped to deliver
sustainable value. To that end, we have established a growing
commercial presence in the U.S., which targets both medical and radiation
oncology. We believe marketing proprietary specialty oncology
products directly, as opposed to receiving royalties on sales by licensees,
will
enable us to build a growth-oriented oncology business. Because there
is a limited number of leading cancer clinics across the U.S., we believe our
highly trained and focused sales team can effectively market a complementary
product offering to a broad market segment. Our sales and marketing
infrastructure has played a critical role in our ability to add new
commercial-stage products to our portfolio. Further, we believe the
commercial arm of our business is highly scalable and can readily support new
product opportunities through modest capital investments.
Strategy
and Approach
Our
strategy focuses on growing our business organically and through in-licensing
initiatives. It revolves around three key priorities:
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·
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Expanding
our near- and long-term revenues. We have successfully implemented an
active in-licensing program to broaden our revenue base with product
opportunities that are complementary to our commercial presence in
oncology. In April 2006, we acquired the commercial rights to
SOLTAMOX from Savient Pharmaceuticals, Inc. ("Savient") and in October
2006, we acquired the commercial rights to CAPHOSOL from InPharma
A/S
("InPharma"). These two products are new revenue sources
for
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2007. We
are also pursuing clinical-stage candidates in complementary therapeutic areas
with promising regulatory pathways.
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·
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Maximizing
the market potential of our approved products through data-driven
initiatives. A robust, data-driven strategy is underway to
enhance the market opportunities for our products within their currently
approved indications. We are supporting numerous post-marketing
studies for QUADRAMET to optimize its potential as a safe, effective,
non-narcotic option for the palliation of pain from cancers that
have
spread to the bone. We are also advancing initiatives to
position PROSTASCINT as an important tool for managing the care of
prostate cancer. Recent progress includes: (i) the
publication of new data in the American Cancer Society's peer-reviewed
journal, Cancer, demonstrating repeated dosing of QUADRAMET to be
a safe and effective treatment option for patients with recurrent
painful
bone metastases; (ii) the expanded inclusion of PROSTASCINT within
the
National Comprehensive Cancer Network's ("NCCN") clinical practice
guidelines to include patients with recurrent disease; and (iii)
the
publication of seven-year survival data in the American Brachytherapy
Society's peer-reviewed journal, Brachytherapy, demonstrating the
potential for PROSTASCINT fusion imaging to help determine
patient-specific treatment regimens for prostate cancer patients
undergoing brachytherapy.
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·
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Building
long-term sustainability. We are focused on maintaining a
balanced specialty portfolio through three key imperatives: (i)
evaluating new indications for our marketed products; (ii) accessing
product candidates complementary to our commercial presence; and
(iii)
monetizing assets that are no longer a strategic fit and realigning
our
investment on projects that are in line with our business
objectives. Our 2006 progress includes the presentation of
promising Phase 1 data for Quadramet in combination with bortezomib
for
relapsed multiple myeloma and the approval of an investigational
new drug
application to evaluate CYT-500 as a therapy for prostate
cancer. In addition, in April 2006, we monetized our interest
in a preclinical-stage joint venture, PSMA Development Company LLC
("PDC")
for a cash payment of $13.2 million and potential future milestone
payments totaling up to $52 million. We are also pursuing
strategic opportunities to optimize the extensive intellectual property
and technology associated with our AxCell BioSciences
subsidiary.
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Marketed
Products
CAPHOSOL
Overview
CAPHOSOL
is an advanced electrolyte solution indicated in the U.S. as an adjunct to
standard oral care in treating oral mucositis caused by radiation or high dose
chemotherapy. It is also indicated for dryness of the mouth or
dryness of the throat regardless of the cause or whether the conditions are
temporary or permanent. CAPHOSOL is approved in the U.S. as a
prescription medical device.
We
acquired the exclusive commercial rights for CAPHOSOL in North America from
InPharma in October 2006 in exchange for aggregate up-front payments totaling
$6.0 million which includes $1 million payable in 2007, a $400,000 payment
contingent upon certain conditions, future royalties on product sales, and
sales-based milestone payments. We are also obligated to pay a
finder's fee based on a percentage of milestone payments made to
InPharma. We also obtained options to acquire the rights to CAPHOSOL
for the European and Asian markets, which we only intend to exercise in
connection with obtaining a commercial partner for those areas. We
will be required to obtain consents from certain licensors but not InPharma,
if
we sublicense the rights to market CAPHOSOL in Europe and Asia to other
parties. In the event we exercise the options to license marketing
rights for CAPHOSOL for the European and Asian markets, we would be obligated
to
pay additional fees, including sales-based milestone payments for the respective
territories.
Oral
mucositis
Oral
mucositis is commonly described as one of the most significant and debilitating
acute complications associated with radiation therapy and
chemotherapy. It is estimated to affect more than 400,000 cancer
patients each year occurring in about 40% of patients receiving conventional
chemotherapy, 75% to 85% of bone marrow transplant recipients, and nearly all
patients undergoing radiation therapy for head and neck cancers. Oral
mucositis usually begins seven to ten days after initiation of cytotoxic
therapy, and remains present for approximately two weeks after cessation of
that
therapy.
Oral
mucositis is an oral mucosal change that manifests first by thinning of oral
tissues leading to redness or inflammation of the skin or mucous
membranes. As these tissues continue to thin, ulceration eventually
occurs. In severe cases, oral mucositis can complicate the management
of cancer by leading to interruption or stopping of treatment, which can
negatively impact treatment outcomes.
While
there are a number of agents available for oral mucositis, we believe the
current market is significantly underserved thereby presenting us with a
promising opportunity to substantially expand our revenue base.
CAPHOSOL
for oral mucositis
CAPHOSOL
lubricates the mucosa and helps maintain the integrity of the oral cavity
through its mineralizing potential. We believe the distinguishing
feature of CAPHOSOL is its high concentrations of calcium and phosphate ions,
which are hypothesized to exert their beneficial effects by diffusing into
intracellular spaces in the epithelium and permeating the mucosal lesion in
mucositis. Calcium ions may play a crucial role in several aspects of
the inflammatory process, the blood clotting cascade, and tissue
repair. Phosphate ions may be a valuable supplemental source of
phosphates for damaged mucosal surfaces.
In
two
single-arm studies evaluating patients receiving hematopoietic stem cell
transplantation (HSCT) and head and neck radiation therapy, the CAPHOSOL-based
oral health management system was well tolerated and was associated with an
improvement in oral mucositis as compared with previous controlled
studies. These favorable results were the basis for a prospective,
randomized, double-blind, placebo-controlled trial demonstrating
that
CAPHOSOL
is a significant adjunct in the management of mucositis associated with
high-dose chemotherapy and radiation therapy. The trial evaluated 95
patients undergoing HSCT with the duration and severity of mucositis and
requirements for opioid medications prospectively evaluated. Data
demonstrated significant decreases in days of mucositis (3.72 vs. 7.20 days,
P=0.001), maximum (peak) level of mucositis using the National
Institute of Dental and Craniofacial Research (NIDCR) scale (median level of
1.0
vs. 3.0, P=0.004), duration of pain (2.86 vs. 7.67 days, P=0.0001), dose of
morphine (30.46 mg vs. 127.96 mg), and days of morphine (1.26 vs. 4.02 days,
P=0.0001) for patients receiving CAPHOSOL as compared to those administered
a
placebo, respectively. A total of 40% vs. 19% of patients had no
mucositis in the CAPHOSOL and the control arms, respectively. The
lead investigator for the study was Athena Papas, DMD, PhD, Department of Oral
Medicine, Tufts University School of Medicine, Boston MA and results were
published in the April 2003 issue of the peer-reviewed journal Bone Marrow
Transplantation (Papas et al. Bone Marrow Transplant. 2003
April:31(8):705-12).
Dry
mouth
Saliva
is
the principle protective mechanism for oral tissues. Any absence of
saliva or alteration in its composition leaves the mouth susceptible to
infection or deterioration. Xerostomia or dry mouth occurs when the
salivary glands do not produce enough saliva. It is a serious oral
health problem that, when left untreated, leads to disease in the oral cavity
and places patients at risk for oral infections. Common complaints
with dry mouth include difficulty in speaking, chewing, and tasting and
swallowing foods. Dry mouth may be caused by a variety of factors,
including cancer treatment with chemotherapy and/or radiation, Sjögren syndrome
and other autoimmune disorders, diabetes, renal dialysis, solid organ and bone
marrow transplant, psychiatric disorders, and use of more than 400
pharmaceutical products known to adversely affect salivary output.
CAPHOSOL
for dry mouth
Saliva
is
an important part of the mucosal immune system. Caphosol lubricates
the oral cavity and its high concentrations of calcium and phosphate ions can
help to maintain the integrity of the teeth.
Our
products, including CAPHOSOL, are subject to significant regulation by
governmental agencies, including the FDA, as is more fully described below
under
the section entitled "Government Regulation." We cannot assure you
that we will be able to successfully market CAPHOSOL for oral mucositis and/or
dry mouth.
QUADRAMET
Overview
QUADRAMET
is an oncology product that pairs the targeting ability of a small molecule,
bone-seeking phosphonate (ethylenediaminetetramethylenephosphonic acid, or
EDTMP) with the therapeutic potential of radiation (samarium
Sm-153). QUADRAMET is indicated for the relief of pain in patients
with confirmed osteoblastic metastatic bone lesions that enhance on a
radionuclide bone scan. We market QUADRAMET to medical and radiation
oncologists in the U.S.
Bone
metastases
It
is
estimated that each year more than 100,000 patients in the U.S. develop bone
metastases from spread of their primary cancer. Bone is the third
most common site of metastatic disease after liver and lung, and the spread
of
cancer to bone is associated with considerable morbidity. This
includes bone pain and fracture, spinal cord compression, and
hypercalcemia. The incidence of bone metastasis is expected to
increase over the next decade as patient survival improves due to advances
in
anticancer therapy. This will make the treatment of this problem more
important in the overall management of the surviving cancer
patient. The majority of skeletal metastases arise from primary
tumors of the thyroid, kidney, lung, prostate, and breast, with the latter
two
accounting for about 80% of metastatic bone disease. While all bones
can be affected, the most common site of disease spread is the spine with the
subsequent development of spinal cord compression. In advanced breast
cancer, a majority of skeletal events will occur every three to four months
resulting in significant morbidity and impaired quality of life.
QUADRAMET
for painful bone metastases
Skeletal
invasion by prostate, breast, multiple myeloma, and other cancers often create
an imbalance between the normal process of bone destruction and
formation. QUADRAMET selectively targets such sites of imbalance,
thereby delivering radioactivity directly to areas of the skeleton that have
been invaded by metastatic tumor. QUADRAMET has demonstrated a range
of characteristics that may be advantageous for the treatment of pain arising
from metastatic bone disease. In clinical trials, QUADRAMET
demonstrated significant reductions in pain scores accompanied by reductions
in
opioid analgesic use as compared to placebo. Patients who respond to
treatment with QUADRAMET may experience pain relief within the first week
lasting a median of 16 weeks, with maximal relief generally occurring at three
to four weeks after injection. Patients who experience a reduction in
pain may be encouraged to decrease their use of opioid analgesics.
Despite
a
favorable safety and efficacy profile, the routine use of QUADRAMET for the
palliation of disseminated painful bone metastases has commonly been reserved
for those patients with end-stage disease when other treatment options have
been
exhausted. We believe this practice may have evolved as a result of
experiences with earlier generation radiopharmaceuticals, such as strontium-89,
which unlike QUADRAMET are associated with prolonged
myelosuppression. In December 2006, the American Cancer Society's
journal, Cancer, published new data from a multi-center Phase 4 study
evaluating the safety and efficacy of repeated doses of QUADRAMET in patients
with metastatic bone pain. This study is the first prospective
clinical trial specifically evaluating the common clinical scenario of patients
who initially respond to QUADRAMET and subsequently become candidates for
re-treatment upon the recurrence of symptoms. More than 200 patients,
including 55 patients who received repeated dosing of QUADRAMET participated
in
the multi-center study. The results demonstrated that repeated
QUADRAMET dosing is a safe and effective treatment option in patients with
painful bone metastases. The article, "Safety and efficacy of repeat
administration of Samarium Sm-153 lexidoronam to patients with metastatic bone
pain," by A. Oliver Sartor, the lead author and a nationally renowned prostate
cancer specialist with Dana-Farber Cancer Institute's Lank Center for
Genitourinary Oncology, appeared in the February 1, 2007 edition of Cancer
2007; 109: 637-43.
Because
we believe QUADRAMET is underutilized as a pain therapy for patients whose
cancer has spread to the bone, we are advancing numerous clinical and commercial
initiatives to better support QUADRAMET and expand its market potential within
its approved label for pain palliation. In connection with our
reacquisition of the commercial rights to QUADRAMET in 2003, we conducted
detailed market research that formed the foundation of our product growth
strategy. The key components of this strategy are summarized
below.
|
|
·
|
Distinguishing
the physical properties of QUADRAMET from earlier generation agents
within
its class. We believe the limited use of QUADRAMET for the
palliation of disseminated painful bone metastases has evolved due
to the
myelosuppression associated with earlier generation radiopharmaceuticals,
such as strontium-89. While to date, there are no head-to-head
clinical trials comparing QUADRAMET and strontium-89, we believe,
there
are several key differentiating features that distinguish QUADRAMET
from
strontium-89. First, QUADRAMET's physical half life is 1.9
days, as compared to 50.5 days for strontium-89. A shorter half
life results in a much faster time to deliver the total dose of radiation,
as well as a shorter exposure to radioactivity. In addition,
particle emissions from strontium-89 are significantly higher in
energy
compared to QUADRAMET and higher-energy particles are associated
with
larger volumes of marrow exposed to radiation. These key
differences have been highlighted in recent peer-reviewed publications
that our field force can utilize when they present QUADRAMET to health
care providers.
|
|
|
·
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Empowering
and marketing to key prescribing audiences. We have
broadened our commercial focus and are now introducing QUADRAMET
to both
medical and radiation oncologists, as we believe the effective treatment
of bone metastases requires a cooperative effort between the two
specialties. We have retrained and refocused our sales force
with new resources that highlight QUADRAMET's attributes for treating
painful bone metastases, such as its rapid onset and duration of
relief.
|
|
|
·
|
Broadening
palliative use within label beyond prostate cancer to include breast,
lung, and multiple myeloma. Historically, the vast
majority of QUADRAMET's use has been for bone metastases secondary
to
prostate cancer; however, bone metastases are also a frequent complication
of a number of other cancers, including breast, lung, and multiple
myeloma. We have extended our therapeutic focus beyond prostate
cancer specialists to include other cancers with a high propensity
for
painful bone metastases. In addition, our 2006 acquisitions of
SOLTAMOX for breast cancer and CAPHOSOL for oral mucositis and dry
mouth,
two common side effects of cancer therapy, offer expanded access
to new
therapeutic areas for QUADRAMET.
|
|
|
·
|
Generating
data to support the role of QUADRAMET in contemporary oncology settings
with other commonly used cancer therapeutics. We are
supporting numerous clinical development initiatives evaluating QUADRAMET
in combination with chemotherapies and biologics for prostate cancer,
breast cancer, multiple myeloma, and osteosarcoma. These trials
are designed with two key objectives. First, to broaden
QUADRAMET's market potential within its currently approved treatment
setting for pain palliation by evaluating the safety and tolerability
of
administering
|
QUADRAMET
in combination with other cancer regimens. Second, to support our
longer-term strategy for maximizing the QUADRAMET brand by progressing QUADRAMET
beyond its currently approved treatment setting as a potential therapeutic
for
cancer that has spread to the bone as discussed below.
Market
expansion for QUADRAMET
We
believe that QUADRAMET's targeted delivery of radiotherapy may also have an
important therapeutic effect beyond palliation of pain. Phase 1
clinical data suggest there may be synergistic effects between QUADRAMET and
other cancer therapies for prostate cancer, breast cancer, multiple myeloma,
and
osteosarcoma.
Prostate
cancer
In
February 2007, we reported the presentation of interim data from a Phase 1
study
evaluating QUADRAMET in combination with docetaxel (Taxotere®) for the treatment
of hormone-refractory prostate cancer. Data from 18 patients were
presented at the Prostate Cancer Symposium, a multidisciplinary meeting
co-sponsored by the American Society of Clinical Oncology, the American Society
for Therapeutic Radiology and Oncology, the Prostate Cancer Foundation, and
the
Society of Urologic Oncology. This trial continues to accrue patients
in a Phase 1 extension to explore the optimal dosing schedule for a Phase 2
clinical study to be initiated in 2007.
Breast
cancer
During
2007, we plan on expanding our combination strategy for QUADRAMET to include
breast cancer through the initiation of a Phase 1 trial evaluating QUADRAMET
in
combination with albumin-bound paclitaxel (Abraxane®) and a Phase 2 trial
evaluating QUADRAMET in connection with hormonal therapies.
Multiple
myeloma
In
December 2006, we reported the presentation of interim data from a Phase 1
dose
escalation study evaluating QUADRAMET® in combination
with
bortezomib (Velcade®) in patients with relapsed multiple
myeloma. Data from 20 patients administered a total of 35 treatment
cycles were presented at the Annual Meeting of the American Society of
Hematology. A treatment cycle is 8 weeks in duration and consists of
four administrations of bortezomib (on Days 1, 4, 8 and 11) and a single
administration of QUADRAMET (on Day 3). Results indicated the
combination of QUADRAMET and bortezomib was well-tolerated at the doses studied
and we are preparing for the initiation of a follow-up Phase 2 study in
2007.
Osteosarcoma
Following
the presentation of encouraging data at the Connective Tissue Oncology Society
(CTOS) annual meeting in November 2006, we are currently designing a Phase
2
protocol to evaluate QUADRAMET for the treatment of osteosarcoma. We
expect to initiate this study during 2007.
In
addition to the aforementioned Company-sponsored clinical development
initiatives in prostate cancer, breast cancer, multiple myeloma, and
osteosarcoma, we continue to explore investigator-sponsored studies and studies
with cooperative groups to advance our QUADRAMET combination
strategy.
In
July
2006, we reported that the National Cancer Institutes's (NCI) Radiation
Treatment Oncology Group (RTOG) initiated a randomized phase III trial to
evaluate either QUADRAMET or strontium-89 chloride in conjunction with
zoledronic acid (Zometa®) in the treatment of osteoblastic metastases arising
from lung, breast, and prostate cancer. The study is designed to determine
if the addition of a radiopharmaceutical to bisphosphonates for patients with
asymptomatic or stable symptomatic bone metastasis will delay the time to
development of malignant skeletal related events (SREs), defined as a
pathological bone fracture, spinal cord compression, surgery to bone, or
radiation to bone. The study is expected to involve approximately 350
patients.
In
March
2007, we reported that the NCI, part of the National Institutes of Health (NIH),
initiated a randomized Phase 2 study to evaluate QUADRAMET in combination
with the NIH's targeted therapeutic vaccine, PSA-TRICOM, for patients with
progressive hormone-refractory prostate cancer who have failed
docetaxel-based regimens. The primary objective of the study is to
determine if there is an improvement in four-month progression-free survival
for
the combination regimen versus QUADRAMET therapy alone. The study is
expected to enroll 68 patients. Currently, there is no standard of care
for treating prostate cancer patients who have progressive disease following
docetaxel-based therapy.
Our
products, including QUADRAMET, are subject to significant regulation by
governmental agencies, including the FDA, as is more fully described under
the
section entitled "Government Regulation" herein. We cannot assure you
that we will be able to complete any of our market expansion strategies set
forth above.
PROSTASCINT
Overview
Our
PROSTASCINT molecular imaging agent is the first, and currently the only,
commercial product targeting PSMA. PSMA is abundantly expressed on
the surface of prostate cancer cells. In contrast to other
prostate-related antigens such as PSA, prostatic acid phosphatase, and prostate
secretory protein, PSMA is a type II integral membrane glycoprotein that is
not
secreted. PSMA expression is increased in high-grade cancers,
metastatic disease, and hormone-refractory prostate cancer. PSMA is
also present at high levels on the newly formed blood vessels, or
neovasculature, needed for the growth and survival of many solid
tumors. This unique expression pattern makes PSMA an excellent
antigenic target for monoclonal antibody diagnostic and therapeutic
options.
PROSTASCINT
consists of our proprietary murine monoclonal antibody 7E11-C5.3 ("7E11")
directed against PSMA and the radioisotope indium-111. A radioisotope
is an element which, because of nuclear instability, undergoes radioactive
decay
and emits gamma radiation. Due to the selective expression of PSMA by
prostate cancer cells, PROSTASCINT can image the extent and spread of prostate
cancer using a common gamma camera.
10
PROSTASCINT
is approved for marketing in the United States in two clinical settings: (i)
as
a diagnostic imaging agent in newly diagnosed patients with biopsy-proven
prostate cancer thought to be clinically localized after standard diagnostic
evaluation and who are at high risk for spread of their disease to pelvic lymph
nodes and (ii) for use in post-prostatectomy patients with a rising PSA and
a
negative or equivocal standard metastatic evaluation in whom there is a high
clinical suspicion of occult metastatic disease.
During
the molecular imaging procedure, PROSTASCINT is administered intravenously
into
the patient. The 7E11 antibody in PROSTASCINT travels through the
bloodstream and binds to PSMA. The radioactivity from the isotope
that has been attached to the antibody can be detected from outside the body
by
a gamma camera. Gamma cameras are found in the nuclear medicine
departments of most hospitals. The image captured by the camera
assists in the identification of the location of the radiolabeled pharmaceutical
thus identifying the sites of tumors.
Gamma
cameras used in nuclear medicine have advanced in recent years. Some
manufacturers now sell cameras with wider segmented crystals, providing
advantages in medium and high energy imaging of isotopes (e.g., indium-labeled
agents, such as PROSTASCINT) thus enhancing system
sensitivity. System enhancements allow improved image quality or
reduced scan
time, which reduces the risks associated with patient
motion. Equipment vendors have introduced advanced single photon
emission computed tomography (SPECT) reconstruction algorithms, as well as
three
dimensional iterative reconstruction techniques that potentially increase image
contrast with inherent system gains in image quality. These prominent
new nuclear medicine imaging algorithms enable advances in image quality as
compared to conventional "Filtered Back Projection" techniques. In
addition, PROSTASCINT may now be co-registered with an anatomic image obtained
with either computed tomography (CT) or magnetic resonance (MR) imaging
(PROSTASCINT fusion imaging.) Device manufacturers generally offer
two methods to achieve co-registration between metabolic and anatomical
images. Some manufacturers merge information in a single SPECT/CT
system, while others utilize fusion software, which has become more widely
available in the past few years, as computer workstations have become powerful
enough to achieve co-registration.
Prostate
cancer
Prostate
cancer is the most common type of cancer found in American men, other than
skin
cancer. In 2007, the American Cancer Society estimates that there
will be about 219,000 new cases of prostate cancer diagnosed in the United
States and that about 27,000 men will die from the disease. It is
estimated that there are more than 2 million American men currently living
with
prostate cancer. Prostate-specific antigen (PSA) is a protein
produced by the cells of the prostate gland. Tests to determine the
amount of PSA in the blood, along with a digital rectal exam, is used to help
initially detect prostate cancer and is also used to monitor patients with
a
history of prostate cancer to see if the cancer has come back, or recurred;
however, PSA levels cannot directly identify the extent or location of
disease.
PROSTASCINT
for prostate cancer
When
deciding on a course of therapy for newly diagnosed prostate cancer, physicians
must determine the extent of disease in the patient. When disease has
not spread beyond the
11
prostate
gland, patients are most likely to benefit from local treatment options, such
as
surgical removal of the prostate gland. Patients diagnosed with
distant disease that has spread beyond the prostate gland have a poorer chance
of five-year survival than those
with
disease confined to the gland and are more likely to benefit from systemic
therapy. In addition, in the United States, following initial
therapy, prostate cancer patients are monitored to ascertain changes in the
level of serum PSA. In this setting, a consistent rise in PSA is
evidence of recurrence of the patient's prostate cancer. Knowledge of
the extent and location of disease recurrence is important in choosing the
most
appropriate form of treatment. PROSTASCINT is a non-invasive way to
help determine if the cancer is confined to the prostate or if it has spread
to
other areas of the body.
Prior
to
the availability of PROSTASCINT, determining whether newly diagnosed disease
was
limited to the prostate or had spread beyond the gland, for instance to lymph
nodes, was based upon statistical inference from the biopsy appearance of the
tumor, the patient's level of serum PSA, and the stage of other primary
tumors. Conventional imaging methods such as CT or MR are all
relatively insensitive because they rely on identifying significant changes
to
normal anatomic structure to indicate the presence of
disease. PROSTASCINT images are based upon expression of PSMA and,
therefore, may identify disease not readily detectable with conventional
procedures, such as CT or MR imaging alone.
In
June
2006, data from a series of studies evaluating PROSTASCINT fusion imaging and
advancements in image processing methods were presented at the Society of
Nuclear Medicine's annual meeting. The data demonstrated new
potential for PROSTASCINT fusion imaging to help determine patient-specific
treatment regimens and improve outcomes for prostate cancer
patients.
In
January 2007, we reported that the National Comprehensive Cancer Network (NCCN)
included PROSTASCINT in its updated clinical practice guidelines for recurrent
prostate cancer. We believe the expanded inclusion in the NCCN's
guidelines further reinforces the value of PROSTASCINT for evaluation of
prostate cancer in patients suspected of having locally recurrent
disease. NCCN is a non-profit alliance of 20 of the world's top
cancer centers. The NCCN's Clinical Guidelines in Oncology are a
benchmark for clinical policy in the oncology community. These
guidelines are updated continually and are based upon evaluation of scientific
data integrated with expert judgment by multidisciplinary panels of expert
physicians from NCCN member institutions. We believe the expanded
NCCN guidelines reflect the growing awareness of the advancements in imaging
processing and the value of PROSTASCINT fusion imaging.
In
February 2007, the American Brachytherapy Society's peer-reviewed journal,
Brachytherapy published the results of a seven-year survival study that
suggest PROSTASCINT may help predict which patients are less likely to benefit
from brachytherapy for prostate cancer. The study, "Biochemical
disease free survival rates following definitive low dose rate prostate
brachytherapy with dose escalation to biologic target volumes identified with
SPECT/CT Capromab Pendetide," by Ellis et al. (Brachytherapy
Volume
6, Issue 1, January-March 2007, Pages 16-25) evaluated the use of
PROSTASCINT fusion imaging to define brachytherapy treatment regimens for 239
newly-diagnosed prostate cancer patients. PROSTASCINT fusion imaging
was used to assess local and distant disease and to alter the radiation dose
to
areas of suspected high tumor burden. In a multivariate analysis,
uptake of PROSTASCINT outside of the prostate gland was found to be a
significant and independent predictor of biochemical disease
free
survival (bDFS). Using the American Society for Therapeutic Radiation
and Oncology (ASTRO) standard criteria to monitor PSA response for reporting
disease free survival, the cure rate was 90.6% for patients whose fused
PROSTASCINT scan showed local disease (n=217) versus 66.1% (n=22) for patients
with distant disease (p=0.0005). We believe this publication further
reinforces PROSTASCINT's emerging potential as a valuable tool in managing
the
care of prostate cancer patients.
Validation
of PSMA prognostic value
In
May
2006, Cytogen announced the presentation of clinical data demonstrating that
a
high level of PSMA in prostate tissue is a strong predictor of prostate cancer
recurrence. The data was presented at the 101st American Urological
Association (AUA) Annual Meeting held May 20-25, 2006, in Atlanta,
GA.
In
the
study, independent investigators from Ulm, Germany, and Boston, MA, analyzed
PSMA expression by tissue microarray in 96 patients with either localized or
metastatic prostate cancer who had undergone radical prostatectomy, or surgical
removal of the prostate, as monotherapy. One third of the patients
had disease confined to the prostate gland with no spread to lymph nodes (LN),
33% had only one positive LN, and the remaining third had more than one
positive
LN. Following therapy, patients were monitored for a maximum of 12.6
years with an average follow-up of 2.7 years.
Significant
up-regulation of PSMA expression was noted in patients with metastatic disease
as compared to those with localized prostate cancer and in localized disease
compared to benign prostate tissue (p<0.05). High PSMA levels were
associated with a significant increase in disease recurrence following therapy
(p<0.001) in univariate statistical analyses. Other significant
parameters for predicting disease recurrence included LN positivity,
extraprostatic extension of disease, seminal vesicle invasion by disease, and
Gleason score 8-10. Using multivariate statistical analyses, the best
model to predict disease recurrence included high PSMA expression (p<0.01)
and extraprostatic extension (p=0.02) after adjusting for Gleason score and
seminal vesicle invasion.
This
new
study validates and extends upon data previously published demonstrating that
over-expression of PSMA in primary prostate cancer not only correlates with
other adverse traditional prognostic factors, but can independently predict
both
a higher incidence and shorter time to disease recurrence. There is a
tremendous need for better prognostic markers in prostate cancer to assist
in
the identification of patients with aggressive forms of the disease who can
potentially benefit from earlier and more intensive forms of
treatment. The findings presented at AUA further support our belief
in the importance of PSMA as an independent prostate cancer marker and important
diagnostic and therapeutic target.
Market
Expansion for PROSTASCINT
We
believe the major developments in imaging resolution, emerging clinical data,
and the increasing level of recognition of the value of PROSTASCINT fusion
imaging support an important near- and long-term market opportunity for
PROSTASCINT. We are focused on capitalizing on this opportunity by
generating awareness and expanded usage for
PROSTASCINT
fusion imaging through a number of clinical and commercial
initiatives. Key highlights from our strategy are summarized
below.
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Positioning
PROSTASCINT fusion imaging as the standard of care for prostate cancer
imaging. PROSTASCINT fusion imaging combines anatomic and
functional information to provide a complete pathology picture in
a single
exam. This can help physicians eliminate guesswork and enable
them to better plan and individualize patient treatment. PROSTASCINT
fusion imaging can be accomplished through software or hardware
solutions. Of the approximately 400 sites able to perform PROSTASCINT
imaging, there are approximately 150 sites currently proficient in
PROSTASCINT fusion imaging. We are focused on growing the
number of these sites by increasing awareness of the significant
advancements that have taken place and the value of PROSTASCINT fusion
imaging to expand the number of
sites.
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Generating
awareness of the prognostic value of the PSMA
antigen. There is a growing body of clinical data
demonstrating that over-expression of PSMA in prostate cancer patients
correlates with other adverse prognostic factors and can independently
predict disease recurrence. We are focused on generating
awareness of PSMA as an important prognostic marker for prostate
cancer
and positioning
|
PROSTASCINT
as an important tool for identifying patients who may benefit from more
intensive treatment regimens.
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·
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Leveraging
the presentation and publication of outcomes data. In
2006, outcomes data from recent and ongoing clinical trials of PROSTASCINT
were reported at major medical meetings and in the peer-reviewed
publication, Brachytherapy. These data continue to
support the potential of PROSTASCINT fusion imaging as an important
tool
to define patients with local or metastatic disease, help clarify
treatment decisions, and prevent or limit treatment-related side
effects.
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·
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Advancing
image-guided therapy applications. The advances in nuclear
medicine imaging SPECT equipment, computer workstation power, as
well as
software enhancements allow researchers to utilize cutting-edge imaging
technology to explore novel applications of the enhanced PROSTASCINT
image. With fusion of an enhanced SPECT, the PROSTASCINT image
is registered with CT and/or MR anatomic images; the resulting images
have
been applied to clinical research in areas of guided brachytherapy
(or
radioactive seeds), guided external beam radiation therapy (EBRT),
intensity modulated radiation therapy (IMRT), and image-guided
biopsy. The potential of this application is described in the
previously discussed 2007 publication reporting seven-year biochemical
outcomes after image-guided brachytherapy using PROSTASCINT fusion
imaging. The publication, "Biochemical disease free survival
rates following definitive low dose rate prostate brachytherapy with
dose
escalation to biologic target volumes identified with SPECT/CT Capromab
Pendetide," by Ellis et al. appeared in the American Brachytherapy
Society's peer-reviewed journal, Brachytherapy (Brachytherapy
Volume 6, Issue 1, January-March 2007, Pages
16-25.)
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·
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Evaluating
the potential for imaging other PSMA-expressing
cancers. PSMA was originally thought to be strictly
expressed in prostate tissue, but studies
have
|
demonstrated
PSMA protein expression in the newly forming blood vessels associated with
a
variety of nonprostatic tumors. The formation of new blood vessels
(angiogenesis) is essential for the growth and development of both primary
and
metastatic tumors and may represent a unique target for the treatment and
diagnosis of a variety of diverse tumors. PSMA may be a unique
antiangiogenesis target because it is selectively and consistently expressed
in
nonprostatic tumor-associated neovasculature but not in normal vessels in benign
tissue. A renal cell carcinoma discovered through PROSTASCINT imaging
forms the basis upon which we believe PSMA's role as a molecular imaging target
may be expanded. The PROSTASCINT scan revealed suspicious uptake in a
kidney, which subsequent conventional imaging revealed to be a solid renal
mass
with necrosis. This example may demonstrate recognition of
tumor-associated neovasculature by the PROSTASCINT monoclonal
antibody. Detection of other malignancies such as non-Hodgkin's
lymphoma, neurofibromatosis, and meningioma has also been reported with
PROSTASCINT imaging. Accordingly, we are planning additional research
to determine the role of PROSTASCINT imaging in nonprostatic primary and
metastatic malignancies.
Our
products, including PROSTASCINT, are subject to significant regulation by
governmental agencies, including the FDA, as is more fully described below
under
the section entitled "Government Regulation." We cannot assure you that we
will
be able to complete any of our market expansion strategies set forth
above.
SOLTAMOX
Overview
In
the
second half of 2006, we introduced SOLTAMOX in the
U.S. SOLTAMOX, a cytostatic estrogen receptor antagonist, is the
first oral liquid hormonal therapy approved in the U.S. SOLTAMOX is
indicated for the treatment of breast cancer in adjuvant and metastatic settings
and to reduce the risk of breast cancer in women with ductal carcinoma in
situ (DCIS) or with high risk of breast cancer. We market
SOLTAMOX to the U.S. oncology market through our specialty sales and marketing
team.
We
acquired the exclusive U.S. marketing rights for SOLTAMOX in April 2006 from
Savient. We also entered into a supply agreement with Rosemont
Pharmaceuticals Ltd ("Rosemont"), a former subsidiary of Savient, for the
manufacture and supply of SOLTAMOX. Such agreements were subsequently
assigned by Savient to Rosemont. Under the terms of the transaction
we paid Savient an up-front licensing fee of $2.0 million, are obligated to
pay
royalties on net sales and may pay additional contingent sales-based payments
of
up to $4.0 million to Rosemont.
SOLTAMOX,
a liquid formulation of tamoxifen developed by Savient, received U.S. regulatory
approval in October 2005.
Breast
cancer
Breast
cancer is the most common non-skin cancer in women and the second leading cause
of death in women after lung cancer. According to the American Cancer
Society, it is estimated that in 2007 about 178,480 new cases of invasive breast
cancer will be diagnosed
among
women in the United States. At this time there are slightly over 2
million breast cancer survivors in the United States. In addition to
invasive breast cancer, carcinoma in situ (CIS) will account for about 62,030
new cases in 2007. CIS is noninvasive and is the earliest form of
breast cancer. Breast cancer also occurs in men. An
estimated 2,030 cases of invasive breast cancer will be diagnosed in men in
2007. Breast cancer is the second leading cause of cancer death in
women, exceeded only by lung cancer. In 2007, about 40,460 women and
450 men will die from breast cancer in the United States. Estrogen is
known to promote the growth of approximately two-thirds of breast cancers that
contain estrogen or progesterone receptors. Breast cancer treatment
often involves agents designed to block the effect of estrogen or lower estrogen
levels. Tamoxifen, the most commonly used anti-estrogen drug, has
been shown to reduce the risk of cancer recurrence and improve overall survival
in all age groups.
SOLTAMOX
for breast cancer
Tamoxifen
interferes with the activity of the estrogen hormone. Estrogen
promotes the growth of breast cancer cells and tamoxifen works against these
effects. It has been used for more than 20 years to treat patients
with advanced breast cancer. Clinical trials have documented the
benefits of adjuvant tamoxifen in women with early-stage breast cancer.
Adjuvant
tamoxifen therapy reduces the risk of a systemic recurrence and results in
a
significant increase in overall survival for women with
hormone-receptor-positive breast cancer. The standard recommendation
for women with hormone receptor-positive breast cancer is five years of
tamoxifen. Soltamox is bioequivalent in rate and extent of absorption
to tamoxifen citrate tablets and it is the only liquid formulation available
in
the U.S.
Because many
patients prefer different formulations of pharmaceutical products, we believe
that providing patients with a preferred delivery option can drive adherence
to
therapy and improve treatment outcome. While tamoxifen citrate
tablets are a standard of care for certain breast cancer settings, they are
associated with compliance and persistency issues. Recently published
data show that although overall adherence to tamoxifen tablets is better than
that seen with other chronic medications, adherence rates dropped to 50% after
four years of therapy. In 2003, the Journal of Clinical Oncology
published a study evaluating the adherence and predictors of non-adherence
in
women starting tamoxifen as adjuvant breast cancer therapy. The study
"Nonadherence to Adjuvant Tamoxifen Therapy in Women with Primary Breast Cancer"
by Partridge, et al., evaluated 2,378 patients initiating tamoxifen from 1990
to
1996 and concluded that nearly 25% of tamoxifen patients may be at risk for
inadequate clinical response because of poor adherence. While this
level of adherence is high compared with other medications, further efforts
are
necessary to identify and prevent suboptimal adherence.
We
believe that providing an alternative oral liquid dosing form of tamoxifen
is an
important option for patients that may allow more women to benefit from hormonal
treatment for estrogen receptor positive breast cancer.
As
with
other versions of tamoxifen, the SOLTAMOX product label also includes a black
box warning with information on the potential risk of adverse
events. The boxed warning states, in part, that: "Serious and life
threatening events associated with tamoxifen in the risk reduction setting
(women at high risk for cancer and women with ductal carcinoma in situ)
include uterine malignancies, stroke, and pulmonary embolism. The
benefits of SOLTAMOX outweigh its risks in women already diagnosed with breast
cancer."
Our
products, including SOLTAMOX, are subject to significant regulation by
governmental agencies, including the FDA, as is more fully described under
the
section entitled "Government Regulation" herein. We cannot assure you
that we will be able to successfully compete in the taxomifen
market.
Research
and Development
Our
total
research and development expenses, including our investment in PDC, a
preclinical joint venture with Progenics that we sold in April
2006, for the years ended December 31, 2006, 2005, and 2004 were $7.4
million, $9.3 million, and $6.2 million, respectively. These expenses
included $120,000, $3.2 million, and $2.9 million related to our equity in
the
loss of PDC, for the years ended December 31, 2006, 2005, and 2004,
respectively. We are no longer responsible for funding
PDC.
Our
ongoing clinical development initiatives consist of expanding the market
potential for our existing products along with development of new product
candidates. Our research and development strategy is mindful of risk
management and over the past three years we have monetized or discontinued
the
vast majority of our investment in research and preclinical stage
programs. Our current
clinical development strategy is to focus on clinical-stage opportunities that
are complementary to our commercial presence and have an identifiable pathway
to
approval.
Our
proprietary research and development activities in 2006 were primarily focused
on clinical expansion studies for QUADRAMET and PROSTASCINT and preparation
for the Phase 1 study for CYT-500, our radiolabeled monoclonal antibody
that we are developing for the treatment of prostate cancer.
CYT-500
In
February 2007, we announced the initiation of the first human clinical
study of CYT-500, our proprietary radiolabeled monoclonal antibody targeted
to
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 in May 2006, and is expected to enroll up to 36
patients.
CYT-500
employs the same 7E11 monoclonal antibody as our molecular imaging agent
PROSTASCINT; however, it is linked to lutetium 177 (Lu-177), a particle emitting
therapeutic radionuclide, as opposed to an imaging radionuclide. We
designed this novel product candidate to enable targeted delivery of high doses
of radiation to PSMA-expressing cells.
Preclinical
pharmacokinetic and biodistribution studies of CYT-500 demonstrated that the
compound is stable in serum, accumulates at the tumor site and clears from
normal organs and tissues. Acute and expanded toxicology studies and
safety pharmacology studies with unlabeled doses up to 20 times the anticipated
human dose did not reveal significant adverse reactions. The
preclinical data were presented in November 2005 at the American Association
for
Cancer Research-National Cancer Institute-European Organization for Research
and
Treatment of Cancer International Conference on Molecular Targets and Cancer
Therapeutics.
We
believe there is a strong rationale for development of CYT-500 for several
factors, including:
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Radiotherapy
has been successfully developed and used to treat hematological
disorders. Prostate cancer mirrors a hematological disorder in
the sense that most of the disease is in the skeleton in the bone
marrow.
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PSMA
is a validated target and our proprietary 7E11 antibody is a confirmed
effective PSMA-targeting agent that has been injected into more than
60,000 patients as a component of
PROSTASCINT.
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·
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The
7E11 antibody is conjugated with a bifunctional chelating agent that
forms
highly stable and kinetically inert complexes, which we believe lends
to
the optimal attachment of a therapeutic
radioisotope.
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·
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In
terms of repetitive dosing, the clinical protocol in the approved
IND
allows for repeated administrations of the
agent.
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Discontinued
research and development programs
Since
2004, we have been realigning our research and development investment to focus
on clinical-stage opportunities.
In
April
2006, we sold our interest in PDC to Progenics for a cash payment of $13.2
million, potential future regulatory and sales-based milestone payments totaling
up to $52.0 million, and royalties on any future PDC product
sales. PDC was formed in 1999 to develop in vivo
immunotherapeutic products utilizing PSMA.
In
July
2004, we initiated the closure of the facility for our AxCell Biosciences
subsidiary. Currently, our business development initiatives include
an active out-licensing program to capitalize on the proprietary technology
associated with AxCell. These technologies are discussed in further
detail in the Technology section below.
Technology
Our
strategy includes pursuing strategic opportunities to optimize the value of
our
intellectual property and associated proprietary technologies. For
example, in April 2006, we sold our interest in PDC for a cash payment of $13.2
million, and potential future milestone and royalty payments. This
provided us with additional capital to grow our business and enabled us to
substantially reduce our research and development investment in early-stage
projects. In addition, we have several technology platforms that
are available for out-licensing. These platforms are focused within
the areas that are described below.
Prostate-Specific
Membrane Antigen or PSMA
PSMA
is
protein that is highly expressed on the surface of prostate cancer cells and
the
neovasculature of solid tumors. In 1987, Dr. Julius S. Horosziewicz
identified the PSMA protein
using
a
monoclonal antibody. The antibody technology developed by Dr.
Horosziewicz was assigned to Cytogen. Researchers at the
Sloan-Kettering Institute for Cancer Research identified and sequenced the
gene
encoding PSMA. We have the exclusive worldwide license to these
technologies, which are the foundation of our proprietary PSMA-targeting
monoclonal antibody, 7E11.
Our
PSMA-targeting platform has been successfully applied through the
commercialization of our product PROSTASCINT, the first and only commercial
monoclonal antibody-based agent targeting PSMA to image the extent and spread
of
prostate cancer. We are also developing a third-generation
radiolabeled antibody to treat prostate cancer, CYT-500. CYT-500
combines our proprietary PSMA-targeting monoclonal antibody with a high-affinity
chelator and a beta-emitting isotope.
PSMA
has
also been found to be present at high levels in the new blood vessels, or
neovasculature, formed in association with most solid tumors, including breast,
lung and colorectal cancers. Such neovasculature is necessary for the
growth and survival of many types of solid tumors. We believe that
due to the unique characteristics of PSMA, technologies targeting this antigen
may yield novel products for the treatment and diagnosis of
cancer. If PSMA-targeting
therapies can destroy or prevent formation of these new blood vessels, we
believe that such therapies may prove valuable in treating a broad range of
cancers.
In
August
2000, we executed a sublicense agreement with Northwest Biotherapeutics Inc.
(NWBT) pursuant to which we granted NWBT the right to develop and commercialize
ex vivo immunotherapy products for prostate cancer that are produced by
pulsing isolated populations of a patient's antigen presenting cells, such
as
dendritic cells, with PSMA. Following encouraging results from a
Phase 1/2 trial to evaluate the safety and efficacy of using PSMA with NWBT's
proprietary dendritic cell immunotherapy, DCVax®, NWBT advanced DCVax-Prostate
to the initiation of Phase 3 clinical trials. In November 2002, NWBT
suspended all clinical trial activity for its DCVax product candidates and
withdrew its Investigative New Drug Application (IND) for DCVax- Prostate,
which
resulted in a termination of the license agreement with us. As a
result, we regained the rights to ex vivo prostate cancer immunotherapy
using PSMA in December 2002. In January 2005, NWBT announced that it
received clearance from the FDA to begin assessment of DCVax-Prostate in a
Phase
3 clinical trial. We are awaiting clarification from NWBT on the
status of this PSMA-based program following termination of the license agreement
with us.
AxCell
Biosciences Subsidiary
In
1993,
we licensed from the University of North Carolina at Chapel Hill (UNC-CH)
exclusive worldwide rights to novel reagents and technology for identifying
targeting peptides that were developed under sponsored research funded by
Cytogen. This process utilizes random peptide libraries (Genetic
Diversity Library, GDL™) expressing an extensive collection of long peptides
that, unlike conventional drugs or short peptides, can mimic natural proteins
in
terms of their folding and their corresponding molecular recognition
functions. This is similar in many regards to the ability of antibody
molecules to selectively bind to antigens, or enzymes to bind to their
substrates. This proprietary approach facilitated the screening of a
much more diverse family of compounds than was practical with previous methods
and yielded several novel reagents (totally synthetic affinity reagents,
TSAR's). Originally, we expected to utilize these
libraries
to discover specific binding molecules that would represent attractive
alternatives to monoclonal antibodies for diagnostic and therapeutic
products.
In
1996,
Cytogen entered into a research and licensing agreement with Elan Corporation,
plc, which marked the Company's first external collaboration in which
GDL-derived products would be utilized for their ability to target drugs to
specific sites within the body. The research program with Elan was
designed to discover GDL-derived peptides that could be used to target
therapeutic agents to receptors expressed within the lining of the intestinal
tract known to be involved in certain cellular uptake and transport
processes. In contrast to most biotechnology drugs that cannot be
administered orally due to the fact that they break down prior to reaching
the
bloodstream, such peptides could be administered orally. Under the
agreement, Elan had the option for worldwide licensing rights to any products
developed collaboratively and we would receive royalties based on the sale
of
any such products. We subsequently assumed ownership and
responsibility for Elan's pending patent portfolio related to GDL-derived
peptides that could be used to target therapeutic agents to receptors expressed
within the lining of the intestinal tract known to be involved in certain
cellular uptake and transport processes.
In
November 2006, we were issued United States patent number 7,135,457 covering
oral drug delivery agents - random peptide compositions that bind to
gastro-intestinal tract (GIT) transport receptors. The patent
specifically covers compositions of Cytogen's oral delivery agents that are
capable of facilitating transport of an active agent through a human or animal
GIT, and derivatives and analogs thereof, and nucleotide sequences coding for
said proteins and derivatives. The oral delivery agents have use in
facilitating transport of active agents from the lumenal side of the GIT into
the systemic blood system, and/or in targeting active agents to the
GIT.
By
binding (covalently or noncovalently) one of Cytogen's delivery agents to an
orally administered drug or by coating the surface of nanoparticles or liposomes
with the delivery agent, the drug can be targeted to specific receptor sites
or
transport pathways which are known to operate in the human gastrointestinal
tract, thus facilitating its systemic absorption into the
bloodstream.
The
binding of Cytogen's delivery agents to these receptors has been confirmed
in
preclinical models, and successful in vivo delivery of both insulin and
leuprolide in animal models have been demonstrated. Based on these
results, we are seeking partnerships for oral drug delivery.
A
subsidiary of Cytogen, AxCell Biosciences was incorporated in 1996 to further
commercialize the GDL technology in the field of accelerated new target
discovery and validation. Based on the prevalence of modular protein
domains, such as Src homology domain 3 and 2 (SH3 and SH2), among many other
important signaling molecules known to mediate protein-protein interactions,
UNC-CH researchers advanced the use of ligands generated using GDL as probes
to
systematically isolate entire repertoires of modular domain-containing proteins
from cloned DNA expression libraries. This became AxCell's Cloning of
Ligand Targets (CLT™) technology.
As
an
initial 'proof of concept' for the automation and application of GDL and CLT
technologies to rapidly and efficiently identify protein signaling pathways,
AxCell created a
comprehensive network
(ProChart™) of domain and ligand interactions throughout
2001. Because protein signaling pathways play a role in many
diseases, researchers are working to develop drugs that specifically target
these pathways. While some interactions are likely to have positive
clinical results, others can lead to unwanted drug side effects and
toxicity. By referring to a comprehensive network of the body's
protein interactions, researchers may be better able to identify drugs that
target a specific disease related interaction while avoiding those unspecific
interactions associated with unwanted side effects.
AxCell
initially partnered with a leading global provider of bioinformatics software
solutions to make the ProChart database available to subscribing medical and
scientific researchers around the world on a commercial
basis. However, due to the fact that AxCell identified
protein-protein interactions through a high throughput, in vitro
system, prospective customers were reluctant to make a significant subscription
commitment in the absence of in vivo validation for the AxCell
data. The absence of such validation, combined with a reevaluation of
the subscription database business model, resulted in a realignment of the
AxCell business plan in 2002 to focus on applying its extensive protein
interaction data in several major areas of scientific interest by entering
into
academic, governmental, and corporate research collaborations
designed to both provide in vivo validation of novel protein-protein
interactions discovered using its in vitro approach and the discovery
of novel drug targets. In most circumstances, AxCell has an exclusive
option to negotiate an exclusive, worldwide, royalty-bearing license for
inventions that result from the research collaboration.
In
March
2004, the first in vivo validation of a novel interaction discovered
using AxCell's technology was published ("Functional association between Wwox
tumor suppressor protein and p73, a p53 homolog." PNAS March 30,
2004: vol. 101; no. 13 pp. 4401–4406). In November 2004, a second
demonstration of in vivo validation for a novel interaction discovered
using AxCell's technology was published ("Physical and functional interactions
between the Wwox tumor suppressor protein and the AP-2gamma transcription
factor. "Cancer Res. November 2004: vol. 64; no. 22 pp.
8256-61).
We
believe the application of our ProChart database technology may accelerate
research and drug development by:
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Discovering
novel signal transduction pathways and their relevant protein-protein
interactions, such as rapidly identifying qualified drug targets
and
identifying potential unwanted side
effects.
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Identifying
structure and activity relationship (SAR) information regarding domain
and
ligand interactions that can facilitate small molecule drug
design.
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Providing
high throughput screening reagents (eg, cloned domains and
ligands).
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In
view
of recent biological validation and progress through both internal data mining
efforts and external research collaborations along with the oral drug delivery
technology, Cytogen is currently exploring strategic transactions for
AxCell.
Strategic
Agreements
We
frequently enter into alliances with other companies to, among other things,
increase our financial resources, manage risk, and retain an appropriate level
of ownership of products currently in development. In addition,
through alliances with other pharmaceutical and biotechnology companies and
other collaborators, we may obtain funding, expand existing programs, learn
of
new technologies and gain additional expertise in developing and marketing
products.
InPharma
AS
In
October 2006, we entered into a license agreement with InPharma granting us
exclusive rights to CAPHOSOL in North America. Under the terms of the
agreement, we are obligated to pay InPharma aggregate up-front fees totaling
$6.0 million, of which $4.6 million was paid in the fourth quarter of 2006,
$400,000 will be paid into an escrow account and $1.0 million is payable in
the
second quarter of 2007. In addition, we are obligated to pay InPharma
royalties on net sales and sales-based milestone payments up to an aggregate
of
$49.0 million, of which payments totaling $35 million are, based upon annual
sales levels first exceeding $30 million. We are also obligated to
pay a finder's fee based on a percentage of milestone payments made to
InPharma.
We
also
obtained options to acquire the rights to CAPHOSOL for the European and Asia
markets that we only intent to exercise in connection with obtaining a
commercial partner for those areas. We will be required to obtain
consents from certain licensors but not InPharma, if we sublicense the rights
to
market CAPHOSOL in Europe and Asia to other parties. In the event we
exercise the options to license the marketing rights for CAPHOSOL for the
European and Asian markets, we would be obligated to pay additional fees,
including sales-based milestone payments for the respective
territories.
Rosemont
Pharmaceuticals Limited
In
April
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. Such agreements were subsequently
assigned by Savient to Rosemont. Under the terms of the final
transaction, we paid Savient an up-front licensing fee of $2.0 million and
may
pay additional 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. Each of the distribution and supply agreements
terminates upon the later the expiry of the last-to-expire patent covering
SOLTAMOX in the United States or ten years from the date of launch of the
SOLTAMOX in the United States. Thereafter, such agreements will be
automatically renewed for an additional year. The manufacturing
agreement is terminable by Rosemont or us on one year notice prior to the end
of
the then current term. 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.
Bristol-Myers
Squibb Medical Imaging, Inc.
Effective
January 1, 2004, we entered into a manufacturing and supply agreement with
Bristol-Myers Squibb Medical Imaging, Inc. ("BMSMI"), under which BMSMI
manufactures, distributes and provides order processing and customer service
for
us for QUADRAMET. Under the terms of the agreement, we are obligated
to pay at least $4.9 million annually, subject to future annual price
adjustment, through 2008, unless we or BMSMI terminates on two years prior
written notice. This agreement will automatically renew for five
successive one-year periods unless we or BMSMI terminates on two years prior
written notice. We also pay BMSMI a variable amount per month for
each QUADRAMET order placed to cover the costs of customer service which is
included in selling, general and administrative expenses.
Laureate
Pharma, L.P.
In
September 2006, we entered into a non-exclusive manufacturing agreement with
Laureate Pharma, L.P. ("Laureate") under which Laureate manufactures PROSTASCINT
and its primary raw materials for us 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.
In
September 2005, we entered into a non-exclusive manufacturing agreement with
Laureate for the scale-up for the cGMP manufacturing of CYT-500. Our
agreement with Laureate terminated on December 31, 2006. We believe
that such agreement provided us with a sufficient supply to satisfy our
requirements for Phase 1 clinical trials of CYT-500.
Holopack
Verpackungstechnik GmbH
In
February 2007, we 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 us on three months
notice prior to the end of each term period.
The
Dow Chemical Company
We
acquired an exclusive license from The Dow Chemical Company ("Dow") 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.
In
May
2005, we entered into a license agreement with Dow 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 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,
if approved, 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.
Oncology
Therapeutics Network, J.V.
In
June
2006, we entered into a purchase and supply agreement with Oncology Therapeutics
Network, JV. ("OTN") appointing OTN as the exclusive distributor of SOLTAMOX
in
the United States. In August 2006, the agreement was amended to
revise certain terms, including changing the role of OTN to the exclusive
warehousing agent and non-exclusive distributor of SOLTAMOX. Under
the terms of the amended agreement, OTN will purchase SOLTAMOX from us for
its
own wholesaler channels and, along with third-party logistics providers,
distribute SOLTAMOX to our other customers through its warehousing and
distribution facilities. In January 2007, we further amended our
agreement with OTN to also include CAPHOSOL.
Product
Contribution to Revenues
For
the
years ended December 31, 2006, 2005, and 2004, PROSTASCINT and QUADRAMET
accounted for, substantially all of our product revenues. For the
years ended December 31, 2006, 2005 and 2004, revenues related to PROSTASCINT
accounted for approximately 53%, 46% and 49%, respectively, of our total
revenues; and revenues related to QUADRAMET accounted for approximately 47%,
52%
and 50%, respectively, of our total revenues. During the second half
of 2006, we introduced SOLTAMOX in the U.S., and during the first quarter
of 2007, we introduced CAPHOSOL in the U.S. In accordance with
U.S. generally accepted accounting principles (GAAP), we will recognize revenues
for SOLTAMOX and CAPHOSOL in our consolidated statement of operations when
we
have sufficient information to estimate expected product returns for
these introduced products.
Concentration
of Sales
During
the year ended December 31, 2006, we received 64% of our total revenues from
three customers, as follows: 41% from Cardinal Health (formerly Syncor
International Corporation); 14% from Mallinckrodt Inc.; and 9% from GE
Healthcare (formerly Amersham Health).
During
the year ended December 31, 2005, we received 67% of our total revenues from
three customers, as follows: 47% from Cardinal Health
(formerly Syncor International Corporation); 11% from Mallinckrodt Inc., and
9%
from GE Healthcare (formerly Amersham Health).
Competition
The
biotechnology and pharmaceutical industries are subject to intense competition,
including competition from large pharmaceutical companies, biotechnology
companies and other companies, universities and research
institutions. Our existing therapeutic and imaging/diagnostic
products compete with the products of a wide variety of other
firms,
including
firms that provide products used in more traditional therapies or procedures,
such as external beam radiation, chemotherapy agents, narcotic analgesics and
other imaging/diagnostics. In addition, our existing and potential
competitors may be able to develop technologies that are as effective as, or
more effective than those offered by us, which would render our products
noncompetitive or obsolete. Moreover, many of our existing and
potential competitors have substantially greater financial, marketing, sales,
manufacturing, distribution and technological resources than we
do. Our existing and potential competitors may be in the process of
seeking FDA or foreign regulatory approval for their respective products or
may
also enjoy substantial advantages over us in terms of research and development
expertise, experience in conducting clinical trials, experience in regulatory
matters, manufacturing efficiency, name recognition, sales and marketing
expertise and established distribution channels. We believe that
competition for our products is based upon several factors, including product
efficacy, safety, cost-effectiveness, ease of use, availability, price, patent
position and effective product promotion.
We
expect
competition to intensify in the fields in which we are involved, as technical
advances in such fields are made and become more widely known. We
cannot assure you, however,
that we or our collaborative partners will be able to develop our products
successfully or that we will obtain patents to provide protection against
competitors. Moreover, we cannot assure you that our competitors will
not succeed in developing therapeutic or imaging/diagnostic products that
circumvent our products or that these competitors will not succeed in developing
technologies or products that are more effective than those developed by
us. In addition, many of these companies may have more experience in
establishing third-party reimbursement for their
products. Accordingly, we cannot assure you that we will be able to
compete effectively against existing or potential competitors or that
competition will not have a material adverse effect on our business, financial
condition and results of operations.
Competition
Related to CAPHOSOL
Currently,
there is limited consensus standard of care for oral mucositis supported by
clinical data and to date, there has only been one commercially available
prescription pharmaceutical product approved by the FDA for oral mucositis,
the
intravenous growth factor palifermin. Ice chips, local painkillers
and narcotics are also used to reduce the patient's pain and doctors routinely
prescribe mouthwashes containing traditional antibacterial and antifungal drugs
for the treatment of oral mucositis, although most clinical trials have shown
that they have suboptimal efficacy. There are also a number of oral
rinses that have been approved as medical devices by FDA for dry mouth; however,
CAPHOSOL is the only approved calcium phosphate oral rinse that is indicated
for
both oral mucositis and dry mouth that is supported by significant efficacy
data
from a randomized placebo-controlled study.
We
believe there are a number of key differentiating factors that give CAPHOSOL
a
competitive advantage including its high concentrations of calcium and phosphate
ions, its intellectual property, and the efficacy data which support its
beneficial effects for relieving oral mucositis.
Competition
Related to QUADRAMET
Current
competitive treatments for bone cancer pain include narcotic analgesics,
external beam radiation therapy, bisphosphonates, and other skeletal targeting
therapeutic radiopharmaceuticals such as strontium-89 chloride.
QUADRAMET
primarily competes with strontium-89 chloride in the radiopharmaceutical pain
palliation market. Strontium-89 chloride is manufactured and marketed
as a branded product by GE Healthcare and as a generic version by Bio-Nucleonics
Pharma, Inc. GE Healthcare manufactures strontium-89 chloride and sells the
product through its wholly owned network of radiopharmacies, direct to end-users
and through other radiopharmacy distributors. The generic version is
distributed directly by the manufacturer, or is sold through radiopharmacy
distributors such as Cardinal Health and AnazaoHealth (formerly Custom Care
Pharmacy).
To
meet
future competitive challenges to QUADRAMET, we continue to, among other things,
focus our efforts on managing radiopharmacy distributor
relationships. We also plan to continue to focus on research
supporting additional applications and by documenting the safe and effective
use
of QUADRAMET when used in conjunction with metastatic disease therapies such
as
bisphosphonates, chemotherapeutics and hormonal therapy.
Competition
Related to SOLTAMOX
The
current competitive treatments for SOLTAMOX include the tablet form of tamoxifen
citrate, a generic drug, and a class of drugs known as aromatase
inhibitors.
Competition
Related to PROSTASCINT
The
spread of prostate cancer may be evaluated using a number of imaging modalities,
including computed tomography, magnetic resonance imaging, or positron emission
tomography.
Manufacturing
and Supply of Raw Materials
We
do not
manufacture any of our products. We have contracted with third-party
manufacturers to supply the raw materials and finished products to meet our
needs. Our third-party manufacturers meet the FDA's current Good
Manufacturing Practices or cGMP, regulations, and guidelines. cGMP
regulations require that all manufacturers of pharmaceuticals for sale in the
U.S. achieve and maintain compliance with regulations governing the
manufacturing, processing, packaging, storing and testing of drugs intended
for
human use.
Holopack
is the sole manufacturer of CAPHOSOL under a manufacturing supply
agreement. 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.
The
two
primary components of QUADRAMET, particularly samarium-153 and EDTMP, are
provided to BMSMI by outside suppliers. BMSMI obtains its supply of
samarium-153 from a sole supplier, and EDTMP from another sole
supplier. Our manufacturing and supply agreement with BMSMI, under
which BMSMI manufactures, distributes and provides order processing and customer
service for us for QUADRAMET, runs through 2008, unless we
or
BMSMI
terminates on two years prior written notice. This agreement will
automatically renew for five successive one-year periods unless we or BMSMI
terminates on two years prior written notice.
Laureate
is the sole manufacturer of PROSTASCINT, the PSMA targeting antibody, 7E11,
which is a component of PROSTASCINT, as well as our clinical compound,
CYT-500. In September 2006, we entered into a non-exclusive
manufacturing agreement with Laureate under which Laureate manufactures
PROSTASCINT and its primary raw materials for us 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. In September 2005, we entered into a
non-exclusive manufacturing agreement with Laureate for the scale-up for the
cGMP manufacturing of CYT-500. Our agreement with Laureate terminated
on December 31, 2006. We believe that such agreement provided us with
a sufficient supply to satisfy our requirements for Phase 1 clinical trials
of
CYT-500.
Rosemont
is the sole manufacturer of SOLTAMOX under a supply agreement. The
supply agreement terminates upon the later the expiry of the last-to-expire
patent covering SOLTAMOX in the United States or ten years from the date of
launch of the SOLTAMOX in the United States. Thereafter, such
agreements will be automatically renewed for an additional year. The
manufacturing agreement is terminable by Rosemont or us on one year notice
prior
to the end of the then current term.
Alternative
sources for our manufacturing needs may not be readily available, and any
alternate manufacturers and suppliers would have to be identified and qualified,
subject to all applicable regulatory guidelines. If our manufacturers
cannot obtain and/or manufacture sufficient quantities of the components for
our
products at commercially reasonable terms, or in a timely manner, it could
result in our inability to manufacture our products at a timely and
cost-effective basis.
Intellectual
Property
We
believe that our success depends, in part, on our ability to protect our
products and technology through patents and trade
secrets. Accordingly, our policy is to pursue a vigorous program of
securing and maintaining patent and trade secret protection to preserve our
right to exploit the results of our research and development activities and,
to
the extent it may be necessary or advisable, to exclude others from
appropriating our proprietary technology.
We
aggressively protect our proprietary technology by selectively seeking patent
protection in a worldwide program. In addition to the United States,
we file patent applications in Canada, major European countries, Japan and
additional foreign countries on a selective basis to protect inventions
important to the development of our business. We believe that the
countries in which we have obtained and are seeking patent coverage for our
proprietary technology represent the major focus of the pharmaceutical industry
in which we will market our respective products.
We
also
rely upon, and intend to continue to rely upon, trade secrets, unpatented
proprietary know-how and continuing technological innovation to develop and
maintain our competitive position. It is our policy to require our
employees, consultants, licensees, outside scientific collaborators, sponsored
researchers and other advisors to execute confidentiality agreements upon the
commencement of employment or consulting relationships with us. These
agreements also provide that all confidential information developed or made
known to the individual during the course of the individual's relationship
with
us is to be kept confidential and not disclosed to third parties except in
specific circumstances. In the case of employees, the agreements
provide that all inventions conceived by the individual shall be our exclusive
property. We cannot assure you, however, that these agreements will
provide meaningful protection or adequate remedies for our trade secrets in
the
event of unauthorized use or disclosure of such information.
We
believe that our valuable proprietary information is protected to the fullest
extent commercially reasonable; however, we cannot assure you that:
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Additional
patents will be issued to us in any or all appropriate
jurisdictions.
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Litigation
will not be commenced seeking to challenge our patent protection
or that
challenges will not be successful.
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Our
processes or products do not or will not infringe upon the patents
of
third parties.
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The
scope of patents issued will successfully prevent third parties from
developing similar and competitive
products.
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The
technology applicable to our products is developing rapidly. A
substantial number of patents have been issued to other biotechnology companies
relating to PSMA. In addition, competitors have filed applications
for, have been issued, or may otherwise obtain patents and other proprietary
rights relating to products or processes that are competitive with
ours. In addition, others may have filed patent applications and may
have been issued patents relating to products and technologies potentially
useful to us or necessary to commercialize our products or to achieve our
business goals. We cannot assure you that we will be able to obtain
licenses to such patents on commercially reasonable terms if at
all. The failure to obtain licenses to such patents could prevent us
from commercializing products or services covered by such patents.
We
cannot
predict how any patent litigation will affect our efforts to develop,
manufacture or market our products.
Intellectual
Property Position Related to CAPHOSOL
Under
our
agreement with InPharma, we are the licensee of two issued U.S.
patents. The patents licensed to us under this agreement are U.S.
Pat. Nos. 5,993,785 and 6,387,352, each of which expires on September 18,
2017. We have the right to prosecute and maintain the patents
included in our license agreement with InPharma.
Intellectual
Property Position Related to QUADRAMET
In
May
1993, we obtained an exclusive license from Dow to use QUADRAMET, in North
America, as a therapeutic radiopharmaceutical for metabolic bone disease or
tumor regression for cancer caused by metastatic or primary cancer in bone
in
humans, and for the treatment of disease characterized by osteoblastic response
in humans. Our license was expanded to include Latin America in 1995,
and will remain in effect, unless earlier terminated, for a period of 20 years
from May 30, 1993 or until the last to expire of the related
patents. We currently anticipate such termination date to be May 30,
2013.
Under
our
agreement with Dow, we are the licensee of five issued United States patents
and
certain corresponding foreign patents. Dow is responsible, at its own
cost and expense, for prosecuting and maintaining any patents or patent
applications included in our agreement. One of these, U.S. Pat. No.
4,898,724, includes claims directed to the QUADRAMET product and methods for
its
use in the treatment of calcific tumors and bone pain. We have
obtained an extension of the term of this U.S. patent, which will now expire
March 28, 2011. Other patents licensed to us under this agreement
are: (i) U.S. Pat. No. 4,897,254, which expires on January 30, 2007; (ii) U.S.
Pat. No. 4,937,333, which expires August 4, 2009; (iii) U.S. Pat. No. 5,300,279,
which expires on November 19, 2008; and (iv) U.S. Pat. No. 5,066,478 which
expires on November 19, 2008. An additional patent, U.S. Pat. No.
5,714,604, which expires on February 3, 2015, includes claims directed to the
methods for QUADRAMET's preparation and administration. We are the
owner of a registered United States trademark relating to
QUADRAMET.
Upon
execution of our agreement with Dow, we issued warrants to Dow to purchase
shares of our common stock, which have since expired. As of December
31, 2006, we have paid an
aggregate of $5.2 million to Dow in milestone payments. We remain
obligated to pay Dow additional milestone payments as, and if, our sales of
QUADRAMET increase and royalties, which are subject to certain minimum amounts,
based on future sales of QUADRAMET.
Intellectual
Property Position Related to PROSTASCINT
In
1987,
Dr. Julius S. Horosziewicz first identified PSMA in a prostate cancer cell
line,
known as LNCaP, by generating a monoclonal antibody against the
protein. That monoclonal antibody, known as 7E11, is conjugated via a
proprietary linker technology to the radioisotope indium-111 to produce the
PROSTASCINT product. Dr. Horosziewicz's original patent claiming the
7E11 antibody, as well as additional patents relating to the PROSTASCINT product
and commercialization rights thereto, were assigned to us in
1989. Under our agreement, we have made, and may continue to make,
certain payments to Dr. Horosziewicz, which obligation will remain in effect
until the expiration of the last related patent in 2015.
As
of
December 31, 2006, we were the owner of several issued United States patents
and
certain corresponding foreign patents relating to PROSTASCINT. One of
these, U.S. Pat. No. 5,162,504, is the original Horosziewicz patent and includes
claims directed to the monoclonal antibody and the cell line that produces
it. We have obtained an extension of the term for this U.S. patent,
which will now expire October 28, 2010. U.S. Pat. No. 4,671,958 and
U.S. Pat. No. 4,741,900, both of which expired on June 9, 2004, included claims
directed to antibody conjugates such as PROSTASCINT, methods for preparing
such
conjugates, methods for using such conjugates for in vivo imaging,
testing and therapeutic treatment, and methods for delivering radioisotopes
by
linking them to such antibodies. U.S. Pat. No. 4,867,973, which also
expired on June 9, 2004, included claims directed to antibody
conjugates
such as PROSTASCINT, and methods for preparing such conjugates. The
foregoing patents, which will expire in 2010 (or expired in 2004, as noted),
provided or provide the primary patent protection for PROSTASCINT. We
also currently own the trademark PROSTASCINT. We are responsible for
the costs of prosecuting and maintaining this intellectual
property.
In
September 2004, we announced the settlement of a patent infringement suit
against us and C.R. Bard Inc. for an agreed-upon payment, without any admission
of fault or liability. Immunomedics, Inc. filed suit on February 17,
2000 against us and Bard, alleging that use of our PROSTASCINT product infringed
U.S. Pat. No. 4,460,559, which claims a method for detecting and localizing
tumors. Under our agreement with Dr. Horosziewicz, we may offset our
litigation expenses against payments we make to Dr. Horosziewicz.
Intellectual
Property Position Related to SOLTAMOX
Under
our
exclusive license with Rosemont, we are the licensee of an issued United States
patent covering SOLTAMOX. This patent, U.S. Pat. No. 6,127,425 which
includes claims directed to the SOLTAMOX product and manufacturing process,
expires in June 2018.
Intellectual
Property Position Related to PSMA
In
1993,
we entered into an option and license agreement with the Sloan-Kettering
Institute for Cancer Research (SKICR), and began a development program involving
PSMA and our proprietary monoclonal antibody. In November 1996, we
exercised our option and obtained an exclusive worldwide license to this
technology.
Under
our
agreement with SKICR, we received, or subsequently obtained, rights to patents
and patent applications including: U.S. Pat. Nos.
5,538,866 (expiring July 23, 2013), 5,935,818 (expiring August 10, 2016), and
6,569,432 (expiring February 24, 2015), and U.S. Pat. Appln. Nos. 08/403,803
(filed March 17, 1995), 08/466,381 (filed June 6, 1995), 08/470,735 (filed
June
6, 1995), 08/481,916 (filed June 7, 1995), 08/894,583 (filed February 23, 1998),
09/724,026 (filed November 28, 2000), 09/990,595 (November 21, 2001), 10/012,169
(filed October 24, 2001), 10/443,694 (filed May 21, 2003), and 10/614,625 (filed
July 2, 2003). The filing, prosecution and maintenance of licensed
patents, as defined in the agreement, are the responsibility of SKICR, but
are
at our discretion and expense. In the event that we decide not to
file, prosecute or maintain any part of the licensed patents, SKICR may do
so at
its own expense.
The
license shall terminate on the date of expiration of the last to expire of
the
licensed patents unless it is terminated earlier in accordance with the terms
of
the agreement. The license agreement is also terminable by us upon 60
days notice to SKICR. Upon execution of our agreement with SKICR, we
paid to SKICR an option fee, a license fee and a reimbursement for patent
expenses paid by SKICR. We are obligated to make certain royalty
payments, which are subject to certain minimum amounts and other annual payments
to SKICR for the term of the agreement.
Intellectual
Property Position Related to AxCell Biosciences
In
November 2006, we were issued United States patent number 7,135,457 covering
our
oral drug delivery agents – random peptide compositions that bind to
gastro-intestinal tract (GIT) transport receptors. The patent
specifically covers compositions of our oral delivery agents that are capable
of
facilitating transport of an active agent through a human or animal
gastro-intestinal tract (GIT), and derivatives and analogs thereof, and
nucleotide sequences coding for said proteins and derivatives. The
oral delivery agents have use in facilitating transport of active agents from
the lumenal side of the GIT into the systemic blood system, and/or in targeting
active agents to the GIT.
The
patents and patent applications we have licensed from University of North
Carolina at Chapel Hill (UNC) related to novel reagents and technology for
identifying targeting peptides include: U.S. Pat. Nos. 5,498,538 (expiring
March
12, 2013), 5,625,033 (expiring April 29, 2014), 5,747,334 (expiring May 5,
2015), 5,844,076 (expiring December 1, 2015), 5,852,167 (expiring December
22,
2015), 5,935,823 (expiring August 10, 2016), 6,011,137 (expiring April 3, 2016),
6,184,205 (expiring July 22, 2014), 6,303,574 (expiring July 22, 2014),
6,309,820 (expiring April 7, 2015), 6,432,920 (expiring July 22, 2014),
6,703,482 (expiring July 22, 2014), and 6,709,821 (expiring April 7, 2015),
and
U.S. Pat. Appln. Nos. 10/161,791 (filed May 31, 2002), and 10/185,050 (filed
June 28, 2002). We are responsible for the costs of filing,
prosecuting and maintaining domestic and foreign patents and patent applications
under our agreement with UNC.
Government
Regulation
The
development, manufacture and sale of medical products utilizing our technology
are governed by a variety of federal, state and local statutes and regulations
in the United States and by comparable laws and agency regulations in most
foreign countries. Our two actively marketed products consist of a
biologic (PROSTASCINT) and a drug (QUADRAMET). Future applications
for these may include expanded indications and could result in additional drugs,
biologics, devices or combination products. Our product development
pipeline contains various other products, the majority of which will likely
be
classified as new drugs or biologics.
In
the
United States, medical products that we currently market or intend to develop
are regulated by the Food and Drug Administration (FDA) under the Federal Food,
Drug, and Cosmetic Act (FDC Act) and the Public Health Service Act (PHS Act),
and the rules and regulations promulgated thereunder. These laws and
regulations require, among other things, carefully controlled research and
preclinical and clinical testing of products, government notification, review
and/or approval or clearance prior to investigating or marketing the product,
inspection of manufacturing and production facilities, adherence to current
Good
Manufacturing Practices (cGMP), and compliance with product and manufacturer
specifications or standards, and requirements for reporting, advertising,
promotion, export, packaging, and labeling, and other applicable
regulations.
The
FDC
Act requires that our products be manufactured in FDA registered facilities
subject to inspection. The manufacturer must be in compliance with
cGMP, which imposes certain procedural, substantive, and recordkeeping
requirements upon us and our manufacturing partners with respect to
manufacturing and quality control activities, and, for devices, product
design. To
ensure full technical compliance with such regulations, a manufacturer must
spend funds, time and effort in the areas of production and quality
control. These regulations may also apply to us. Any
failure by us or our manufacturing partners to comply with the requirements
of
cGMP could have a material adverse effect on our business, financial condition
and results of operations.
FDA
approval of our proposed products, including a review of the manufacturing
processes, controls and facilities used to produce such products, will be
required before such products may be marketed in the United
States. The process required by the FDA before drug, biological or
medical device products may be approved for marketing in the United States
generally involves:
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Preclinical
laboratory and animal tests that are conducted consistent with the
FDA's
good laboratory practice
regulations.
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Submission
to the FDA of an Investigational New Drug Application (IND) (for
a drug or
biologic) or Investigational Device Exemption (IDE) (for a device),
which
must become effective before clinical trials may begin; further,
approval
of the investigation by an Institutional Review Board (IRB) must
also be
obtained before the investigational product may be given to human
subjects.
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Human
clinical trial(s) to establish the safety and efficacy of the product
for
its intended indication.
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Submission
to the FDA of a marketing application-New Drug Application (NDA)
for a
drug, Biologics License Application (BLA) for a biologic, and a premarket
approval application (PMA) or premarket notification (510(k)) for
a
device.
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FDA
review and approval or clearance of the marketing
application. Radiopharmaceutical drugs are subject to
additional requirements pertaining to the description and support
of their
indications for use, and the evaluation of product effectiveness
and
safety, including, radiation safety. We cannot assure you that
the FDA review of marketing applications will result in product approval
or clearance on a timely basis, or at
all.
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Clinical
trials for drugs, devices, and biologics typically are performed in three phases
to evaluate the safety and efficacy of the product. In Phase 1, a
product is tested in a small number of healthy subjects or patients primarily
for safety at one or more dosages. Phase 2 evaluates, in addition to
safety, the efficacy of the product against particular diseases in a patient
population that is generally somewhat larger than Phase 1. Clinical
trials of certain diagnostic and cancer therapeutic agents may combine Phase
1
and Phase 2 into a single Phase 1/2 study. In Phase 3, the product is
evaluated in a larger patient population sufficient to generate data to support
a claim of safety and efficacy within the meaning of the FDC Act or PHS
Act. Permission by the FDA must be obtained before clinical testing
can be initiated within the United States. This permission is
obtained by submission of an IND/IDE application which typically includes,
among
other things, the results of in vitro and non-clinical testing and any
previous human testing done elsewhere. The FDA has 30 days to review
the information submitted and makes a final decision whether to permit clinical
testing with the drug, biologic or device. However, this
process
can take longer if the FDA raises questions or asks for additional information
regarding the IND/IDE application. Unless the FDA notifies the
sponsor that the IND/IDE is subject to a clinical hold during the 30 day review
period, the IND/IDE is considered effective and the trial may
commence.
We
cannot
assure you that submission of an IND or IDE will result in the ability to
commence clinical trials. In addition, after a trial begins, the FDA
may place it on hold or terminate it if, among other reasons, it concludes
that
clinical subjects are being exposed to an unacceptable health
risk. In addition, clinical trials require IRB approval before the
drug may be given to subjects and are subject to continuing IRB
review. An IRB may suspend or terminate approval if the IRB's
requirements are not followed or if unexpected serious harm to subjects is
associated with the trial. The FDA may decide not to consider, in
support of an application for approval or clearance, any data that was collected
in a trial without IRB approval and oversight. After completion of
in vitro, non-clinical and clinical testing, authorization to market a
drug, biologic or device must be granted by the FDA. The FDA grants
permission to market through the review and approval or clearance of either
an
NDA, BLA, PMA, or 510(k). Historically, monoclonal antibodies have
been regulated through the FDA's Center for Biologics Evaluation and Research
(CBER). As of late 2003, monoclonal antibodies, which include
PROSTASCINT, were transferred to the Center for Drug Evaluation and Research
(CDER), for regulation, review and approval.
An
NDA is
an application to the FDA to market a new drug. A BLA is an
application to the FDA to market a biological product. An NDA or BLA,
depending on the submission, must contain, among other things, information
on
chemistry, manufacturing controls and potency and purity; nonclinical
pharmacology and toxicology; human pharmacokinetics and bioavailability; and
clinical data. The new drug or biologic may not be approved for
marketing in the United States until the FDA has determined that the NDA product
is safe and effective or that the BLA product
is safe, pure, and potent and the facility in which it is manufactured,
processed, packed or held meets standards designed to assure its continued
safety, purity, and potency. For both NDAs and BLAs, the application
will not be approved until the FDA conducts a manufacturing inspection and
approves the applicable manufacturing process for the drug or
biologic. A PMA is an application to the FDA to market certain
medical devices, which must be approved in order for the product to be
marketed. It must be supported by valid scientific evidence, which
typically includes extensive data, including pre-clinical data and clinical
data
from well-controlled clinical trials to demonstrate the safety and effectiveness
of the device. Product testing, manufacturing, controls,
specifications and information must also be provided, and a pre-approval
inspection is normally conducted. NDA, BLA, and PMA submissions may
be refused review if they do not meet submission requirements.
Conducting
the studies, preparing these applications and securing approval from the FDA
is
expensive and time consuming, and takes several years to
complete. Difficulties or unanticipated costs may be encountered by
us or our licensees in their respective efforts to secure necessary governmental
approval or licenses, which could delay or preclude us or our licensees from
marketing their products. We cannot assure you that approvals of our
proposed products, processes or facilities will be granted on a timely basis,
or
at all. Limited indications for use or other conditions could also be
placed on any approvals that could restrict the commercial applications of
products. With respect to patented products or technologies, delays
imposed by
the
government approval process may materially reduce the period during which we
will have the exclusive right to exploit them, because patent protection lasts
only for a limited time, beginning on the date the patent is first granted
(in
the case of United States patent applications filed prior to June 6, 1995)
and
when the patent application is first filed (in the case of patent applications
filed in the United States after June 6, 1995, and applications filed in the
European Economic Community). We intend to seek to maximize the
useful lives of our patents under the Patent Term Restoration Act of 1984 in
the
United States and under similar laws if available in other
countries.
Our
new
drug products may be subject to generic competition. Once a NDA is
approved, the product covered thereby becomes a "listed drug" which can, in
turn, be cited by potential competitors in support of approval of an abbreviated
new drug application (ANDA). An ANDA provides for marketing of a drug
product that has the same active ingredients in the same strengths and dosage
form as the listed drug and has been shown through bioequivalence testing to
be
therapeutically equivalent to the listed drug. Federal law provides
for a period of three years of exclusivity following approval of a listed drug
that contains previously approved active ingredients but is approved in a new
dosage, dosage form, route of administration or combination, or for a new use,
the approval of which was required to be supported by new clinical trials
conducted by or for the sponsor. Federal law also provides a period
of five years following approval of a drug containing no previously approved
active ingredients, during which ANDAs for generic versions of those drugs
cannot be submitted unless the submission accompanies a challenge to a listed
patent, in which case the submission may be made four years following the
original product approval. Additionally, in the event that the
sponsor of the listed drug has properly informed the FDA of patents covering
its
listed drug, applicants submitting an ANDA referencing that drug are required
to
make certifications including that it believes one or more listed patents are
invalid or not infringed. If the ANDA applicant certifies that it
does not intend to market its generic product before some or all listed patents
on the listed drug expire, then
the
FDA cannot grant effective approval of the ANDA until those patents
expire. The first of the abbreviated new drug applicant(s) submitting
substantially complete applications certifying that listed patents for a
particular product are invalid or not infringed may qualify for a period of
180
days exclusivity running from when the generic product is first marketed, during
which subsequently submitted ANDAs cannot be granted effective
approval.
Certain
of our future products may be regulated by the FDA as combination
products. Combination products are products comprised of a
combination of two or more different types of components, (e.g.,
drug/device, device/biologic, drug/device/biologic), or are comprised of two
or
more separate different types of products packaged together for use, or two
or
more different types of products packaged separately but labeled for use in
combination with one another. The regulation of a combination product
is determined by the product's primary mode of action. For example, a
combination drug/device that has a primary mode of action as a drug would be
regulated by the Center for Drug Evaluation and Research under an
NDA. In some cases, however, consultative reviews and/or separate
approvals by each agency Center with jurisdiction over a component may be
required. The product designation, approval pathway, and submission
requirements for a combination product may be difficult to predict, and the
approval process may be fraught with unanticipated delays and
difficulties. In addition, post-approval requirements may be more
extensive than for single entity products. Even if products such as
PROSTASCINT or QUADRAMET that we intend to develop for use with other separately
regulated products are
not
regulated as combination products, they may be subject to similar multi-Center
consultative reviews and additional post-market requirements.
Once
the
FDA approves a product, we are required to maintain approval status of the
product by providing certain updated safety and efficacy information at
specified intervals. Most product or labeling changes to drugs or
biologics as well as any change in a manufacturing process or equipment that
has
a substantial potential to adversely affect the safety or effectiveness of
the
product for a drug or biologic, or, for a device, changes that affect safety
and
effectiveness, would necessitate additional FDA review and
approval. Post approval changes in packaging or promotional materials
may also necessitate further FDA review and approval. Additionally,
we are required to meet other requirements specified by the FDC Act, including
but not limited to, cGMPs, enforced by periodic inspections, adverse event
reporting, requirements governing labeling and promotional materials and, for
drugs, biologics and restricted and PMA devices, requirements regarding
advertising, and the maintenance of records. Failure to comply with
these requirements or the occurrence of unanticipated safety effects from the
products during commercial marketing could result in product marketing
restrictions, product withdrawal or recall and/or public notifications, or
other
voluntary or FDA-initiated action, which could delay further marketing until
the
products are brought into compliance. Similar laws and regulations
apply in most foreign countries where these products may be
marketed.
Violations
of the FDC Act, PHS Act, or regulatory requirements at any time during the
product development process, approval process, or after approval may result
in
agency enforcement actions, including voluntary or mandatory recall, license
suspension or revocation, new drug approval suspension or withdrawal, pre-market
approval withdrawal, seizure of products, fines, injunction and/or civil or
criminal penalties. Any agency enforcement action could have a
material adverse effect on our business, financial condition and results of
operations.
Orphan
Drug Act
The
Orphan Drug Act is intended to provide incentives to pharmaceutical companies
to
develop and market drugs and biologics for rare diseases or conditions affecting
fewer than 200,000 persons in the United States at the time of application
for
orphan drug designation. A drug that receives orphan drug designation
and is the first product to receive FDA marketing approval for a particular
indication is entitled to orphan drug status, which confers a seven-year
exclusive marketing period in the United States for that
indication. Clinical testing requirements for orphan drugs are the
same as those for products that have not received orphan drug designation but
pharmaceutical companies may receive grants or tax credits for research, as
well
as protocol assistance. Under the Orphan Drug Act, the FDA cannot
approve any application by another party to market the same drug for treatment
of an identical indication unless the holder consents, the party has a license
from the holder of orphan drug status, or the holder of orphan drug status
is
unable to assure an adequate supply of the drug, or it has been shown to be
clinically superior to the approved orphan drug. However, a drug that
is considered by the FDA to be different from a particular orphan drug is not
barred from sale in the United States during the seven-year exclusive marketing
period even if it receives marketing approval for the same product
claim. In addition, holders of orphan drug status must notify the FDA
of any decision to discontinue active pursuit of drug approval or biologics
license, or, if such approval or license is in effect, notify the FDA at least
one year prior to any discontinuance of product production. If
the
holder of an orphan designation cannot assure the availability of sufficient
quantities of the product to meet the needs of affected patients, the FDA may
withdraw orphan drug status.
Fraud
and Abuse
We
are
subject to various federal and state laws pertaining to health care fraud and
abuse, including anti-kickback laws, false claims laws and physician
self-referral laws. Violations of these laws are punishable by
criminal, civil and/or administrative sanctions, including, in some instances,
imprisonment and exclusion from participation in federal and state health care
programs, including Medicare, Medicaid and veterans' health
programs. Because of the far-reaching nature of these laws, we cannot
assure you that the occurrence of one or more violations of these laws would
not
result in a material adverse effect on our business, financial condition and
results of operations.
Anti-Kickback
Laws
Our
operations are subject to federal and state anti-kickback
laws. Certain provisions of the Social Security Act prohibit entities
such as us from knowingly and willingly offering, paying, soliciting or
receiving any form of remuneration (including any kickbacks, bribes or rebates)
in return for the referral of items or services for which payment may be made
under a federal health care program, or in return for the recommendation,
arrangement, purchase, lease or order of items or services for which payment
may
be made under a federal health care program. Violation of the federal
anti-kickback law is a felony, punishable by criminal fines and imprisonment
for
up to five years or both. In addition, the Department of Health and
Human Services may impose civil penalties and exclude violators from
participation in federal health care programs such as Medicare and
Medicaid. Many states have adopted similar prohibitions against
payments intended to induce referrals of products or services paid by Medicaid
or other third party payors.
Physician
Self-Referral Laws
We
also
may be subject to federal and/or state physician self-referral
laws. Federal physician self-referral legislation (known as the Stark
law) prohibits, subject to certain exceptions, a physician from referring
Medicare or Medicaid patients to an entity to provide designated health
services, including, among other things, certain radiology and radiation therapy
services and clinical laboratory services in which the physician or a member
of
his immediate family has an ownership or investment interest or has entered
into
a compensation arrangement. The Stark law also prohibits the entity
receiving the improper referral from billing any good or service furnished
pursuant to the referral. The penalties for violations include a
prohibition on payment by these government programs and civil penalties of
as
much as $15,000 for each improper referral and $100,000 for participation in
a
circumvention scheme. Various state laws also contain similar
provisions and penalties.
False
Claims
The
federal False Claims Act imposes civil and criminal liability on individuals
or
entities who submit (or cause the submission of) false or fraudulent claims
for
payment to the government. Violations of the federal False Claims Act
may result in penalties equal to three times the damages which the government
sustained, an assessment of between $5,000 and
$10,000
per claim, civil monetary penalties and exclusion from participation in the
Medicare and Medicaid programs.
The
federal False Claims Act also allows a private individual to bring a qui
tam suit on behalf of the government against an individual or entity for
violations of the False Claims Act. In a qui tam suit, the
private plaintiff is responsible for initiating a lawsuit that may eventually
lead to the government recovering money of which it was defrauded. In
return for bringing the suit on the government's behalf, the statute provides
that the private plaintiff is entitled to receive up to 30% of the recovered
amount from the litigation proceeds if the litigation is successful plus
reasonable expenses and attorneys fees. Recently, the number of
qui tam suits brought against entities in the health care industry has
increased dramatically. In addition, a number of states have enacted
laws modeled after the False Claims Act that allow those states to recover
money
which was fraudulently obtained from the state.
Other
Fraud and Abuse Laws
The
Health Insurance Portability and Accountability Act of 1996 created, in part,
two new federal crimes: (i) Health Care Fraud; and (ii) False Statements
Relating to Health Care Matters. The Health Care Fraud statute
prohibits the knowing and willful execution of a scheme or artifice to defraud
any health care benefit program. A violation of the statute is a
felony and may result in fines and/or imprisonment. The False
Statements statute prohibits knowingly and willfully falsifying, concealing
or
covering up a material fact by any trick, scheme or device or making any
materially false, fictitious or fraudulent statement in connection with the
delivery of or payment for health care benefits, items or services. A
violation of this statute is a felony and may result in fines and/or
imprisonment.
We
currently maintain several programs designed to minimize the likelihood that
we
would engage in conduct or enter into contracts in violation of the fraud and
abuse laws. Contracts
of the types subject to these laws are reviewed and approved by legal department
personnel. We also maintain various educational programs designed to
keep our managers updated and informed on developments with respect to the
fraud
and abuse laws and to reinforce to all employees the policy of strict compliance
in this area. While we believe that all of our applicable agreements,
arrangements and contracts comply with the various fraud and abuse laws and
regulations, we cannot provide assurance that further administrative or judicial
interpretations of existing laws or legislative enactment of new laws will
not
have a material adverse impact on our business.
Other
regulations
In
addition to regulations enforced by the FDA, and federal and state laws
pertaining to health care fraud and abuse, we are also subject to regulation
under the state and local authorities and other federal statutes and agencies
including the Occupational Safety and Health Act, the Environmental Protection
Act, the Toxic Substances Control Act, the Resource Conservation and Recovery
Act and the Nuclear Regulatory Commission.
Foreign
regulatory approval
The
regulatory approval process in Europe has changed over the past few
years. There are two regulatory approval processes in Europe for
products developed by us. Beginning in
1995,
the
centralized procedure became mandatory for all biotechnology
products. Under this regulatory scheme, the application is reviewed
by two scientific project leaders referred to as the rapporteur and
co-rapporteur. Their roles are to prepare assessment reports of
safety and efficacy and for recommending the approval for full European Union
marketing.
The
second regulatory scheme, referred to as the Mutual Recognition Procedure,
is a
process whereby a product's national registration in one member state within
the
European Union may be "mutually recognized" by other member states within the
European Union.
Substantial
requirements, comparable in many respects to those imposed under the FDC Act,
will have to be met before commercial sale is permissible in most
countries. We cannot assure you, however, as to whether or when
governmental approvals, other than those already obtained, will be obtained
or
as to the terms or scope of those approvals.
Health
Care Reimbursement
Sales
of
our products depend in part on the coverage status of our products and the
availability of reimbursement by various payers, including federal health care
programs, such as Medicare and Medicaid, as well as private health insurance
plans. Whether a product receives favorable coverage depends upon a
number of factors, including the payer's determination that the product is
medically reasonable and necessary for the diagnosis or treatment of the illness
or injury for which it is administered and not otherwise excluded from coverage
by law or regulation. There may be significant delays in obtaining
coverage for newly-approved products, and coverage may be limited or expanded
outside the purpose(s) for which the product is approved by the
FDA.
Eligibility
for coverage does not imply that any product will be reimbursed in all cases
or
at a rate that allows us or any health care provider to make a profit or even
cover costs, including research,
development, production, sales, and distribution costs. Although new
laws provide for expedited coverage for new technology, interim payments for
new
products, if applicable, may also not be sufficient to cover our costs and
may
not be made permanent. Reimbursement rates may vary according to the
approved and covered use of the product and the place of service 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 claims data. Net prices for products may be reduced by
mandatory discounts or rebates required by law under government health care
programs 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 U.S.
In
December 2003, the Medicare Prescription Drug, Improvement and Modernization
Act
of 2003 were signed into law. This Act includes provisions that
reduced Medicare reimbursement for many drugs and biologicals from a
reimbursement rate of 95% of the average wholesale price to 80% of the average
wholesale price, effective January 1, 2004. As of January 2005, the
general reimbursement methodology for many drugs and biologicals is now based
on
"average sales price", as defined by the Act, plus 6%.
Third
party payers often mirror Medicare coverage policy and payment limitations
in
setting their own reimbursement payment and coverage policy and may have
sufficient market
penetration
to demand significant price reductions. Even if successful, securing
reimbursement coverage at adequate payment levels from government and third
party payers can be a time consuming and costly process that could require
us to
provide additional supporting scientific, clinical and cost-effectiveness data
to permit payment and coverage of our products to payers. Our
inability to promptly obtain product coverage and profitable reimbursement
rates
from government-funded and private payers could have a material adverse effect
on our business, financial condition and our results of operations.
Although
health care funding has and will continue to be closely monitored by the
government, the ability to diagnose patients quickly and more effectively has
been one of the few areas where the government has increased health care
spending. Approval of payment for new technology has been another
area with required spending outlined in the 2004 legislative requirements.
The
Centers for Medicare and Medicaid Services (CMS) continually monitor and update
product descriptors, coverage policies, product and service codes, payment
methodologies, and reimbursement values. Although it is not possible
to predict or identify all of the risks relating to such changes, we believe
that such risks include, but are not limited to: (i) increasing price pressures
(including those imposed by regulations and practices of managed care groups
and
institutional and governmental purchasers); and (ii) judicial decisions and
government laws related to health care reform including radiopharmaceutical,
pharmaceutical and device reimbursement. In addition, an increasing
emphasis on managed care has and will continue to increase the pressure on
pricing of these products and services.
Our
business, financial condition and results of operations will continue to be
affected by the efforts of governmental and third-party payers to contain or
reduce the costs of health care. There have been, and we expect that
there will continue to be, federal and state proposals to constrain expenditures
for medical products and services, which may affect payments for therapeutic
and diagnostic imaging agents. We rely heavily on the ability to
monitor changes in reimbursement and coverage and proactively influence policy
and legislative changes in the areas of health care that directly impact our
products. We have proven our ability to monitor changes that impact
our products and have worked with the government and private payers to take
advantage of the opportunities offered by legislative and policy changes for
our
products. While we cannot predict if legislative or regulatory
proposals will be adopted or the effects managed care may have on our business,
the changes in reimbursement and the adoption of new health care proposals
could
have a material adverse effect on our business, financial condition and results
of operations. Further, to the extent that changes in health care
reimbursement have a material adverse effect on other prospective corporate
partners, our ability to establish strategic alliances may be materially and
adversely affected. In certain foreign markets, the pricing and
profitability of our products are generally subject to governmental
controls.
Employees
As
of
March 1, 2007, we employed 95 persons, 94 of whom are employed
full-time. Of such 95 persons, 59 were employed
in sales and marketing, 8 in medical affairs, 3 in
regulatory, and 25 in administration and management. We believe that
we have been successful in attracting skilled and experienced
employees. None of our employees are covered by a collective
bargaining
agreement. All of our employees have executed confidentiality
agreements. We consider relations with our employees to be
excellent.
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Item
1A.
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Investing
in our common stock involves a high degree of risk. You should
carefully consider the risks and uncertainties described below together with
other information included or incorporated by reference in this Annual Report
on
Form 10-K in your decision as to whether or not to invest in our common
stock. If any of the following risks or uncertainties 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 net losses of $15.1
million, $26.3 million and $20.5 million for the years ended December 31, 2006,
2005 and 2004, respectively. We had an accumulated deficit of $427.7
million as of December 31, 2006.
In
order
to develop and commercialize our technologies, particularly our
prostate-specific membrane antigen technology, 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:
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undergoing
steps to realign and implement our focus as a product-driven
biopharmaceutical company;
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establishing
and maintaining our in-house specialty sales
force;
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reacquiring
North American and Latin American marketing rights to QUADRAMET from
Berlex Laboratories in August 2003;
and
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enhancing
our marketed product portfolio through marketing alliances and strategic
arrangements.
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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 factors discussed
elsewhere in this section entitled, "Risk Factors." 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 year ended December 31, 2006,
revenues from QUADRAMET and PROSTASCINT accounted for approximately 47% and
53%,
respectively, of our product revenues. For the year ended December
31, 2005, revenues from QUADRAMET and PROSTASCINT accounted for approximately
53% and 47%, respectively, of our product revenues. For the year
ended December 31, 2004, revenues from QUADRAMET and PROSTASCINT each accounted
for approximately 50% 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 the 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. We have recognized only $30,000 of SOLTAMOX
sales through December 31, 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 during 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
year ended December 31, 2006, we received 64% of our total revenues from three
customers, as follows: 41% from Cardinal Health (formerly Syncor International
Corporation); 14% from Mallinckrodt Inc.; and 9% from GE Healthcare (formerly
Amersham Health). During the year ended December 31, 2005, we
received 67% of our total revenues from three customers, as follows: 47% from
Cardinal Health (formerly Syncor International Corporation); 11% from
Mallinckrodt Inc.; and 9% from GE Healthcare (formerly Amersham
Health). During the year ended December 31, 2004, we received 68% of
our total revenues from three customers, as
follows:
46% from Cardinal Health (formerly Syncor International Corporation); 12% from
Mallinckrodt Inc.; and 10% from GE Healthcare (formerly Amersham
Health).
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.
We
depend on acceptance of our products by the medical community for the
continuation of our revenues.
Our
business, financial condition and results of operations depend on the acceptance
of our marketed products as safe, effective and cost-efficient alternatives
to
other available treatment and diagnostic protocols by the medical community,
including:
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health
care providers, such as hospitals and physicians;
and
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third-party
payors, including Medicare, Medicaid, private insurance carriers
and
health maintenance organizations.
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With
respect to PROSTASCINT, our customers, including technologists and physicians,
must successfully complete our Partners in Excellence, or PIE, Program, a
proprietary training program designed to promote the correct acquisition and
interpretation of PROSTASCINT images. This product is
technique-dependent and requires a learning commitment by technologists and
physicians and their acceptance of this product as part of their treatment
practices. With respect to QUADRAMET, we believe that challenges we
may encounter in generating market acceptance for this product include the
need
to further educate patients and physicians about QUADRAMET's properties,
approved uses and how QUADRAMET may be differentiated from other
radiopharmaceuticals and used in combination with other treatments for the
palliation of pain due to metastatic bone disease, such as analgesics, opioids,
bisphosphonates, and chemotherapeutics. If we are unable to educate
our existing and future customers about PROSTASCINT and QUADRAMET, our revenues
may decrease. If PROSTASCINT or QUADRAMET does not achieve broader
market acceptance, we may not be able to generate sufficient revenue to become
profitable.
Generating
market acceptance and sales of our products has proven difficult. We
introduced ONCOSCINT® CR/OV
in December
1992, PROSTASCINT in October 1996, QUADRAMET in March 1997, BRACHYSEED™ in February
2001
and NMP22
BLADDERCHEK®
in November
2002. Revenues for PROSTASCINT grew from $55,000 in 1996 to $9.1
million in 2006. Royalties and sales of QUADRAMET grew from $3.3
million in 1997 to $8.1 million in 2006. We discontinued selling
ONCOSCINT CR/OV in December 2002, brachytherapy products in January 2003 and
NMP22 BLADDERCHEK in December 2004. Currently, substantially all of
our revenues are derived from sales of PROSTASCINT and QUADRAMET.
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:
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a
license agreement with Dow relating to the QUADRAMET
technology;
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a
manufacturing and supply agreement for the manufacture of QUADRAMET
with
Bristol-Myers Squibb Medical Imaging,
Inc.;
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a
manufacturing agreement for the manufacture of PROSTASCINT with Laureate
Pharma, L.P.;
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a
distribution services agreement with Cardinal Health 105, Inc. (formerly
Cord Logistics, Inc.) for
PROSTASCINT;
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a
license agreement with Dow relating to Dow's proprietary MeO-DOTA
bifunctional chelant technology for use with our CYT-500
program;
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a
distribution agreement and a manufacture and supply agreement with
Rosemont related to the supply and marketing of
SOLTAMOX;
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a
purchase and supply agreement with OTN for the distribution of
SOLTAMOX;
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a
license agreement with InPharma AS for the marketing of CAPHOSOL;
and
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a
manufacturing agreement with Holopack for the manufacturing and supply
of
CAPHOSOL.
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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.
In
addition to the agreements described above, we currently depend on the following
agreements for our present and future operating results:
Agreement
with Dr. Horosziewicz regarding PROSTASCINT. In 1989, we entered
into an agreement with Dr. Julius S. Horosziewicz. Under this
agreement, we were assigned certain rights to the patent claiming the 7E11
antibody, as well as additional patents relating to the PROSTASCINT product
and
commercialization rights thereto. Under this agreement, we have made,
and may continue to make, certain payments to Dr. Horosziewicz, which obligation
will remain in effect until the expiration of the last related patent in
2015.
Sloan-Kettering
Institute for Cancer Research. In 1993, we began a development
program with SKICR involving PSMA and our proprietary monoclonal
antibody. In November 1996, we exercised an option for, and obtained,
an exclusive worldwide license from the SKICR to its PSMA-related
technology. The license will terminate on the date of expiration of
the last to expire of the licensed patents unless it is terminated
earlier.
Our
business depends upon our patents and proprietary rights and the enforcement
of
these rights. Our failure to obtain and maintain patent protection
may increase competition and reduce demand for our technology.
As
a
result of the substantial length of time and expense associated with developing
products and bringing them to the marketplace in the biotechnology and
agricultural industries, obtaining and maintaining patent and trade secret
protection for technologies, products and processes is of vital
importance. Our success will depend in part on several factors,
including, without limitation:
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our
ability to obtain patent protection for our technologies and
processes;
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our
ability to preserve our trade secrets;
and
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our
ability to operate without infringing the proprietary rights of other
parties both in the United States and in foreign
countries.
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Although
we believe that our technology is unique and will not violate or infringe upon
the proprietary rights of any third party, we cannot assure you that these
claims will not be made or if made, could be successfully defended
against. If we do not obtain and maintain patent protection, we may
face increased competition in the United States and internationally, which
would
have a material adverse effect on our business.
Since
patent applications in the United States are maintained in secrecy until patents
are issued, and since publication of discoveries in the scientific and patent
literature tend to lag behind actual discoveries by several months, we cannot
be
certain that we were the first creator of the inventions covered by our pending
patent applications or that we were the first to file patent applications for
these inventions.
In
addition, among other things, we cannot assure you that:
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our
patent applications will result in the issuance of
patents;
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any
patents issued or licensed to us will be free from challenge and
that if
challenged, would be held to be
valid;
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any
patents issued or licensed to us will provide commercially significant
protection for our technology, products and
processes;
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other
companies will not independently develop substantially equivalent
proprietary information which is not covered by our patent
rights;
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other
companies will not obtain access to our
know-how;
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other
companies will not be granted patents that may prevent the
commercialization of our technology;
or
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we
will not require licensing and the payment of significant fees or
royalties to third parties for the use of their intellectual property
in
order to enable us to conduct our
business.
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Our
competitors may allege that we are infringing upon their intellectual property
rights, forcing us to incur substantial costs and expenses in resulting
litigation, the outcome of which would be uncertain.
Patent
law is still evolving relative to the scope and enforceability of claims in
the
fields in which we operate. We are like most biotechnology companies
in that our patent protection is highly uncertain and involves complex legal
and
technical questions for which legal principles are not yet firmly
established. In addition, if issued, our patents may not contain
claims sufficiently broad to protect us against third parties with similar
technologies or products, or provide us with any competitive
advantage.
The
U.S.
Patent and Trademark Office, or PTO, and the courts have not established a
consistent policy regarding the breadth of claims allowed in biotechnology
patents. The allowance of broader claims may increase the incidence
and cost of patent interference proceedings and the risk of infringement
litigation. On the other hand, the allowance of narrower claims may
limit the value of our proprietary rights.
The
laws
of some foreign countries do not protect proprietary rights to the same extent
as the laws of the United States, and many companies have encountered
significant problems and costs in protecting their proprietary rights in these
foreign countries.
We
could
become involved in infringement actions to enforce and/or protect our
patents. Regardless of the outcome, patent litigation is expensive
and time consuming and would distract our management from other
activities. Some of our competitors may be able to sustain the costs
of complex patent litigation more effectively than we could because they have
substantially greater resources. Uncertainties resulting from the
initiation and continuation of any patent litigation could limit our ability
to
continue our operations.
If
our technology infringes the intellectual property of our competitors or other
third parties, we may be required to pay license fees or
damages.
If
any
relevant claims of third-party patents that are adverse to us are upheld as
valid and enforceable, we could be prevented from commercializing our technology
or could be required to obtain licenses from the owners of such
patents. We cannot assure you that such licenses would be available
or, if available, would be on acceptable terms. Some licenses may be
non-exclusive and, therefore, our competitors may have access to the same
technology licensed to us. In addition, if any parties successfully
claim that the creation or use of our technology infringes upon their
intellectual property rights, we may be forced to pay damages, including treble
damages.
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,
Inc. Although we entered into an 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. In October 2004, Laureate was acquired by
Safeguard Scientifics, Inc. Laureate has continued to operate as a full service
contract manufacturing organization and we have not experienced any disruption
in Laureate's performance of its obligations to produce
PROSTASCINT.
We
have
an agreement with Bristol-Myers Squibb Medical Imaging, Inc., or 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 our 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.
Our
products, generally, 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 and other diseases. In October
1996, we introduced for commercial use our PROSTASCINT imaging
agent. In March 1997, we introduced for commercial use our QUADRAMET
therapeutic product.
In
April
2006, we entered into a distribution agreement with Savient and Rosemont
granting us exclusive marketing rights for SOLTAMOX 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 rights to CAPHOSOL in North America. We introduced
CAPHOSOL in the United States in the first quarter of 2007.
In
May
2006, the FDA 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 U.S. Phase 1 clinical trial of CYT-500
in
patients with hormone-refractory prostate cancer. 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 the future.
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:
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to
obtain sufficient capital to support the expenses of developing our
technology and commercializing our
products;
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to
ensure that our products are safe and
effective;
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to
obtain regulatory approval for the use and sale of our
products;
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to
manufacture our products in sufficient quantities and at a reasonable
cost;
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to
develop a sufficient market for our products;
and
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to
attract and retain qualified management, sales, technical and scientific
staff.
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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.
All
of our potential oncology products will be subject to the risks of failure
inherent in the development of diagnostic or therapeutic products based on
new
technologies.
Product
development for cancer treatment involves a high degree of risk. The
product candidates we develop, pursue or offer may not prove to be safe and
effective, may not receive the necessary regulatory approvals, may be precluded
by proprietary rights of third parties or may not ultimately achieve market
acceptance. These product candidates will require substantial
additional investment, laboratory development, clinical testing and regulatory
approvals prior to their commercialization. We may experience
difficulties, such as the inability to agree with our collaborative partners
on
development, initiate clinical trials or receive timely regulatory approvals,
that could delay or prevent the successful development, introduction and
marketing of new products.
Before
we
obtain regulatory approvals for the commercial sale of any of our products
under
development, we must demonstrate through preclinical studies and clinical trials
that the product is safe and effective for use in each target
indication. The results from preclinical studies and early-stage
clinical trials may not be predictive of results that will be obtained in
large-scale, later-stage testing. Our clinical trials may not
demonstrate safety and efficacy of a proposed product, and therefore, may not
result in marketable products. A number of companies in our industry
have suffered significant setbacks in advanced clinical trials, even after
promising results in earlier trials. Clinical trials or marketing of
any potential diagnostic or therapeutic products may expose us to liability
claims for the use of these diagnostic or therapeutic products. We
may not be able to maintain product liability insurance or sufficient coverage
may not be available at a reasonable cost. In addition, internal
development of diagnostic or therapeutic products will require significant
investments in product development, marketing, sales and regulatory compliance
resources. We will also have to establish or contract for the
manufacture of products, including supplies of drugs used in clinical trials,
under the cGMP of the FDA. We cannot assure you that product issues
will not arise following successful clinical trials and FDA approval.
The
rate
of completion of clinical trials also depends on the rate of patient
enrollment. Patient enrollment depends on many factors, including the
size of the patient population, the nature of the protocol, the proximity of
patients to clinical sites and the eligibility criteria for the
study. Delays in planned patient enrollment may result in increased
costs and delays, which could have a harmful effect on our ability to develop
the products in our pipeline. If we are unable to develop and
commercialize products on a timely basis or at all, our business, financial
condition and results of operations could be significantly and adversely
affected.
Competition
in our field is intense and likely to increase.
All
of
our products and product candidates are subject to significant competition
from
organizations that are pursuing technologies and products that are the same
as
or similar to our technology and products. Many of the organizations
competing with us have greater capital resources, research and development
staffs and facilities and marketing capabilities.
We
face,
and will continue to face, intense competition from one or more of the following
entities:
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pharmaceutical
companies;
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biotechnology
companies;
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diagnostic
companies;
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medical
device companies;
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radiopharmaceutical
distributors;
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academic
and research institutions; and
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government
agencies.
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QUADRAMET
primarily competes with strontium-89 chloride in the radiopharmaceutical pain
palliation market. Strontium-89 chloride is manufactured and marketed
either as Metastron, by GE HealthCare, or in a generic form by Bio-Nucleonics
Pharma, Inc. GE HealthCare manufactures Metastron and sells the
product through its wholly-owned network of radiopharmacies, direct to end-users
and through other radiopharmacy distributors. The generic version is
distributed directly by the manufacturer or is sold through radiopharmacy
distributors such as Cardinal Health and AnazaoHealth (formerly Custom Care
Pharmacy).
Competitive
imaging modalities to PROSTASCINT include CT, MR imaging, and position emission
tomography (PET).
Additionally,
we face competition in the development of PSMA-related technology and products
primarily from Millennium Pharmaceuticals, Inc. and Medarex, Inc.
Currently,
there is limited consensus standard of care for oral mucositis supported by
clinical data and to date, there has only been one commercially available
prescription pharmaceutical product approved by the FDA for oral mucositis,
the
intravenous growth factor palifermin. Ice chips, local painkillers
and narcotics are also used to reduce the patient's pain and doctors routinely
prescribe mouthwashes containing traditional antibacterial and antifungal drugs
for the treatment of oral mucositis, although most clinical trials have shown
that they have suboptimal efficacy. There are also a number of oral
rinses that have been approved as medical devices by FDA for dry mouth; however,
CAPHOSOL is the only approved calcium phsophate oral rinse that is indicated
for
both oral mucositis and dry mouth.
The
current competitive treatments for SOLTAMOX include the tablet form of tamoxifen
citrate, a generic drug, and a class of drugs known as aromatase
inhibitors.
Before
we
recover development expenses for our products and technologies, the products
or
technologies may become obsolete as a result of technological developments
by
others or us.
Our
products could also be made obsolete by new technologies, which are less
expensive or more effective. We may not be able to make the
enhancements to our technology necessary to compete successfully with newly
emerging technologies and failure to do so could significantly and adversely
affect our business, financial condition and results of operations.
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.
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.
Our
business is subject to various government regulations and, if we are unable
to
obtain regulatory approval, we may not be able to continue our
operations.
At
present, the U.S. federal government regulation of biotechnology is divided
among three agencies:
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the
USDA regulates the import, field testing and interstate movement
of
specific types of genetic engineering that may be used in the creation
of
transgenic plants;
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the
EPA regulates activity related to the invention of plant pesticides
and
herbicides, which may include certain kinds of transgenic plants;
and
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the
FDA regulates foods derived from new plant
varieties.
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The
FDA
requires that transgenic plants meet the same standards for safety that are
required for all other plants and foods in general. Except in the
case of additives that significantly alter a food's structure, the FDA does
not
require any additional standards or specific approval for genetically engineered
foods, but expects transgenic plant developers to consult the FDA before
introducing a new food into the marketplace.
Use
of
our technology, if developed for human health applications, will also be subject
to FDA regulation. The FDA must approve any drug or biologic product
before it can be marketed in the United States. In addition, prior to
being sold outside of the U.S., any products resulting from the application
of
our human health technology must be approved by the regulatory agencies of
foreign governments. Prior to filing a new drug application or
biologics license application with the FDA, we would have to perform extensive
clinical trials, and prior to beginning any clinical trial, we need to perform
extensive preclinical testing which could take several years and may require
substantial expenditures.
We
believe that our current activities, which to date have been confined to
research and development efforts, do not require licensing or approval by any
governmental regulatory agency. However, federal, state and foreign
regulations relating to crop protection products and human health applications
developed through biotechnology are subject to public concerns and political
circumstances, and, as a result, regulations have changed and may change
substantially in the future. Accordingly, we may become subject to
governmental regulations or approvals or become subject to licensing
requirements in connection with our research and development
efforts. We may also be required to obtain such licensing or approval
from the governmental regulatory agencies described above, or from state
agencies, prior to the commercialization of our genetically transformed plants
and human health technology. In addition, our marketing partners who
utilize our technology or sell products grown with our technology may be subject
to government regulations. If unfavorable governmental regulations
are imposed on our technology or if we fail to obtain licenses or approvals
in a
timely manner, we may not be able to continue our operations.
Preclinical
studies and clinical trials of our human health applications may be
unsuccessful, which could delay or prevent regulatory
approval.
Preclinical
studies may reveal that our human health technology is ineffective or harmful,
and/or clinical trials may be unsuccessful in demonstrating efficacy and safety
of our human health technology, which would significantly limit the possibility
of obtaining regulatory approval for any drug or biologic product manufactured
with our technology. The FDA requires submission of extensive
preclinical, clinical and manufacturing data to assess the efficacy and safety
of potential products. Furthermore, the success of preliminary
studies does not ensure commercial success, and later-stage clinical trials
may
fail to confirm the results of the preliminary studies.
Even
if we receive regulatory approval, consumers may not accept products containing
our technology, which will prevent us from being profitable since we have no
other source of revenue.
We
cannot
guarantee that consumers will accept products containing our
technology. Recently, there has been consumer concern and consumer
advocate activism with respect to genetically engineered consumer
products. The adverse consequences from heightened consumer concern
in this regard could affect the markets for products developed with our
technology and could also result in increased government regulation in response
to that concern. If the public or potential customers perceive our
technology to be genetic modification or genetic engineering, agricultural
products grown with our technology may not gain market acceptance.
Increasing
political and social turmoil, such as terrorist and military actions, increase
the difficulty for us and our strategic partners to forecast accurately and
plan
future business activities.
Recent
political and social turmoil, including the conflict in Iraq and the current
crisis in the Middle East, can be expected to put further pressure on economic
conditions in the United States and worldwide. These political,
social and economic conditions may make it difficult for us to plan future
business activities.
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.
Our
business exposes us to product liability claims that may exceed our financial
resources, including our insurance coverage, and may lead to the curtailment
or
termination of our operations.
Our
business is subject to product liability risks inherent in the testing,
manufacturing and marketing of our products and product liability claims may
be
asserted against us, our collaborators or our licensees. While we
currently maintain product liability insurance in the amount of $10.0 million,
such coverage may not be adequate to protect us against future product liability
claims. In addition, product liability insurance may not be available
to us in the future on commercially reasonable terms, if at
all. Although we have not had a history of claims payments that have
exceeded our insurance coverage or available financial resources, if liability
claims against us exceed our financial resources or coverage amounts, we may
have to curtail or terminate our operations. In addition, while we
currently maintain directors and officers liability insurance in the amount
of
$25.0 million and an additional $5.0 million of personal liability coverage
for
directors and officers, such coverage may not be available on commercially
reasonable terms or be adequate to cover any claims that we may be required
to
satisfy in the future. Our insurance coverage is subject to industry
standard and certain other limitations.
Our
security measures may not adequately protect our unpatented technology and,
if
we are unable to protect the confidentiality of our proprietary information
and
know-how, the value of our technology may be adversely
affected.
Our
success depends upon know-how, unpatentable trade secrets, and the skills,
knowledge and experience of our scientific and technical
personnel. As a result, we require all employees to agree to a
confidentiality provision that prohibits the disclosure of confidential
information to anyone outside of our company, during the term of employment
and
thereafter. We also require all employees to disclose and assign to
us the rights to their ideas, developments, discoveries and
inventions. We also attempt to enter into similar agreements with our
consultants, advisors and research collaborators. We cannot assure
you that adequate protection for our trade secrets, know-how or other
proprietary information against unauthorized use or disclosure will be
available.
We
occasionally provide information to research collaborators in academic
institutions and request the collaborators to conduct certain
tests. We cannot assure you that the academic institutions will not
assert intellectual property rights in the results of the tests conducted by
the
research collaborators, or that the academic institutions will grant licenses
under such intellectual property rights to us on acceptable terms, if at
all. If the assertion of intellectual property rights by an academic
institution is substantiated, and the academic institution does not grant
intellectual property rights to us, these events could limit our ability to
commercialize our technology.
We
expect to raise additional capital, which may not be
available.
Our
cash
and cash equivalents were $32.5 million at December 31, 2006. We
expect that our existing capital resources along with the receipt of the $4.0
million settlement from Advanced
Magnetics, Inc. in the first quarter of 2007 should be adequate to fund our
operations and commitments into 2008.
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:
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success
of our product commercialization
efforts;
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success
of any future acquisitions of complementary products and technologies
we
may make;
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magnitude,
scope and results of our product development and research and development
efforts;
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progress
of preclinical studies and clinical
trials;
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progress
toward regulatory approval for our
products;
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costs
of filing, prosecuting, defending and enforcing patent claims and
other
intellectual property rights;
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competing
technological and market developments;
and
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expansion
of strategic alliances for the sale, marketing and distribution of
our
products.
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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, 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.
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
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.
Our
stockholders may experience substantial dilution as a result of the exercise
of
outstanding options and warrants to purchase our common stock.
As
of
December 31, 2006, stock options and warrants to purchase 8,893,212 shares
of
our common stock were outstanding. In addition, as of December 31,
2006, we have 343,900 nonvested shares outstanding and have reserved an
additional 1,949,494 shares of our common stock for future issuance of options
granted pursuant to our 2006 Equity Compensation Plan, 2004 Stock Incentive
Plan, 2004 Non-Employee Director Stock Incentive Plan and 2005 Employee Stock
Purchase Plan. The exercise of these options and warrants and vesting
of nonvested shares will result in dilution to our existing stockholders and
could have a material adverse effect on our stock price.
The
following table summarizes information about outstanding warrants to purchase
our common stock at December 31, 2006:
|
Exercise
Price
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Outstanding
Warrants
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Aggregate
Exercise Price
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| $ |
3.32
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3,546,107
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$ |
11,773,075
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|||||||
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$ |
4.25
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1,118,868
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$ |
4,755,189
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|||||
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$
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6.00
|
776,096
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$ |
4,656,576
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$
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6.91
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315,790
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$ |
2,182,108
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|||||||
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$
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10.97
|
250,000
|
$ |
2,742,500
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| $ |
12.80
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1,272,332
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$ |
16,285,850
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The
warrants exercisable at $10.97 per share and $12.80 per share become
automatically exercised, in full, if our common stock trades for 30 consecutive
trading days at 130% of the respective exercise prices.
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
December 31, 2006, we had 29,605,631 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 March 14, 2007, the closing sale price of our common stock
as reported by NASDAQ was $2.05.
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.
Because
we do not intend to pay, and have not paid, any cash dividends on our shares
of
common stock, our stockholders will not be able to receive a return on their
shares unless the value of our common stock appreciates and they sell their
shares.
We
have
never paid or declared any cash dividends on our common stock and we intend
to
retain any future earnings to finance the development and expansion of our
business. We do not anticipate paying any cash dividends on our
common stock in the foreseeable future. Therefore, our stockholders
will not be able to receive a return on their investment unless the value of
our
common stock appreciates and they sell their shares.
We
could be negatively impacted by future interpretation or implementation of
federal and state fraud and abuse laws, including anti-kickback laws, false
claims laws and federal and state anti-referral laws.
We
are
subject to various federal and state laws pertaining to health care fraud and
abuse, including anti-kickback laws, false claims laws and physician
self-referral laws. Violations of these laws are punishable by
criminal and/or civil sanctions, including, in some instances, imprisonment
and
exclusion from participation in federal and state health care programs,
including Medicare, Medicaid, and veterans' health programs. We have
not been challenged by a governmental authority under any of these laws and
believe that our operations are in compliance with such laws.
However,
because of the far-reaching nature of these laws, we may be required to alter
one or more of our practices to be in compliance with these
laws. Health care fraud and abuse regulations are complex, and even
minor, inadvertent irregularities can potentially give rise to claims that
the
law has been violated. Any violations of these laws could result in a
material
adverse
effect on our business, financial condition and results of
operations. If there is a change in law, regulation or administrative
or judicial interpretations, we may have to change our business practices or
our
existing business practices could be challenged as unlawful, which could have
a
material adverse effect on our business, financial condition and results of
operations.
We
could
become subject to false claims litigation under federal or state statutes,
which
can lead to civil money penalties, criminal fines and imprisonment, and/or
exclusion from participation in federal health care programs. These
false claims statutes include the federal False Claims Act, which allows any
person to bring suit alleging the false or fraudulent
submission
of claims for payment under federal programs or other violations of the statute
and to share in any amounts paid by the entity to the government in fines or
settlement. Such suits, known as qui tam actions, have increased
significantly in recent years and have increased the risk that companies like
us
may have to defend a false claim action. We could also become subject
to similar false claims litigation under state statutes. If we are
unsuccessful in defending any such action, such action may have a material
adverse effect on our business, financial condition and results of operations.
The
healthcare fraud and abuse laws to which we are subject include the following,
among others:
Federal
and State Anti-Kickback Laws and Safe Harbor Provisions. The
federal anti-kickback law makes it a felony to knowingly and willfully offer,
or
pay remuneration "to induce" a person to refer an individual or to recommend
or
arrange for the purchase, lease or ordering of any item or service for which
payment may be made under the Medicare or state healthcare
programs. The anti-kickback prohibitions apply regardless of whether
the remuneration is provided directly or indirectly, in cash or in
kind. Interpretations of the law have been very
broad. Under current law, courts and federal regulatory authorities
have stated that this law is violated if even one purpose, as opposed to the
sole or primary purpose, of the arrangement is to induce
referrals. Violations of the anti-kickback law carry potentially
severe penalties including imprisonment of up to five years, criminal fines,
civil money penalties and exclusion from the Medicare and Medicaid
programs.
The
U.S.
Department of Health and Human Services Office of Inspector General, or OIG,
has
published "safe harbors" that exempt some arrangements from enforcement action
under the anti-kickback statute. These statutory and regulatory safe
harbors protect various bona fide employment relationships, personal service
arrangements, certain discount arrangements, among other things, provided that
certain conditions set forth in the statute and regulations are
satisfied. The safe harbor regulations, however, do not
comprehensively describe all lawful arrangements, and the failure of an
arrangement to satisfy all of the requirements of a particular safe harbor
does
not mean that the arrangement is unlawful. Failure to comply with the
safe harbor provisions, however, may mean that the arrangement will be subject
to scrutiny by the OIG.
Many
states have adopted similar prohibitions. Some of these state laws
lack specific "safe harbors" that may be available under federal
law. Sanctions under these state anti-kickback laws
may
include civil money penalties, license suspension or revocation, exclusion
from
Medicare or Medicaid, and criminal fines or imprisonment.
We
believe that our contracts and arrangements are not in violation of applicable
anti-kickback or related laws. We cannot assure you, however, that
these laws will ultimately be interpreted in a manner consistent with our
practices.
False
Claims Acts. We are subject to state and federal laws that
govern the submission of claims for reimbursement. The Federal Civil
False Claims Act imposes civil liability on individuals or entities that submit,
or "cause" to be submitted, false or fraudulent claims for payment to the
government. Violations of the Civil False Claims Act may result in
treble
damages,
civil monetary penalties for each false claim submitted and exclusion from
the
Medicare and Medicaid programs. In addition, we could be subject to
criminal penalties under a variety of federal statutes to the extent that
we
knowingly violate legal requirements under federal health programs or otherwise
present or cause the presentation of false or fraudulent claims or documentation
to the government. In addition, the OIG may impose extensive and costly
corporate integrity requirements upon entities and individuals subject
to a
false claims judgment or settlement. These requirements may include
the creation of a formal compliance program, the appointment of an independent
review organization, and the imposition of annual reporting requirements
and
audits conducted by an independent review organization to monitor compliance
with the terms of the agreement and relevant laws and
regulations.
The
Federal Civil False Claims Act also allows a private individual to bring a
"qui
tam" suit on behalf of the government for violations of the Civil False Claims
Act, and if successful, the "qui tam" relator shares in the government's
recovery. A qui tam suit may be brought by, with only a few
exceptions, any private citizen who has material information of a false claim
that has not yet been previously disclosed. Recently, the number of
qui tam suits brought in the healthcare industry has increased
dramatically. In addition, several states have enacted laws modeled
after the Federal Civil False Claims Act.
Civil
Monetary Penalties. The Civil Monetary Penalties Statute states
that civil penalties ranging between $10,000 and $50,000 per claim or act may
be
imposed on any person or entity that knowingly submits, or causes the submission
of, improperly filed claims for federal health benefits, or makes payments
to
induce a beneficiary or provider to reduce or limit the use of healthcare
services or to use a particular provider or supplier. Civil monetary
penalties may be imposed for violations of the anti-kickback statute and for
the
failure to return known overpayments, among other things.
Prohibition
on Employing or Contracting with Excluded Providers. The Social
Security Act and federal regulations state that individuals or entities that
have been convicted of a criminal offense related to the delivery of an item
or
service under the Medicare or Medicaid programs or that have been convicted,
under state or federal law, of a criminal offense relating to neglect or abuse
of residents in connection with the delivery of a healthcare item or service
cannot participate in any federal healthcare programs, including Medicare and
Medicaid.
Health
Insurance Portability and Accountability Act of 1996. HIPAA
created new healthcare related crimes, and granted authority to the Secretary
of
the Department of Health and Human Services, or HHS, to impose certain civil
penalties. Particularly, the Secretary may now exclude from Medicare
any individual with a direct or indirect ownership interest in an entity
convicted of healthcare fraud or excluded from the program. Under
HIPAA and other healthcare laws, it is a crime to knowingly and willfully commit
a healthcare fraud, and knowingly and willfully falsify, or conceal material
information or make any materially false or fraudulent statements in connection
with claims and payment for healthcare services by a healthcare benefit
plan. HIPAA also created new programs to control fraud and abuse, and
requires new investigations, audits and inspections.
We
believe that our operations materially comply with applicable regulatory
requirements. We cannot assure you of the outcome of any inquiry
audit or investigation undertaken by HHS, OIG or DOJ. If we are ever
found to have engaged in improper practices, we could be subjected to civil,
administrative or criminal fines, penalties or restitutionary relief, and
suspension or exclusion of the entity or individuals from participation in
federal and state healthcare programs.
Patient
Information and Privacy. HIPAA also mandates, among other
things, the establishment of regulatory standards addressing the electronic
exchange of health information, standards for the privacy and security of health
information maintained or exchanged electronically, and standards for assigning
unique health identifiers to healthcare providers. Sanctions for
failure to comply with HIPAA standards include civil and criminal
penalties. The Security Standards require us to implement certain
security measures to protect certain individually identifiable health
information, called protected health information, or PHI, in electronic
format. The Standards for Privacy of Individually Identifiable
Information restrict use and disclosure of PHI unless patient authorization
for
such disclosures are obtained. These Privacy Standards not only
require our compliance with standards restricting the use and disclosure of
PHI,
but also require us to obtain satisfactory assurances that any business
associate of ours who has access to our PHI similarly will safeguard such
PHI.
We
have
evaluated these rules to determine the effects of the rules on our business,
and
we believe that we have taken the appropriate steps to ensure that we will
comply with these standards in all material respects by their respective
compliance deadlines.
Our
business involves environmental risks that may result in
liability.
We
are
subject to a variety of local, state, federal and foreign government regulations
relating to storage, discharge, handling, emission, generation, manufacture
and
disposal of toxic, infectious or other hazardous substances used to manufacture
our products. If we fail to comply with these regulations, we could
be liable for damages, penalties, or other forms of censure and our business
could be significantly and adversely affected. We currently do not
carry insurance for contamination or injury resulting from the use of such
materials.
PROSTASCINT
and QUADRAMET utilize radioactive materials. PROSTASCINT is not
manufactured or shipped as a radioactive material because the radioactive
component is not added
until the product has arrived at its final destination (a
radiopharmacy). Laureate Pharma, our contract manufacturer of
PROSTASCINT, holds a radioactive materials license because such license is
required for certain release and stability tests of the product.
QUADRAMET,
however, is manufactured and shipped as radioactive, and therefore, the
manufacturing and distribution of this product must comply with regulations
promulgated by the U.S. Nuclear Regulatory Commission. BMSMI
manufacturers and distributes QUADRAMET, and is, therefore, subject to these
regulations.
We
have been and, in the future, may be subject to patent
litigation.
On
March
17, 2000, we were served with a complaint filed against us in the United States
District Court for the District of New Jersey by M. David Goldenberg and
Immunomedics, Inc. The litigation claimed that our PROSTASCINT
product infringes a patent purportedly owned by Goldenberg and licensed to
Immunomedics. We believe that PROSTASCINT did not infringe this
patent, and that the patent was invalid and unenforceable. In June
2004, the U.S. Court of Appeals for the Federal Circuit affirmed the district
court's grant of summary judgment of no literal
infringement. Regarding infringement under the doctrine of
equivalents, however, the U.S. Court of Appeals for the Federal Circuit
disagreed with the district court's conclusion that there was no issue of
material fact and reversed the district court's grant of summary judgment on
this point and remanded for further proceedings on the issue. In
September 2004, we settled the patent infringement suit for an undisclosed
payment, without any admission of fault or liability.
We
cannot
give any assurance that we will not become subject to additional patent
litigation in the future, which could result in material expenditures to
us.
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 earnings;
|
|
|
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.
We
have adopted various anti-takeover provisions which may affect the market price
of our common stock and prevent or frustrate attempts by our stockholders to
replace or remove our management team.
Our
Board
of Directors has the authority, without further action by the holders of common
stock, to issue from time to time, up to 5,400,000 shares of preferred stock
in
one or more classes or series, and to fix the rights and preferences of the
preferred stock. We have implemented a stockholder rights plan by
which one preferred stock purchase right is attached to each share of common
stock, as a means to deter coercive takeover tactics and to prevent an acquirer
from gaining control of us without some mechanism to secure a fair price for
all
of our stockholders if an acquisition was completed. These rights
will be exercisable if a person or group acquires beneficial ownership of 20%
or
more of our common stock and can be made exercisable by action of our Board
of
Directors if a person or group commences a tender offer which would result
in
such person or group beneficially owning 20% or more of our common
stock. Each right will entitle the holder to buy one one-thousandth
of a share of a new series of our junior participating preferred stock for
$20. If any person or group becomes the beneficial owner of 20% or
more of our common stock (with certain limited exceptions), then each right
not
owned by the 20% stockholder will entitle its holder to purchase, at the right's
then current exercise price, common shares having a market value of twice the
exercise price. In addition, if after any person has become a 20%
stockholder, we are involved in a merger or other business combination
transaction with another person, each right will entitle its holder (other
than
the 20% stockholder) to purchase, at the right's then current exercise price,
common shares of the acquiring company having a value of twice the right's
then
current exercise price.
We
are
subject to provisions of Delaware corporate law which, subject to certain
exceptions, will prohibit us from engaging in any "business combination" with
a
person who, together with affiliates and associates, owns 15% or more of our
common stock for a period of three years following the date that the person
came
to own 15% or more of our common stock unless the business combination is
approved in a prescribed manner.
These
provisions of the stockholder rights plan, our certificate of incorporation,
and
of Delaware law may have the effect of delaying, deterring or preventing a
change in control of Cytogen, may discourage bids for our common stock at a
premium over market price and may
adversely
affect the market price, and the voting and other rights of the holders, of
our
common stock. In addition, these provisions make it more difficult to
replace or remove our current management team in the event our stockholders
believe this would be in the best interest of the Company and our
stockholders.
|
|
|
Item
1B.
|
Not
applicable.
|
Item
2.
|
In
August
2002, we moved our main offices from 600 College Road East to 650 College Road
East in Princeton, New Jersey. On February 10, 2004, we entered into
an amendment to our existing sublease agreement for these premises to increase
the amount of space we occupy from approximately 11,500 square feet to
approximately 16,100 square feet. This amendment also extended the
expiration date of our sublease to October 2007, with a two year option to
renew
thereafter. In February 2007, we exercised the two year option to
renew our lease and extended the lease term through October 24,
2009. We intend to remain headquartered in Princeton, New Jersey for
the foreseeable future.
We
own
substantially all of the equipment used in our offices and we believe that
our
facilities are adequate for our operations at present.
In
January 2006, we 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® (ferumoxtran
-
10) in compliance with the terms of the licensing agreement. In
February 2006, Advanced Magnetics filed an answer to our complaint and asserted
various counterclaims, including tortuous interference, defamation, consumer
fraud and abuse of process.
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.
Not
applicable.
PART
II
|
Market
for the Company's Common Equity, Related Stockholder
Matters and Company Purchases of Equity
Securities
|
Our
common stock is traded on the NASDAQ Global Market (formerly the NASDAQ National
Market) under the trading symbol "CYTO."
The
table
below sets forth the high and low bid information for our common stock for
each
of the calendar quarters indicated, as reported on the Nasdaq Global
Market. Such quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual
transactions.
|
2006
|
High
|
Low
|
||||||
|
First
Quarter
|
$ |
3.62
|
$ |
2.75
|
||||
|
Second
Quarter
|
$ |
3.73
|
$ |
2.42
|
||||
|
Third
Quarter
|
$ |
2.58
|
$ |
1.91
|
||||
|
Fourth
Quarter
|
$ |
6.87
|
$ |
2.15
|
||||
|
2005
|
||||||||
|
First
Quarter
|
$ |
15.72
|
$ |
5.44
|
||||
|
Second
Quarter
|
$ |
5.95
|
$ |
3.46
|
||||
|
Third
Quarter
|
$ |
5.47
|
$ |
3.68
|
||||
|
Fourth
Quarter
|
$ |
4.09
|
$ |
2.71
|
||||
As
of
March 7, 2007, there were 2,185 holders of record of our common
stock.
We
have
never paid any cash dividends on our common stock and we do not anticipate
paying any cash dividends on our common stock in the foreseeable
future. We intend to retain any future earnings to fund the
development and growth of our business. Any future determination to
pay dividends will be at the discretion of our board of directors.
Stock
Performance Graph
The
following graph compares the cumulative total stockholder return on our common
stock with the cumulative total return the NASDAQ Composite Index, the NASDAQ
Biotechnology Index and the NASDAQ Pharmaceutical Index for a five-year period
ended December 31, 2006.
|
Company/Index
Name
|
12/01
|
12/02
|
12/03
|
12/04
|
12/05
|
12/06
|
||||||||||||||||||
|
CYTOGEN
Corporation
|
100.00
|
10.80
|
36.15
|
38.27
|
9.10
|
7.74
|
||||||||||||||||||
|
NASDAQ
Composite Index
|
100.00
|
68.85
|
101.86
|
112.16
|
115.32
|
127.52
|
||||||||||||||||||
|
NASDAQ
Biotechnology Index
|
100.00
|
62.08
|
90.27
|
99.08
|
111.81
|
110.06
|
||||||||||||||||||
|
NASDAQ
Pharmaceutical Index
|
100.00
|
64.40
|
92.31
|
100.78
|
113.36
|
115.84
|
The
Perfomance Graph and related information shall not be deemed “soliciting
material” or to be “filed” with the Securities and Exchange Commission, nor
shall such information be incorporated by reference into any future
filing under the Securities Act of 1933 or Securities Exchange Act of 1934,
each as amended, except to the extent that we specifically incorporate it by
reference into such filing.
The
following selected financial information has been derived from our audited
consolidated financial statements for each of the five years in the period
ended
December 31, 2006. The selected financial data set forth below should
be read in conjunction with the consolidated financial statements, including
the
notes thereto, "Management's Discussion and Analysis of Financial Condition
and
Results of Operations" and other information provided elsewhere in this
report.
|
Year
Ended December 31,
|
||||||||||||||||||||
|
2006
|
2005
|
2004
|
2003
|
2002
|
||||||||||||||||
|
Statements
of Operations Data:
|
(All
amounts in thousands, except per share data)
|
|||||||||||||||||||
|
Revenues:
|
||||||||||||||||||||
|
Product
revenues
|
$ |
17,296
|
$ |
15,757
|
$ |
14,480
|
$ |
9,823
|
$ |
10,626
|
||||||||||
|
Royalties
|
—
|
—
|
—
|
1,105
|
1,842
|
|||||||||||||||
|
License
and contract
|
11
|
189
|
139
|
2,914
|
463
|
|||||||||||||||
|
Total
revenues
|
17,307
|
15,946
|
14,619
|
13,842
|
12,931
|
|||||||||||||||
|
Operating
Expenses:
|
||||||||||||||||||||
|
Cost
of product related revenue
|
10,150
|
9,523
|
9,223
|
6,268
|
4,748
|
|||||||||||||||
|
Selling,
general and administrative
|
30,166
|
25,895
|
20,318
|
11,867
|
11,272
|
|||||||||||||||
|
Research
and development
|
7,301
|
6,162
|
3,292
|
2,342
|
7,580
|
|||||||||||||||
|
Equity
in loss of joint venture
|
120
|
3,175
|
2,896
|
3,452
|
2,886
|
|||||||||||||||
|
Impairment
of intangible assets(1)
|
—
|
—
|
—
|
115
|
1,729
|
|||||||||||||||
|
Total
operating expenses
|
47,737
|
44,755
|
35,729
|
24,044
|
28,215
|
|||||||||||||||
|
Operating
loss
|
(30,430 | ) | (28,809 | ) | (21,110 | ) | (10,202 | ) | (15,284 | ) | ||||||||||
|
Loss
on investment
|
—
|
—
|
—
|
—
|
(516 | ) | ||||||||||||||
|
Other
income (expense), net
|
1,415
|
598
|
263
|
(44 | ) |
101
|
||||||||||||||
|
Gain
on sale of equity interest in joint venture
|
12,873
|
—
|
—
|
—
|
—
|
|||||||||||||||
|
Decrease
in value of warrant liabilitites
|
1,039
|
1,666
|
—
|
—
|
—
|
|||||||||||||||
|
Loss
before income taxes
|
(15,103 | ) | (26,545 | ) | (20,847 | ) | (10,246 | ) | (15,699 | ) | ||||||||||
|
Income
tax benefit
|
—
|
(256 | ) | (307 | ) | (888 | ) |
—
|
||||||||||||
|
Net
loss
|
$ | (15,103 | ) | $ | (26,289 | ) | $ | (20,540 | ) | $ | (9,358 | ) | $ | (15,699 | ) | |||||
|
Basic
and diluted net loss per share
|
$ | (0.64 | ) | $ | (1.54 | ) | $ | (1.40 | ) | $ | (0.92 | ) | $ | (1.85 | ) | |||||
|
Weighted-average
common shares outstanding, basic and diluted
|
23,494
|
17,117
|
14,654
|
10,205
|
8,466
|
|||||||||||||||
|
December
31,
|
||||||||||||||||||||
|
Consolidated
Balance Sheet Data:
|
2006
|
2005
|
2004
|
2003
|
2002
|
|||||||||||||||
|
(in
thousands)
|
||||||||||||||||||||
|
Cash,
cash equivalents and short-term investments
|
$ |
32,507
|
$ |
30,337
|
$ |
35,825
|
$ |
30,215
|
$ |
14,725
|
||||||||||
|
Total
assets
|
54,353
|
44,790
|
50,413
|
43,695
|
19,894
|
|||||||||||||||
|
Warrant
liabilities
|
6,464
|
1,869
|
—
|
—
|
—
|
|||||||||||||||
|
Other
long-term
liabilities
|
59
|
46
|
47
|
2,454
|
2,614
|
|||||||||||||||
|
Accumulated
deficit
|
(427,670 | ) | (412,567 | ) | (386,278 | ) | (365,738 | ) | (356,380 | ) | ||||||||||
|
Stockholders'
equity
|
37,662
|
37,578
|
40,030
|
36,040
|
10,588
|
|||||||||||||||
_________
(1)
Reflects a
non-cash charge to write off the carrying value of the licensing fees associated
with NMP22 BLADDERCHEK in 2003 and BRACHYSEED in 2002.
|
|
|
Item
7.
|
Management's
Discussion and Analysis of Financial Condition and
Results of Operations
|
Cautionary
Statement
This
Annual Report on Form 10-K 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 growth and market penetration for
CAPHOSOL, QUADRAMET, PROSTASCINT and SOLTAMOX, increased expenses resulting
from
our sales force and marketing expansion, including sales and marketing expenses
for CAPHOSOL, PROSTASCINT, QUADRAMET 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 Annual Report on Form 10-K 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 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 Annual Report on Form 10-K, 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 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 product portfolio includes four oncology products approved
by the FDA, CAPHOSOL, QUADRAMET, PROSTASCINT, and SOLTAMOX, which are marketed
solely by our specialized sales force to the U.S. oncology
market. We introduced our fourth product, CAPHOSOL, 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 our product candidate,
CYT-500, a radiolabeled antibody in Phase 1 development for the treatment of
prostate cancer.
Significant
Events in 2006
Cytogen
Announces that FDA Clears IND for CYT-500, a Monoclonal Antibody for the
Treatment of Metastatic Hormone-Refractory Prostate Cancer
On
May 8,
2006, we announced that the U.S. Food and Drug Administration cleared an
Investigational New Drug application for CYT-500, our lead therapeutic candidate
targeting PSMA. We expect to begin the first U.S. Phase 1 clinical
trial of CYT-500 in patients with hormone-refractory prostate cancer, subject
to
Institutional Review Board (IRB) approval at the planned clinical
site. 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 novel product candidate is designed to enable
targeted delivery of a cytotoxic agent to PSMA-expressing cells.
We
retain
full and exclusive development rights to CYT-500. In February 2007,
we announced the initiation of the first human clinical study of
CYT-500.
Cytogen
Sells Ownership in PSMA Development Joint Venture to Progenics
On
April
20, 2006, we entered into a Membership Interest Purchase Agreement with
Progenics providing for the sale to Progenics of our 50% ownership interest
in
PDC, our joint venture with Progenics for the development of in vivo
cancer immunotherapies based on PSMA. In addition, we entered into an
Amended and Restated PSMA/PSMP License Agreement with Progenics and PDC pursuant
to which we licensed PDC certain rights in PSMA technology. Under the
terms of such agreements, we sold our 50% interest in PDC for a cash payment
of
$13.2 million, potential future milestone payments totaling up to $52.0 million
payable upon regulatory approval and commercialization of PDC products, and
royalties on future PDC product sales, if any. We are no longer
responsible for funding PDC.
Cytogen
and Rosemont Execute Marketing Agreement for SOLTAMOX
On
April
21, 2006, we entered into a distribution agreement with Savient granting us
exclusive marketing rights for SOLTAMOX in the United
States. SOLTAMOX, a cytostatic estrogen receptor antagonist, is the
first oral liquid hormonal therapy approved in the U.S. It is
indicated for the treatment of breast cancer in adjuvant and metastatic settings
and to reduce the risk of breast cancer in women with ductal carcinoma in situ
(DCIS) or with high risk of breast cancer. In addition, we entered
into a supply agreement with Savient and Rosemont, previously a wholly-owned
subsidiary of Savient, for the manufacture and supply of
SOLTAMOX. Cytogen's agreements with Savient were subsequently
assigned by Savient to Rosemont. Under the terms of the final
transaction, we paid Savient an up-front licensing fee of $2.0 million and
may
pay additional 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. We introduced SOLTAMOX to the U.S. oncology market
in the second half of 2006.
Cytogen
Enters into Purchase and Supply Agreement with Oncology Therapeutics
Network
On
June
20, 2006, we entered into a purchase and supply agreement with Oncology
Therapeutics Network appointing OTN as the exclusive distributor of SOLTAMOX
in
the United States. In August 2006, the agreement was amended to
revise certain terms, including changing the role of OTN to the exclusive
warehousing agent and non-exclusive distributor of SOLTAMOX. Under
the terms of the amended agreement, OTN will purchase SOLTAMOX from us for
its
own wholesaler channels and, along with third party logistics providers,
distribute SOLTAMOX to our other customers through its warehousing and
distribution facilities. In January 2007, the agreement was further
amended for OTN to also distribute CAPHOSOL.
Cytogen
and InPharma Execute License Agreement for CAPHOSOL
On
October 11, 2006, we entered into a license agreement with InPharma granting
us
exclusive rights for CAPHOSOL in North America. Approved as a
prescription medical device, CAPHOSOL is a topical oral agent indicated in
the
United States as an adjunct to standard oral
care
in
treating oral mucositis caused by radiation or high dose
chemotherapy. CAPHOSOL is also indicated for dryness of the mouth or
dryness of the throat regardless of the cause or whether the conditions are
temporary or permanent. Under the terms of the agreement, we are
obligated to pay InPharma $6.0 million in aggregate up-front fees, of which
$4.6
million was paid upon the execution of the agreement, $400,000 will be paid
into
an escrow account, and $1.0 million will be paid after six months. In
addition, InPharma is eligible to receive royalties and sales-based milestone
payments. In addition, we are obligated to pay a finder's fee based
on a percentage of milestone payments made to InPharma. The
transaction also provides us with options to acquire the rights to CAPHOSOL
for
the European and Asian markets that we only intend to exercise in connection
with obtaining a commercial partner for those areas. We will be
required to obtain consents from certain licensors but not InPharma, if we
sublicense the rights to market CAPHOSOL in Europe and Asia to other
parties. In the event we exercise the options to license marketing
rights for CAPHOSOL for the European and Asia markets, we would be obligated
to
pay additional fees, including sales-based milestone payments for the respective
territories. We introduced CAPHOSOL in the U.S. in the first
quarter of 2007.
Sale
of Common Stock and Warrants
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. In exchange for $2.82, the purchasers received one share of
common stock and warrants to purchase .5 shares of common stock. The
offering provided net proceeds of approximately $18.4 million to
us. The placement agents in this transaction received a fee equal to
7% of the aggregate gross proceeds. In connection with this sale, we
entered into a Registration Rights Agreement with the investors pursuant to
which the common stock and shares of common stock underlying the warrants were
registered under the Securities Act of 1933.
RESULTS
OF OPERATIONS
Year
Ended December 31, 2006 as Compared to December 31, 2005
Revenues
|
Increase/(Decrease)
|
||||||||||||||||
|
2006
|
2005
|
$
|
%
|
|||||||||||||
|
(All
amounts in thousands, except percentage data)
|
||||||||||||||||
|
PROSTASCINT
|
$ |
9,125
|
$ |
7,407
|
$ |
1,718
|
23 | % | ||||||||
|
QUADRAMET
|
8,141
|
8,350
|
(209 | ) | (3 | %) | ||||||||||
|
Other
product
revenue
|
30
|
--
|
30
|
n/a
|
||||||||||||
|
License
and
contract
|
11
|
189
|
(178 | ) | (94 | %) | ||||||||||
| $ |
17,307
|
$ |
15,946
|
$ |
1,361
|
9 | % | |||||||||
Total
revenues for the year ended December 31, 2006 were $17.3 million compared to
$15.9 million for the same period in 2005. Product revenues accounted
for substantially all of total revenues in 2006 and 99% of total revenues in
2005. License and contract revenues accounted for the remainder of
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, and if we fail to successfully market
SOLTAMOX and CAPHOSOL, we may not be able to generate sufficient revenue to
become profitable.
PROSTASCINT. PROSTASCINT
sales were $9.1 million for the year ended December 31, 2006, compared to $7.4
million for the same period of 2005. Sales of PROSTASCINT accounted
for 53% and 47% of product revenues for 2006 and 2005,
respectively. The increase from the prior year period was due to the
implementation of a 9% price increase for PROSTASCINT on September 1, 2006
and
increased demand associated with our focused marketing programs. 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 provide any assurance 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.
QUADRAMET. We
recorded QUADRAMET sales of $8.1 million for the year ended December 31, 2006,
compared to $8.4 million for the same period of 2005. QUADRAMET sales
accounted for 47% and 53% of product revenues for 2006 and 2005,
respectively. QUADRAMET year-over-year sales were essentially flat
with the exception of a change in the timing of scheduled maintenance shutdowns
for one of our raw material suppliers that negatively impacted product
availability during the fourth quarter of 2006. 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 provide any assurance 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.
Other
Product Revenue. For the year ended December 31, 2006,
other product revenue was comprised of $30,000 of SOLTAMOX sales. We
introduced SOLTAMOX in the second half of 2006 and began supplying the
distribution channels to support initial patient
demand. In
2006,
approximately $1.1 million of SOLTAMOX supply was shipped to wholesalers;
however, in accordance with U.S. Generally Accepted Accounting Principles,
we
will only recognize revenues for SOLTAMOX in our consolidated statement of
operations when we have sufficient information to estimate expected product
returns or when the product return privilege expires. We cannot
provide any assurance that we will be able to successfully market SOLTAMOX
or
that SOLTAMOX will achieve greater market penetration on a timely basis or
result in significant revenues for us.
License
and Contract Revenue. License and contract revenues
were $11,000 and $189,000 for the years ended December 31, 2006 and 2005,
respectively. The 2005 revenue includes $185,000 of contract revenue
for limited services provided by us to PDC, our former joint venture with
Progenics Pharmaceuticals, Inc. We did not provide any research
services to the joint venture in 2006.
Operating
Expenses
|
Increase/(Decrease)
|
||||||||||||||||
|
2006
|
2005
|
$
|
%
|
|||||||||||||
|
(All
amounts in thousands, except percentage data)
|
||||||||||||||||
|
Cost
of product revenues
|
$ |
10,150
|
$ |
9,523
|
$ |
627
|
7 | % | ||||||||
|
Selling,
general and administrative
|
30,166
|
25,895
|
4,271
|
16 | % | |||||||||||
|
Research
and development
|
7,301
|
6,162
|
1,139
|
18 | % | |||||||||||
|
Equity
in loss of joint venture
|
120
|
3,175
|
(3,055 | ) | (96 | %) | ||||||||||
| $ |
47,737
|
$ |
44,755
|
$ |
2,982
|
7 | % | |||||||||
Total
operating expenses for the year ended December 31, 2006 were $47.7 million
compared to $44.8 million for the same period of 2005.
Cost
of Product Revenues. Cost of product revenues for the
year ended December 31, 2006 was $10.2 million compared to $9.5 million for
the same period of 2005 and primarily reflects manufacturing costs for
PROSTASCINT and QUADRAMET, royalties on our sales of products and amortization
of the up-front payments to acquire the marketing rights to QUADRAMET in 2003,
SOLTAMOX in April 2006 and CAPHOSOL in October 2006. The increase
from the prior year period was due primarily to higher product revenue and
the
amortization expenses for SOLTAMOX and CAPHOSOL in 2006.
Selling,
General and Administrative. Selling, general and
administrative expenses for the year ended December 31, 2006 were $30.2 million
compared to $25.9 million for the same period of 2005. The increase
in selling, general and administrative expenses is primarily attributable to
$2.1 million of launch costs associated with SOLTAMOX, which we introduced
in
the second half of 2006, the pre-launch costs of $752,000 for CAPHOSOL and
the
recognition of $1.6 million of share-based compensation in 2006 for options
and
nonvested shares granted to employees, partially offset by the $750,000 of
pre-launch costs in 2005 for Combidex.
Research
and Development. Research and development expenses for
the year ended December 31, 2006 were $7.3 million compared to $6.2 million
for
the same period of 2005.
The
increase in 2006 from the prior year period is primarily driven by costs
associated with the clinical development initiatives for both QUADRAMET and
PROSTASCINT and the pre-clinical development program for CYT-500. The
2006 expenses also include the recognition of $252,000 of share-based
compensation in 2006 for options and nonvested shares granted to
employees. The 2005 expenses included a charge of $500,000 related to
the issuance of shares of our common stock in August 2005 to the stockholders
and debtholders of Prostagen Inc. made pursuant to the terms of an addendum
to
our Stock Exchange Agreement dated June 15, 1999.
Equity
in Loss of Joint Venture. Our share of the loss of the
PSMA Development Company LLC (PDC), our former joint venture with Progenics,
was
$120,000 for the year ended December 31, 2006 compared to $3.2 million in the
same period of 2005. 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 year ended
December 31, 2006 was $1.5 million compared to $712,000 for the same period
of
2005. The increase from the prior year period was due to higher
average yield on a higher average cash balances in 2006. Interest
expense for the year ended December 31, 2006 was $36,000 compared to $114,000
for the same period of 2005. Interest expense includes finance
charges on insurance premiums which were financed and purchases of various
equipment that are accounted for as capital leases. Interest expense
in 2005 also includes interest on outstanding debt which was paid off in August
2005.
Gain
on Sale of Equity Interest in Joint Venture. On April
20, 2006, we entered into a Membership Interest Purchase Agreement with
Progenics providing for the sale to Progenics of our 50% ownership interest
in
PDC, our joint venture with Progenics for the development of in vivo
cancer immunotherapies based on PSMA. In addition, we entered into an
Amended and Restated PSMA/PSMP License Agreement with Progenics and PDC pursuant
to which we licensed PDC certain rights in PSMA technology. Under the
terms of such agreements, we sold our 50% interest in PDC for a cash payment
of
$13.2 million, potential future milestone payments totaling up to $52.0 million
payable upon regulatory approval and commercialization of PDC products, and
royalties on future PDC product sales, if any. As a result of the
transaction, for the year ended December 31, 2006, we recorded $12.9 million
in
gain on sale of equity interest in the joint venture, which represents the
net
proceeds after transaction costs less the carrying value of our investment
in
the joint venture at the time of sale.
Decrease
in Warrant Liabilities. 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 will remeasure 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 year ended December 31, 2006, we reported a gain of
$1.0 million related to the decrease in fair value of these warrants since
their
issuance dates or December 31, 2005, whichever is later, compared to a $1.7
million gain recorded in the same period of 2005 related to the decrease in
fair
value of
these
warrants since their issuance dates. 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.
Income
Tax Benefit. During 2005, we sold a portion of
our New Jersey state net operating loss carryforwards, which resulted in the
recognition of $256,000 in income tax benefits. We did not sell any
New Jersey state net operating loss carryforwards in 2006.
Net
Loss. Net loss for the year ended December 31, 2006 was
$15.1 million compared to $26.3 million for the same period of
2005. The basic and diluted net loss per share for 2006 was
$0.64 based on 23.5 million weighted-average common shares
outstanding, compared to a basic and diluted net loss per share of $1.54 based
on 17.1 million weighted-average common shares outstanding for the same period
in 2005.
RESULTS
OF OPERATIONS
Year
Ended December 31, 2005 as Compared to December 31, 2004
Revenues
|
Increase/(Decrease)
|
||||||||||||||||
|
2005
|
2004
|
$
|
%
|
|||||||||||||
|
(All
amounts in thousands, except percentage data)
|
||||||||||||||||
|
PROSTASCINT
|
$ |
7,407
|
$ |
7,186
|
$ |
221
|
3 | % | ||||||||
|
QUADRAMET
|
8,350
|
7,293
|
1,057
|
14 | % | |||||||||||
|
NMP22
BLADDERCHEK (ceased December 2004)
|
--
|
1
|
(1 | ) | (100 | %) | ||||||||||
|
License
and
contract
|
189
|
139
|
50
|
36 | % | |||||||||||
| $ |
15,946
|
$ |
14,619
|
$ |
1,327
|
9 | % | |||||||||
Total
revenues for the year ended December 31, 2005 were $15.9 million compared to
$14.6 million for the same period in 2004. Product revenues accounted
for 99% of total revenues in each of 2005 and 2004. License and
contract revenues accounted for the remainder of 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.
PROSTASCINT. PROSTASCINT
sales were $7.4 million for the year ended December 31, 2005, an increase of
$221,000 from $7.2 million for the same period of 2004. Sales of
PROSTASCINT accounted for 47% and 50% of product revenues for 2005 and 2004,
respectively. PROSTASCINT has historically been a challenging product
for physicians and technologists to use, in part due to inherent limitations in
nuclear medicine imaging. We believe that future growth and market
penetration of PROSTASCINT is dependent upon, among other things: (i) improving
image quality through fusion technology; (ii) validating the antigen targeted
by
PROSTASCINT as an independent prognostic factor; (iii) the publication and
presentation of
outcomes
data; (iv) development of image-guided applications including brachytherapy,
intensity modulated radiation therapy, surgery, and cryotherapy; and (v)
expanding clinical development to demonstrate the potential for PROSTASCINT
to
monitor response to cytotoxic therapies and image other cancers. We
cannot provide any assurance 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.
QUADRAMET. We
recorded QUADRAMET sales of $8.4 million for the year ended December 31, 2005,
an increase of $1.1 million from $7.3 million for the same period of
2004. QUADRAMET sales accounted for 53% and 50% of product revenues
for 2005 and 2004, respectively. We believe that such increase in
QUADRAMET sales was due to increased demand associated with our focused
marketing programs. We have the right to market QUADRAMET in North
America and Latin America. Currently, we market QUADRAMET only in the
United States. We believe that the future growth and market
penetration of QUADRAMET is dependent upon, among other things: (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 provide any assurance 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.
NMP22
BLADDERCHEK. There were no NMP22 BLADDERCHEK sales
during 2005 compared to $1,000 in 2004. Effective December 31, 2004,
we stopped selling NMP22 BLADDERCHEK.
License
and Contract Revenues. License and contract revenues
were $189,000 and $139,000 for the years ended December 31, 2005 and 2004,
respectively. We recognized $185,000 of contract revenues in 2005,
compared to $106,000 in 2004, for limited services provided by us to the PSMA
Development Company LLC, our joint venture with Progenics Pharmaceuticals,
Inc.
Operating
Expenses
|
Increase/(Decrease)
|
||||||||||||||||
|
2005
|
2004
|
$
|
%
|
|||||||||||||
|
(All
amounts in thousands, except percentage data)
|
||||||||||||||||
|
Cost
of product
revenues
|
$ |
9,523
|
$ |
9,223
|
$ |
300
|
3 | % | ||||||||
|
Selling,
general and administrative
|
25,895
|
20,318
|
5,577
|
27 | % | |||||||||||
|
Research
and development
|
6,162
|
3,292
|
2,870
|
87 | % | |||||||||||
|
Equity
in loss of joint venture
|
3,175
|
2,896
|
279
|
(10 | %) | |||||||||||
| $ |
44,755
|
$ |
35,729
|
$ |
9,026
|
25 | % | |||||||||
Total
operating expenses for the year ended December 31, 2005 were $44.8 million
compared to $35.7 million for the same period of 2004.
Cost
of Product Revenues. Cost of product revenues for the
year ended December 31, 2005 was $9.5 million compared to $9.2 million for
the same period of 2004 and primarily reflects manufacturing costs for
PROSTASCINT and QUADRAMET, royalties on our sales of products and amortization
of the up-front payment to Berlex Laboratories to reacquire the marketing rights
to QUADRAMET in 2003. The increase from the prior year was due
primarily to contractual increases in 2005 related to our agreement with BMSMI,
and higher royalties to Berlex on our sales of QUADRAMET as a result of
increased product sales.
Selling,
General and Administrative. Selling, general and
administrative expenses for the year ended December 31, 2005 were $25.9 million
compared to $20.3 million for the same period of 2004. The increase
from the prior year was due primarily to the expansion of our sales force and
the implementation of other marketing initiatives for our planned and existing
products. The selling, general and administrative expenses in 2004
also include increased legal and professional fees as well as a payment related
to the settlement, in September 2004, of a patent infringement suit filed by
Immunomedics, Inc. against us and C.R. Bard Inc. in February 2000. As
of March 1, 2006, we employed 50 people in sales and marketing.
Research
and Development. Research and development expenses for
the year ended December 31, 2005 were $6.2 million compared to $3.3 million
for
the same period of 2004. The increase from the prior year period is
primarily driven by new clinical development initiatives for both QUADRAMET
and
PROSTASCINT, and the pre-clinical development costs associated with our
radiolabeled therapeutic program to attach the therapeutic radionuclide
lutetium-177 as a payload to the 7E11 monoclonal antibody utilized in
PROSTASCINT. The increase is partially offset by savings from the
closure of our AxCell BioSciences facility in the fourth quarter of
2004. The 2005 and 2004 expenses also included a charge of $500,000
and $497,000, respectively, related to the issuance of shares of our common
stock in August 2005 and November 2004, respectively, to the stockholders and
debtholders of Prostagen Inc. made pursuant to the terms of an addendum to
our
Stock Exchange Agreement dated June 15, 1999, related to the progress of certain
PSMA development programs.
In
2005
and 2004, we incurred $50,000 and $621,000, respectively, in expenses relating
to AxCell's operations. In September 2002, we significantly reduced
AxCell's workforce to reduce the cash expenditures relating to AxCell in order
to leverage our oncology franchise. Further, in July 2004, as part of
our continuing efforts to reduce non-strategic expenses, we initiated the
closure of AxCell's facilities. Research projects through academic,
governmental and corporate collaborators to be supported and additional
applications for the intellectual property and technology at AxCell are being
pursued.
Equity
in Loss of Joint Venture. Our share of the loss of the
PSMA Development Company LLC, our joint venture with Progenics Pharmaceuticals,
Inc., was $3.2 million in 2005 compared to $2.9 million for the same period
of
2004, and represented 50% of the joint venture's operating
losses. The increase over the prior year period reflects our share of
the $2.0 million up-front fee incurred by the joint venture in the second
quarter of 2005 to license proprietary
antibody-drug
conjugate technology from Seattle Genetics, Inc. for use with the joint
venture's antibodies targeting PSMA. We equally shared ownership and
costs of the joint venture with Progenics and accounted for the joint venture
using the equity method of accounting.
Interest
Income/Expense. Interest income for the year ended
December 31, 2005 was $712,000 compared to $448,000 for the same period of
2004. The increase from the prior year period was due to higher
average yields partially offset by lower average cash balances in
2005. Interest expense for the year ended December 31, 2005 was
$114,000 compared to $185,000 for the same period of 2004. Interest
expense includes interest on outstanding debt which was paid off in August
2005
and finance charges on insurance premiums which were financed and purchases
of
various equipment that are accounted for as capital leases.
Decrease
in Value of Warrant Liability. In connection with the
sale of our common stock and warrants that provided us with net proceeds of
approximately $13.9 million in July and August 2005, we recorded the warrants
as
a liability at their fair value at the dates of issuance using the Black-Scholes
option-pricing model and will remeasure 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 year ended December 31, 2005, we reported a gain of
$1.7 million related to the decrease in fair value of these warrants from
issuance dates. 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.
Income
Tax Benefit. During 2005, we sold a portion of
our New Jersey state net operating loss carryforwards, which resulted in the
recognition of $256,000 in income tax benefits. In 2004, we
recognized $307,000 in such income tax benefits.
Net
Loss. Net loss for the year ended December 31, 2005 was
$26.3 million compared to $20.5 million for the same period of
2004. The basic and diluted net loss per share for 2005 was
$1.54 based on 17.1 million weighted-average common shares
outstanding, compared to a basic and diluted net loss per share of $1.40 based
on 14.7 million weighted-average common shares outstanding for the same period
in 2004.
COMMITMENTS
We
have
entered into various contractual and commercial commitments. The
following table summarizes our obligations with respect to these commitments
as
of December 31, 2006:
|
Contractual
Obligation
|
Less
than
1
year
|
1
to 3
years
|
4
to 5
years
|
More
than
5
years
|
Total
|
|||||||||||||||
|
(All
amounts in thousands)
|
||||||||||||||||||||
|
Capital
lease obligations
|
$ |
64
|
$ |
59
|
$ |
—
|
$ |
—
|
$ |
123
|
||||||||||
|
Facility
leases
|
338
|
620
|
—
|
—
|
958
|
|||||||||||||||
|
Research
and development
|
131
|
150
|
150
|
481
|
912
|
|||||||||||||||
|
Marketing
and other obligations
|
2,490
|
33
|
—
|
—
|
2,523
|
|||||||||||||||
|
Manufacturing
contracts(1)
|
5,378
|
4,859
|
—
|
—
|
10,237
|
|||||||||||||||
|
Minimum
royalty payments(2)
|
1,000
|
2,000
|
2,000
|
1,833
|
6,833
|
|||||||||||||||
|
Total
|
$ |
9,401
|
$ |
7,721
|
$ |
2,150
|
$ |
2,314
|
$ |
21,586
|
||||||||||
_________
(1)
Effective January
1, 2004, we entered into a new manufacturing and supply agreement with 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 December 31, 2008.
(2)
We acquired an
exclusive license from Dow 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.
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 our
collaborative partners 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:
|
2006
|
||||
|
(All
amounts in thousands)
|
||||
|
Net
loss
|
$ | (15,103 | ) | |
|
Adjustments
to reconcile net loss to net cash used in operating
activities
|
(7,750 | ) | ||
|
Net
cash used in operating activities
|
(22,853 | ) | ||
|
Net
cash provided by investing activities
|
6,116
|
|||
|
Net
cash provided by financ | ||||