Registration No. 333-
---------------------
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
BIOENVISION, INC.
(Name of small business issuer in its charter)
Delaware 2834 13-4025857
-------- ---- ----------
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code Number)
organization)
509 Madison Avenue
Suite 404
New York, New York 10022
(212) 750-6660
(Address and telephone number of principal
executive offices and principal place of business)
David P. Luci, Esq.
Director of Finance, General Counsel and Corporate Secretary
Bioenvision, Inc.
509 Madison Avenue
Suite 404
New York, New York 10022
(212) 750-6660
(Name, address and telephone
number of agent for service)
Copy to:
Luke P. Iovine, III, Esq.
Paul, Hastings, Janofsky & Walker LLP
75 East 55th Street
New York, NY 10022
(212) 318-6000
Approximate date of commencement of proposed sale to the public: As soon as
practical after the effective date of this Registration Statement. If any of the
securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. |X|
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_| ___________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_| ___________
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier registration statement for the same offering.
|_| ___________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
Title of each Proposed Proposed Amount of
class of Number of maximum maximum registration
securities to shares to be offering price aggregate fee
be registered registered per share offering price ---
------------- ---------- --------- --------------
Common Stock, 3,618,769 $ 9.945(1) $35,988,657(1) $4,559.76(1)
par value $.001
per share
Common Stock, 34,131,931(2) (3) (3) (3)
par value $.001
per share
(1) Calculated in accordance with Rule 457(c) under the Securities Act of 1933
(2) Represents an aggregate of 34,131,931 shares of common stock previously
registered on the registration statement on Form SB-2 (Registration No.
333-97443) that are being carried forward in the prospectus filed with this
registration statement.
(3) This amount has previously been paid by the registrant as the registration
fee for the 34,131,931 shares of common stock carried forward from the prior
registration statement on Form SB-2 (Registration No. 333-97443).
Pursuant to Rule 429 under the Securities Act, the prospectus included as part
of this registration statement shall be deemed a combined prospectus which shall
also relate to our registration statement on Form SB-2 (Registration No.
333-97443) and constitutes a post-effective amendment to our registration
statement on Form SB-2 (Registration No. 333-97443).
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant will file a
further amendment which specifically states that this Registration Statement
will thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement will become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Subject to completion, May ___, 2004
PROSPECTUS
BIOENVISION, INC.
37,750,700 Shares of Common Stock
Of the shares of stock covered by this prospectus: (i) 10,880,000
shares are issuable upon the conversion of 5,440,000 preferred shares issued in
connection with a private placement consummated in May 2002; (ii) 5,440,000
shares are issuable upon the exercise of warrants issue to preferred
stockholders in connection with a private placement consummated in May 2002;
(iii) 6,650,867 shares were issued to former stockholders of Pathagon Inc. in
February 2002 in connection with the consummation of the acquisition of Pathagon
Inc.; (iv) 1,008,333 shares are issuable upon the exercise of warrants issued to
our financial advisor in connection with a private placement consummated in May
2002; (v) 3,751,995 shares were issued and 3,974,544 shares are issuable upon
the exercise of warrants and options issued to the co-founders, early round
investors and certain former consultants and advisors for services rendered to
or on behalf of us; (vi) 100,000 shares were issued and 200,000 shares are
issuable upon the exercise of warrants issued to a former co-development partner
for services rendered to us; (vii) 1,500,000 shares are issuable upon the
exercise of warrants issued in connection with a credit facility secured by
Bioenvision in November 2001; (viii) 160,000 shares are issuable upon the
exercise of warrants issued to two former financial advisors in March, 2004;
(ix) 175,000 shares issuable upon the exercise of warrants issued to a
regulatory consultant in April of 2003 for services rendered; (x) 2,602,898
shares were issued in connection with a private placement consummated in March
and May of 2004; and (xi) 780,871 shares are issuable upon the exercise of
warrants issued in connection with the private placement consummated in March
and May of 2004.
All of the shares of stock covered by this prospectus are beneficially
owned by the selling stockholders listed in the section of this prospectus
called "Selling Stockholders." We are not selling any of the shares of stock
covered by this prospectus and we will not receive any proceeds from any sales
of our stock covered by this prospectus effected by the selling stockholders.
Our common stock is traded on the American Stock Exchange under the
symbol "BIV". The last reported sales price of shares of our common stock on May
18, 2004, 2004 was $9.85 per share.
We urge you to read carefully the "Risk Factors" section beginning on
page 3 where we describe specific risks associated with an investment in
Bioenvision and these securities before you make your investment decision.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is May ___, 2004.
The information in this prospectus is not complete and may be changed. The
selling stockholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where such offer or sale is not
permitted.
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY...........................................................1
THE OFFERING.................................................................2
RISK FACTORS.................................................................3
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS..............................14
USE OF PROCEEDS..............................................................14
DESCRIPTION OF SECURITIES....................................................14
SELLING STOCKHOLDERS.........................................................16
PLAN OF DISTRIBUTION.........................................................22
LEGAL PROCEEDINGS............................................................25
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS..............................................................26
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT........................................................28
LEGAL MATTERS................................................................30
EXPERTS......................................................................31
WHERE YOU CAN GET MORE INFORMATION...........................................31
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES...............................................31
DESCRIPTION OF BUSINESS......................................................32
DESCRIPTION OF PROPERTY .....................................................45
MANAGEMENT'S DISCUSSION AND ANALYSIS.........................................46
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................50
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.....................51
EXECUTIVE COMPENSATION.......................................................52
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.......................................57
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS...................................57
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding us and the securities being offered for sale by means of
this prospectus and our financial statements and notes to those statements
appearing elsewhere in this prospectus. The summary highlights information
contained elsewhere in this prospectus. The terms "Bioenvision," "the company,"
"we," "our" and "us" refer to Bioenvision, Inc. and its consolidated
subsidiaries unless the context suggests otherwise. The term "you" refers to a
prospective investor.
We are an emerging biopharmaceutical company that develops and markets
drugs to treat cancer. Our two lead drugs are Clofarabine and Modrenal(R),
although we have several other products and technologies under development. As
of May 1, 2004, our internal staff consisted of nine employees based in New
York, New York and Edinborough, Scotland.
Clofarabine is a purine nucleoside analogue, or a small molecule, which,
based on our own clinical studies and studies conducted by others on our behalf,
we believe is effective in the treatment of leukemia. Clofarabine may also be an
effective agent to treat patients with solid tumor cancers, based on preclinical
studies and Phase I/II clinical trials performed to date. In the United Kingdom,
we are currently conducting clinical trials with Clofarabine for the treatment
of pediatric and adult acute leukemias. In the U.S., Clofarabine is currently in
Pivotal Phase II clinical trials for pediatric acute leukemias. In January,
2002, the European orphan drug application for use of Clofarabine to treat acute
leukemia in adults was approved. Orphan Drug Designation provides the Company
with ten years of market exclusivity in Europe for Clofarabine. The drug has
also been granted orphan drug status and "fast track" treatment by the United
States Food and Drug Administration (the "FDA"). Further, in August 2003, we
obtained the exclusive, irrevocable option to sell, market and distribute
Clofarabine in Japan and Southeast Asia from the inventor of Clofarabine. These
rights were not previously granted by Southern Research Institute and fall
outside the scope of the Company's then current licensing and development
contracts with respect to Clofarabine. We originally obtained an exclusive
license from Southern Research Institute to sell, market and distribute
Clofarabine throughout the world, except for Japan and Southeast Asia, for all
human applications, pursuant to a co-development agreement, dated August 31,
1998, between the Company and Southern Research Institute. On March 12, 2001, we
granted an exclusive option to sell, market and distribute Clofarabine in the
U.S. and Canada to ILEX Oncology, Inc. We converted ILEX's option to an
exclusive sublicense on December 30, 2003. Accordingly, we do not possess the
rights to sell, market and distribute Clofarabine in the U.S.
Modrenal(R) is a hormonal agent with a novel mode of action, that makes
it an effective agent in patients with advanced breast cancer who have acquired
resistance to other hormonal agents. We launched Modrenal(R) in May 2003 in the
United Kingdom, where we have received regulatory approval for its use in the
treatment of post-menopausal breast cancer. In the first half of 2004, we intend
to apply for mutual recognition in another four large European territories in an
effort to gain approval for Modrenal(R) in each such territory. We anticipate
receiving approval in each such territory in the first half of calendar year
2005. Further, we filed an IND for prostate cancer clinical trials in the US in
February 2004 and intend to commence our first US clinical trial in the second
quarter of calendar year 2004. Further, we intend to seek regulatory approval
for Modrenal(R) in the United States as salvage therapy for hormone-sensitive
breast cancer upon completion of additional clinical studies. We originally
obtained an exclusive license from Stegram Pharmaceuticals Ltd. to sell, market
and distribute Modrenal(R) throughout the world, except for South Africa, for
all human and animal health applications, pursuant to a co-development agreement
dated July 15, 1998.
Our primary business strategy relates to our two lead drugs, Clofarabine
and Modrenal(R). With Clofarabine, our strategy is to complete drug development
in Europe and obtain marketing authorization from the European regulatory
authorities to market and distribute Clofarabine for the treatment of pediatric
and adult acute leukemias. We anticipate receiving approval early in 2005,
subject to our obtaining approval of the regulatory authorities. We will
continue clinical trials in other indications with the intention of seeking
label extensions after Clofarabine's first approval. With Modrenal, our strategy
is to expand sales in the United Kingdom and apply for mutual recognition to
obtain the right to sell Modrenal(R) throughout Europe. We anticipate receiving
mutual recognition from major European Community member states by mid-2005. Our
secondary business strategy is to continue to develop our portfolio of ancillary
products and technologies. We anticipate that revenues derived from Clofarabine
and Modrenal(R) will permit us to further develop our portfolio of ancillary
products and technologies.
Corporate Background
We were incorporated as Express Finance, Inc. under the laws of the
State of Delaware on August 16, 1996, and changed our name to Ascot Group, Inc.
in August 1998 and further to Bioenvision, Inc. in December 1998. Our principal
executive offices are located at 509 Madison Avenue, Suite 404 , New York, New
York 10022. Our telephone number is (212) 750-6700 and our fax number is (212)
750-6777. Our website is www.bioenvision.com. Information contained on our
website does not constitute, and shall not be deemed to constitute, part of this
prospectus.
The Offering
Shares of common stock offered by the
selling stockholders........................ 37,750,700
Shares of common stock outstanding as of
May 18, 2004................................ 26,002,829
Shares to be outstanding following
offering (assuming conversion of all
preferred shares into common shares and
the exercise of options and warrants,
and assuming no sales of any securities
pursuant to this offering).................. 48,483,737
Use of proceeds............................. We will not receive any proceeds
from the issuance or sale of the
shares included in this offering.
We may receive consideration upon
the exercise of options and we will
receive consideration upon the
conversion of warrants which we
intend to use for general corporate
purposes.
Risk Factors................................ An investment in our common stock
is subject to significant risks.
You should carefully consider the
information set forth in the "Risk
Factors" section of this prospectus
as well as other information set
forth in this prospectus, including
our financial statements and
related notes.
Plan of Distribution........................ The shares of common stock offered
for resale may be sold by the
selling stockholders pursuant to
this prospectus in the manner
described under "Plan of
Distribution" on page 22.
Amex symbol................................. BIV
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RISK FACTORS
You should carefully consider the following risks before you decide to
buy our common stock. Our business, financial condition or operating results may
suffer if any of the events described in the following risk factors actually
occur. All known risks are presented in this prospectus. These risks may
adversely affect our business, financial condition or operating results. If any
of the events we have identified occur, the trading price of our common stock
could decline, and you may lose all or part of the money you paid to buy our
common stock.
The price of our common stock is likely to be volatile and subject to wide
fluctuations.
The market price of the securities of biotechnology companies has been,
and can be, especially volatile. Thus, the market price of our common stock is
likely to be subject to wide fluctuations. For the twelve month period ended May
18, 2004, our closing stock price has ranged from a high of $11.75 to a low of
$0.69. If our revenues do not grow or grow more slowly, or, if operating or
capital expenditures exceed our expectations and cannot be adjusted accordingly,
or if some other event adversely affects us, the market price of our common
stock could decline. In addition, if the market for pharmaceutical and
biotechnology stocks or the stock market in general experiences a loss in
investor confidence or otherwise fails, the market price of our common stock
could fall for reasons unrelated to our business, results of operations and
financial condition. The market price of our stock also might decline in
reaction to events that affect other companies in our industry even if these
events do not directly affect us or for other reasons.
Certain events could result in a dilution of holders of our common stock.
As of May 18, 2004, we had 26,002,829 shares of common stock
outstanding, 4,373,333 shares of Series A preferred stock outstanding which are
currently convertible into 8,746,666 shares of common stock and 13,734,241
common stock equivalents including warrants and stock options, other than the
options granted under the co-development agreement with ILEX. The exercise and
conversion prices of the common stock equivalents range from $0.735 to $7.50 per
share. We have also reserved for issuance an aggregate of 3,000,000 shares of
common stock for a stock option plan for our employees, of which approximately
1,900,000 have been issued. Historically, from time to time, we have awarded our
common stock to officers of the Company, in lieu of cash compensation, although
we do not expect to do so in the future. As of the date hereof, we are
registering 37,750,700 under the Securities Act on this Form SB-2 and have
registered options to purchase 4,500,000 shares under the Securities Act on Form
S-8. The future resale of these shares and shares underlying stock options and
warrants registered on this Form SB-2 and Form S-8 will result in a dilution to
your percentage ownership of our common stock and could adversely affect the
market price of our common stock.
The terms of our Series A Convertible Preferred Stock include
antidilution protection upon the occurrence of sales of our common stock below
certain prices, stock splits, redemptions, mergers and other similar
transactions. If one or more of these events occurs the number of shares of our
common stock that may be acquired upon conversion or exercise would increase. If
converted or exercised, these securities will result in a dilution to your
percentage ownership of our common stock. The resale of many of the shares of
common stock which underlie these options and warrants are registered under this
prospectus and the sale of such shares may adversely affect the market price of
our common stock.
The provisions of our charter and Delaware law may inhibit potential acquisition
bids that stockholders may believe are desirable, and the market price of our
common stock may be lower as a result.
Section 203 of the Delaware corporate statute
We are subject to the anti-takeover provisions of Section 203 of the
Delaware corporate statute, which regulates corporate acquisitions. Section 203
may affect the ability of an "interested stockholder" to engage in certain
business combinations, including mergers, consolidation or acquisitions of
additional shares, for a period of three years following the time that the
stockholder becomes an "interested stockholder". An "interested stockholder" is
defined to include persons owning directly or indirectly 15% or more of the
outstanding voting stock of a corporation. These provisions could discourage
potential acquisition proposals and could delay or prevent a change in control
transaction. They could also have the effect of discouraging others from making
tender offers for our common stock. As a result, these provisions may prevent
our stock price from increasing
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substantially in response to actual or rumored takeover attempts. These
provisions may also prevent changes in our management.
Issuance of Preferred Stock Without Stockholder Approval.
Our preferred stock can be created and issued by the board of
directors without prior stockholder approval, with rights senior to those of the
common stock. Preferred stock may be issued in one or more series, the terms of
which may be determined without further action by stockholders. These terms may
include preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms or conditions of
redemption. The issuance of any preferred stock could materially adversely
affect the rights of holders of our common stock, and therefore could reduce its
value. In addition, specific rights granted to future holders of preferred stock
could be used to restrict our ability to merge with, or sell assets to, a third
party. The power of the board of directors to issue preferred stock could make
it more difficult, delay, discourage, prevent or make it more costly to acquire
or effect a change in control, thereby preserving the current stockholders'
control.
We have a limited operating history, which makes it difficult to evaluate our
business and to predict our future operating results.
Since our inception, August of 1996, we have been primarily engaged in
organizational activities, including developing a strategic operating plan,
entering into various collaborative agreements for the development of products
and technologies, hiring personnel and developing and testing our products. We
have not generated any material revenues to date. Accordingly, we have no
relevant operating history upon which an evaluation of our performance and
prospects can be made.
We have incurred net losses since commencing business and expect future losses.
To date, we have incurred significant net losses, including net losses
of $8,437,397 for the nine-month period ended March 31, 2004 and $4,064,277 for
the three month period ended March 31, 2004. At March 31, 2004, we had an
accumulated deficit of $37,676,811. We anticipate that we may continue to incur
significant operating losses for the foreseeable future. We may never generate
material revenues or achieve profitability and, if we do achieve profitability,
we may not be able to maintain profitability.
Clinical trials for our products will be expensive and may be time consuming,
and their outcome is uncertain, but we must incur substantial expenses that may
not result in any viable products.
Before obtaining regulatory approval for the commercial sale of a
product, we must demonstrate through pre-clinical testing and clinical trials
that a product candidate is safe and effective for use in humans. Conducting
clinical trials is a lengthy, time-consuming and expensive process. We will
incur substantial expense for, and devote a significant amount of time to
pre-clinical testing and clinical trials. Even with Modrenal, which is approved
and marketed by us in the U.K. for the treatment of advanced post-menopausal
breast cancer, we are conducting a clinical trial in the U.S. in prostate
cancer, which is a new potential indication for this approved drug.
Historically, the results from pre-clinical testing and early clinical
trials have often not been predictive of results obtained in later clinical
trials. A number of new drugs have shown promising results in clinical trials,
but subsequently failed to establish sufficient safety and efficacy data to
obtain necessary regulatory approvals. Data obtained from pre-clinical and
clinical activities are susceptible to varying interpretations, which may delay,
limit or prevent regulatory approval. Regulatory delays or rejections may be
encountered as a result of many factors, including changes in regulatory policy
during the period of product development. Regulatory authorities may require
additional clinical trials, which could result in increased costs and
significant development delays. Clofarabine currently is at a pivotal stage of
its development, but many of our other products and technologies are at various
less mature stages of development including gossypol for which we have just
commenced a Phase I clinical trial in the U.K. and gene therapy which is
currently in pre-clinical testing.
Completion of clinical trials for any product may take several years or
more. The length of time generally varies substantially according to the type,
complexity, novelty and intended use of the product candidate. Our commencement
and rate of completion of clinical trials may be delayed by many factors,
including:
o inability of vendors to manufacture sufficient quantities of materials
for use in clinical trials;
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o slower than expected rate of patient recruitment or variability in the
number and types of patients in a study;
o inability to adequately follow patients after treatment;
o unforeseen safety issues or side effects;
o lack of efficacy during the clinical trials; or
o government or regulatory delays.
If our development agreement with ILEX does not proceed as planned we may incur
delay in the commercialization of Clofarabine, which would delay our ability to
generate sales and cash flow from the sale of Clofarabine.
ILEX, and any third party to which ILEX may grant a sublicense or in any
way transfer its obligations, has primary responsibility for conducting clinical
trials and administering regulatory compliance and approval matters in the
United States and Canada pursuant to the terms of our co-development agreement
with ILEX. While there are target dates for completion, that agreement allows
ILEX time to continue working beyond those dates under certain circumstances.
For example, under the co-development agreement, ILEX was required to complete
Pivotal Phase II Trials not later than December 31, 2002, but ILEX failed to do
so. In this situation the co-development agreement provides that the milestone
shall be adjusted such that ILEX receives more time to complete the pivotal
trials if the trials are ongoing at December 31, 2002 and progressing to
completion within a reasonable time thereafter. Further, ILEX was required under
the co-development agreement to have filed a New Drug Application by August 31,
2003, subject to extension if ILEX continues to use its reasonable efforts to
promptly complete the filing after August 31, 2003. ILEX continued to use its
reasonable efforts to complete the filing after August 31, 2003 and in March
2004, ILEX completed the filing.
If ILEX fails to meet its obligations under the co-development
agreement, we could lose valuable time in developing Clofarabine for
commercialization both in the U.S. and in Europe. Because we intend to make use
of clinical data from the clinical trials which ILEX conducted, and is
conducting, to prepare and support our regulatory applications in Europe and
elsewhere, ILEX's failure to expeditiously file the New Drug Application with
FDA could adversely affect the timing of European approval. We can not provide
assurance that ILEX will not fail to meet its obligations under the
co-development agreement. Development of compounds to the stage of approval
includes inherent risk at each stage of development that FDA in its discretion
will mandate a requirement not foreseeable by us or by ILEX. There would also be
testing delays if, for example, our sources of drug supply could not produce
enough Clofarabine to support the then ongoing clinical trials being conducted.
If this were to occur, it could have a material adverse effect on our ability to
develop Clofarabine, obtain necessary regulatory approvals, and generate sales
and cash flow from the sale of Clofarabine.
If delays in completion constitute a breach by ILEX or there are certain
other breaches of the co-development agreement by ILEX, then, at our discretion,
the primary responsibility for completion would revert to us, but there is no
assurance that we would have the financial, managerial or technical resources to
complete such tasks in timely fashion or at all.
We have limited experience in developing products and may be unsuccessful in our
efforts to develop products.
To achieve profitable operations, we, alone or with others, must
successfully develop, clinically test, market and sell our products. We are
developing Clofarabine with ILEX Oncology, our U.S. co-development partner, but
on February 26, 2004, Genzyme Corp. announced a merger pursuant to which Genzyme
intends to acquire ILEX in a merger transaction. If this transaction is
consummated, no assurance can be given that the operational and managerial
relations with Genzyme will proceed favorably or that the timeline for
development of Clofarabine will not be elongated. If the U.S. regulatory
timeline is elongated, this could materially and adversely affect the European
regulatory timeline for the approval of Clofarabine.
With respect to our co-lead drug, Modrenal, we currently have an
Investigational New Drug Application filed with FDA to conduct in the U.S. a
Phase II Clinical Trial to determine efficacy of Modrenal in prostate cancer
patients. This Phase II Clinical Trial will be conducted on our behalf at the
Mass General Hospital in Boston, MA at the direction of Dr. Mathew Smith. To our
knowledge, Modrenal has not been tested
5
in this indication in the past and there can be no assurance that Modrenal will
be an effective therapy in prostate cancer. Further, our long-term drug
development objectives for Modrenal include attempting to test the drug and get
approval in the U.S. for treatment of advanced post-menopausal breast cancer
patients. These trials will take significant time and resource and no assurance
can be given that developing the drug in this indication will result in a U.S.
approval for Modrenal in advanced post-menopausal breast cancer patients.
Generally, most products resulting from our or our collaborative
partners' product development efforts are not expected to be available for sale
for at least several years, if at all. Potential products that appear to be
promising at early stages of development may not reach the market for a number
of reasons, including:
o discovery during pre-clinical testing or clinical trials that the
products are ineffective or cause harmful side effects;
o failure to receive necessary regulatory approvals;
o inability to manufacture on a large or economically feasible scale;
o failure to achieve market acceptance; or
o preclusion from commercialization by proprietary rights of third
parties.
Most of the existing and future products and technologies developed by
us will require extensive additional development, including pre-clinical testing
and clinical trials, as well as regulatory approvals, prior to
commercialization. Our product development efforts may not be successful. We may
fail to receive required regulatory approvals from U.S. or foreign authorities
for any indication. Any products, if introduced, may not be capable of being
produced in commercial quantities at reasonable costs or being successfully
marketed. The failure of our research and development activities to result in
any commercially viable products or technologies would materially adversely
affect our future prospects.
Our industry is subject to extensive government regulation and our products
require other regulatory approvals which makes it more expensive to operate our
business.
Regulation in General. Virtually all aspects of our business are
regulated by federal and state statutes and governmental agencies in the United
States and other countries. Failure to comply with applicable statutes and
government regulations could have a material adverse effect on our ability to
develop and sell products which would have a negative impact on our cash flow.
The development, testing, manufacturing, processing, quality, safety, efficacy,
packaging, labeling, record-keeping, distribution, storage and advertising of
pharmaceutical products, and disposal of waste products arising from these
activities, are subject to regulation by one or more federal agencies. These
activities are also regulated by similar state and local agencies and equivalent
foreign authorities. In our material contracts with vendors providing any
portion of these types of services, we seek assurances that our vendors comply
and will continue to maintain compliance with all applicable rules and
regulations. This is the case, for example, with respect to our contracts with
Ferro Pfanstiehl and Penn Pharmaceuticals. No assurance can be given that our
most significant vendors will continue to comply with these rules and
regulations.
FDA Regulation. All pharmaceutical manufacturers in the United States
are subject to regulation by the FDA under the authority of the Federal Food,
Drug, and Cosmetic Act. Under the Act, the federal government has extensive
administrative and judicial enforcement powers over the activities of
pharmaceutical manufacturers to ensure compliance with FDA regulations. Those
powers include, but are not limited to the authority to:
o initiate court action to seize unapproved or non-complying products;
o enjoin non-complying activities;
o halt manufacturing operations that are not in compliance with current
good manufacturing practices prescribed by the FDA;
o recall products which present a health risk; and
o seek civil monetary and criminal penalties.
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Other enforcement activities include refusal to approve product
applications or the withdrawal of previously approved applications. Any
enforcement activities, including the restriction or prohibition on sales of
products marketed by us or the halting of manufacturing operations of us or our
collaborators, would have a material adverse effect on our ability to develop
and sell products which would have a negative impact on our cash flow. In
addition, product recalls may be issued at our discretion or by the FDA or other
domestic and foreign government agencies having regulatory authority for
pharmaceutical product sales. Recalls may occur due to disputed labeling claims,
manufacturing issues, quality defects or other reasons. Recalls of
pharmaceutical products marketed by us may occur in the future. Any product
recall could have a material adverse effect on our revenue and cash flow.
FDA Approval Process. We have a variety of products under development,
including line extensions of existing products, reformulations of existing
products and new products. All "new drugs" must be the subject of an
FDA-approved new drug application before they may be marketed in the United
States. All generic equivalents to previously approved drugs or new dosage forms
of existing drugs must be the subject of an FDA-approved abbreviated new drug
application before they may by marketed in the United States. In both cases, the
FDA has the authority to determine what testing procedures are appropriate for a
particular product and, in some instances, has not published or otherwise
identified guidelines as to the appropriate procedures. The FDA has the
authority to withdraw existing new drug application and abbreviated application
approvals and to review the regulatory status of products marketed under the
enforcement policy. The FDA may require an approved new drug application or
abbreviated application for any drug product marketed under the enforcement
policy if new information reveals questions about the drug's safety or
effectiveness. All drugs must be manufactured in conformity with current good
manufacturing practices and drugs subject to an approved new drug application or
abbreviated application must be manufactured, processed, packaged, held and
labeled in accordance with information contained in the new drug application or
abbreviated application.
The required product testing and approval process can take a number of
years and require the expenditure of substantial resources. Testing of any
product under development may not result in a commercially-viable product.
Further, we may decide to modify a product in testing, which could materially
extend the test period and increase the development costs of the product in
question. Even after time and expenses, regulatory approval by the FDA may not
be obtained for any products we develop. In addition, delays or rejections may
be encountered based upon changes in FDA policy during the period of product
development and FDA review. Any regulatory approval may impose limitations in
the indicated use for the product. Even if regulatory approval is obtained, a
marketed product, its manufacturer and its manufacturing facilities are subject
to continual review and periodic inspections. Subsequent discovery of previously
unknown problems with a product, manufacturer or facility may result in
restrictions on the product or manufacturer, including withdrawal of the product
from the market.
Foreign Regulatory Approval. Even if required FDA approval has been
obtained with respect to a product, foreign regulatory approval of a product
must also be obtained prior to marketing the product internationally. Foreign
approval procedures vary from country to country and the time required for
approval may delay or prevent marketing. In certain instances, we or our
collaborative partners may seek approval to market and sell some of our products
outside of the United States before submitting an application for approval to
the FDA. The clinical testing requirements and the time required to obtain
foreign regulatory approvals may differ from that required for FDA approval.
Although there is now a centralized European Union approval mechanism for new
pharmaceutical products in place, each European Union country may nonetheless
impose its own procedures and requirements, many of which are time consuming and
expensive, and some European Union countries require price approval as part of
the regulatory process. Thus, there can be substantial delays in obtaining
required approval from both the FDA and foreign regulatory authorities after the
relevant applications are filed.
Changes in Requirements. The regulatory requirements applicable to any
product may be modified in the future. We cannot determine what effect changes
in regulations or statutes or legal interpretations may have on our business in
the future. Changes could require changes to manufacturing methods, expanded or
different labeling, the recall, replacement or discontinuation of certain
products, additional record keeping and expanded documentation of the properties
of certain products and scientific substantiation. Any changes or new
legislation could have a material adverse effect on our ability to develop and
sell products and, therefore, generate revenue and cash flow.
The products under development by us may not meet all of the applicable
regulatory requirements needed to receive regulatory marketing approval. Even
after we expend substantial resources on research,
7
clinical development and the preparation and processing of regulatory
applications, we may not be able to obtain regulatory approval for any of our
products. Moreover, regulatory approval for marketing a proposed pharmaceutical
product in any jurisdiction may not result in similar approval in other
jurisdictions. Our failure to obtain and maintain regulatory approvals for
products under development would have a material adverse effect on our ability
to develop and sell products and, therefore, generate revenue and cash flow.
We may not be successful in receiving orphan drug status for certain of our
products or, if that status is obtained, fully enjoying the benefits of orphan
drug status.
Under the Orphan Drug Act, the FDA may grant orphan drug designation to
drugs intended to treat a rare disease or condition. A disease or condition that
affects populations of fewer than 200,000 people in the United States generally
constitutes a rare disease or condition. We may not be successful in receiving
orphan drug status for certain of our products. Orphan drug designation must be
requested before submitting a new drug application. After the FDA grants orphan
drug designation, the generic identity of the therapeutic agent and its
potential orphan use are publicized by the FDA. Under current law, orphan drug
status is conferred upon the first company to receive FDA approval to market the
designated drug for the designated indication. Orphan drug status also grants
marketing exclusivity in the United States for a period of seven years following
approval of the new drug application, subject to limitations. Orphan drug
designation does not provide any advantage in, or shorten the duration of, the
FDA regulatory approval process. Although obtaining FDA approval to market a
product with orphan drug status can be advantageous, the scope of protection or
the level of marketing exclusivity that is currently afforded by orphan drug
status and marketing approval may not remain in effect in the future.
Our business strategy involves obtaining orphan drug designation for
certain of the oncology products we have under development. Although Clofarabine
has received orphan drug designation with the FDA and EMEA, we do not know
whether any of our other products will receive an orphan drug designation.
Orphan drug designation does not prevent other manufacturers from attempting to
develop the same drug for the designated indication or from obtaining the
approval of a new drug application for their drug prior to the approval of our
new drug application. If another sponsor's new drug application for the same
drug and the same indication is approved first, that sponsor is entitled to
exclusive marketing rights if that sponsor has received orphan drug designation
for its drug. In that case, the FDA would refrain from approving an application
by us to market our competing product for seven years, subject to limitations.
Competing products may not receive orphan drug designations and FDA marketing
approval before the products under development by us.
New drug application approval of a drug with an orphan drug designation
does not prevent the FDA from approving the same drug for a different
indication, or a molecular variation of the same drug for the same indication.
Because doctors are not restricted by the FDA from prescribing an approved drug
for uses not approved by the FDA, it is also possible that another company's
drug could be prescribed for indications for which products developed by us have
received orphan drug designation and new drug application approval. Prescribing
of approved drugs for unapproved uses, commonly referred to as "off label" use,
could adversely affect the marketing potential of products that have received an
orphan drug designation and new drug application approval. In addition, new drug
application approval of a drug with an orphan drug designation does not provide
any marketing exclusivity in foreign markets.
The possible amendment of the Orphan Drug Act by the United States
Congress has been the subject of frequent discussion. Although no significant
changes to the Orphan Drug Act have been made for a number of years, members of
Congress have from time to time proposed legislation that would limit the
application of the Orphan Drug Act. The precise scope of protection that may be
afforded by orphan drug designation and marketing approval may be subject to
change in the future.
The use of our products may be limited or eliminated by professional guidelines
which would decrease our sales of these products and, therefore, our revenue and
cash flows.
In addition to government agencies, private health/science foundations
and organizations involved in various diseases may also publish guidelines or
recommendations to the healthcare and patient communities. These private
organizations may make recommendations that affect the usage of therapies, drugs
or procedures, including products developed by us. These recommendations may
relate to matters such as usage, dosage, route of administration and use of
concomitant therapies. Recommendations or guidelines that are followed by
patients and healthcare providers and that result in, among other things,
decreased use or elimination of products developed by us could have a material
adverse effect on our revenue and cash flows. For example, if
8
Clofarabine is definitively determined in clinical trials to be an active agent
to treat solid tumor cancer patients, but the required dose is high, private
healthcare/science foundations could recommend various other regimens of
treatment which may from time to time show activity at lower doses.
Generic products which third parties may develop may render our products
noncompetitive or obsolete.
An increase in competition from generic pharmaceutical products could
have a material adverse effect on our ability to generate revenue and cash flow.
For example, many of the indications in which Clofarabine and Modrenal, our
co-lead drugs, have demonstrated activity are areas of unmet clinical need, such
as Clofarabine's application to pediatric acute leukemia in which, initially,
the drug will be used as a salvage therapy after other regimens of treatment
have failed. Our lead investigators who have assisted with the development of
Modrenal envision, initially, that Modrenal would be used as second or third
line therapy, only after patients with advanced post-menopausal breast cancer
receive regimens of timoxifin and faslodex (or similar drug) treatments. If
generic drug companies develop a compound which is more effective than either
Clofarabine or Modrenal, in these areas of unmet clinical need, , or equally as
effective but at lower doses, it could adversely affect our market and/or render
our drugs obsolete.
Because many of our competitors have substantially greater capabilities and
resources, they may be able to develop products before us or develop more
effective products or market them more effectively which would limit our ability
to generate revenue and cash flow.
Competition in our industry is intense. Potential competitors in the
United States and Europe are numerous and include pharmaceutical, chemical and
biotechnology companies, most of which have substantially greater capital
resources, marketing experience, research and development staffs and facilities
than us. Potential competitors for certain indications of our lead drugs
include, with respect to Clofarabine, Schering AG, which markets Fludarabine,
and certain generic drug companies in Europe which could market Fludarabine upon
expiry of the patent protections held by Schering. Potential competitors with
respect to Modrenal include Astra-zeneca and Novartis, which market timoxifen
and other aromitase inhibitors, which could be used by clinicians as first and
second line therapies in patients with hormone sensitive advanced
post-menopausal breast cancer prior to a Modrenal regimen of treatment. No
assurance can be given that the ongoing business activities of our competitors
will not have a material adverse effect on our business prospects and
projections going forward.
Although we seek to limit potential sources of competition by developing
products that are eligible for orphan drug designation and new drug application
approval or other forms of protection, our competitors may develop similar
technologies and products more rapidly than us or market them more effectively.
Competing technologies and products may be more effective than any of those that
are being or will be developed by us. The generic drug industry is intensely
competitive and includes large brand name and multi-source pharmaceutical
companies. Because generic drugs do not have patent protection or any other
market exclusivity, our competitors may introduce competing generic products,
which may be sold at lower prices or with more aggressive marketing. Conversely,
as we introduce branded drugs into our product portfolio, we will face
competition from manufacturers of generic drugs which may claim to offer
equivalent therapeutic benefits at a lower price. The aggressive pricing
activities of our generic competitors could have a material adverse effect on
our revenue and cash flow.
If we fail to keep up with rapid technological change and evolving therapies,
our technologies and products could become less competitive or obsolete.
The pharmaceutical industry is characterized by rapid and significant
technological change. We expect that pharmaceutical technology will continue to
develop rapidly, and our future success will depend on our ability to develop
and maintain a competitive position. Technological development by others may
result in products developed by us, branded or generic, becoming obsolete before
they are marketed or before we recover a significant portion of the development
and commercialization expenses incurred with respect to these products.
Alternative therapies or new medical treatments could alter existing treatment
regimes, and thereby reduce the need for one or more of the products developed
by us, which would adversely affect our revenue and cash flow. See also
"--Generic products which third parties may develop may render our products
noncompetitive or obsolete."
9
We depend on others for clinical testing of our products which could delay our
ability to develop products.
We do not currently have any internal product testing capabilities. Our
inability to retain third parties for the clinical testing of products on
acceptable terms would adversely affect our ability to develop products. Any
failures by third parties to adequately perform their responsibilities may delay
the submission of products for regulatory approval, impair our ability to
deliver products on a timely basis or otherwise impair our competitive position.
Our dependence on third parties for the development of products may adversely
affect our potential profit margins and our ability to develop and deliver
products on a timely basis.
We depend on others to manufacture our products and have not manufactured them
in significant quantities.
We have never manufactured any products in commercial quantities, and
the products being developed by us may not be suitable for commercial
manufacturing in a cost-effective manner. Manufacturers of products developed by
us will be subject to current good manufacturing practices prescribed by the FDA
or other rules and regulations prescribed by foreign regulatory authorities. We
may not be able to enter into or maintain relationships either domestically or
abroad with manufacturers whose facilities and procedures comply or will
continue to comply with current good manufacturing practices or applicable
foreign requirements. Failure by a manufacturer of our products to comply with
current good manufacturing practices or applicable foreign requirements could
result in significant time delays or our inability to commercialize or continue
to market a product and could have a material adverse effect on our sales of
products and, therefore, our cash flow. In the United States, failure to comply
with current good manufacturing practices or other applicable legal requirements
can lead to federal seizure of violative products, injunctive actions brought by
the federal government, and potential criminal and civil liability on the part
of a company and our officers and employees.
We have limited sales and marketing capability, and may not be successful in
selling or marketing our products.
The creation of infrastructure to commercialize oncology products is a
difficult, expensive and time-consuming process. We may not be able to establish
direct or indirect sales and distribution capabilities or be successful in
gaining market acceptance for proprietary products or for other products. We
currently have very limited sales and marketing capabilities. We currently
employ one fulltime sales employee and two fulltime marketing employees. To
market any products directly, we will need to develop a more fulsome marketing
and sales force with technical expertise and distribution capability or contract
with other pharmaceutical and/or health care companies with distribution systems
and direct sales forces. To the extent that we enter into co-promotion or other
licensing arrangements, any revenues to be received by us will be dependent on
the efforts of third parties. The efforts of third parties may not be
successful. Our failure to establish marketing and distribution capabilities or
to enter into marketing and distribution arrangements with third parties could
have a material adverse effect on our revenue and cash flows.
If we lose key management our business will suffer.
We are highly dependent on our Chief Executive Officer to develop our lead drug.
Dr. Wood has an employment agreement with the Company dated December 31, 2002
for an initial term of one year which automatically extends for additional one
year periods until either party gives the other written notice of termination at
least 90 days prior to the end of the current term. Dr. Wood is not near
retirement age and he does not, to our knowledge, plan on leaving the Company in
the near future. Dr. Wood is one of the founders of the company and he is
intimately familiar with the science that underlies our lead drugs and ancillary
technologies. He also maintains a position on the Clofarabine management team
that is responsible for all drug development activities relating to that lead
drug, and has been instrumental in the development and maintenance of our key
relationships within the scientific research and medical communities, and those
with our vendors, inventors, co-development partners and licensors. If Dr. Wood
was no longer employed by the company, the development of our drugs would be
significantly delayed and otherwise would be adversely impacted, and we may be
unable to maintain and develop these important relationships.
Need for additional personnel.
The Company will be required to hire additional qualified scientific and
technical personnel, as well as personnel with expertise in clinical testing and
government regulation to expand our research and development programs and pursue
our product development plans. There is intense competition for qualified
personnel in the areas of the Company's activities, and there can be no
assurance that the Company will be able to attract and
10
retain the qualified personnel necessary for the development of its business.
The Company faces competition for qualified individuals from numerous
pharmaceutical and biotechnology companies, universities and research
institutions. The failure to attract and retain key scientific and technical
personnel would have a material adverse effect on the development of the
Company's business and our ability to develop, market and sell our products.
Our management and internal systems might be inadequate to handle our potential
growth.
Our success will depend in significant part on the expansion of our
operations and the effective management of growth. This growth has and will
continue to place a significant strain on our management and information systems
and resources and operational and financial systems and resources. To manage
future growth, our management must continue to improve our operational and
financial systems and expand, train, retain and manage our employee base. Our
management may not be able to manage our growth effectively. If our systems,
procedures, controls, and resources are inadequate to support our operations,
our expansion would be halted or delayed and we could lose our opportunity to
gain significant market share or the timing with which we would otherwise gain
significant market share. Any inability to manage growth effectively may harm
our ability to institute our business plan. The strain on our systems,
procedures, controls and resources is further heightened by the fact that our
executive office and operational development facilities are located in separate
time zones (New York and Edinburgh, Scotland, respectively).
We depend on patent and proprietary rights to develop and protect our
technologies and products, which rights may not offer us sufficient protection.
The pharmaceutical industry places considerable importance on obtaining
patent and trade secret protection for new technologies, products and processes.
Our success will depend on our ability to obtain and enforce protection for
products that we develop under United States and foreign patent laws and other
intellectual property laws, preserve the confidentiality of our trade secrets
and operate without infringing the proprietary rights of third parties. Through
our current license agreements, we have acquired the right to utilize the
technology covered by issued patents and patent applications, as well as
additional intellectual property and know-how that could be the subject of
further patent applications in the future. Several of the original patents to
trilostane have expired in the United States and foreign countries. Thus, we and
our licensors are pursuing patent applications to specific uses, combination
therapy and dosages or formulations of trilostane. We cannot guarantee that such
applications will result in issued patents or that such patents if issued will
provide adequate protection against competitors. Patents may not be issued from
these applications and issued patents may not give us adequate protection or a
competitive advantage. Issued patents may be challenged, invalidated, infringed
or circumvented, and any rights granted thereunder may not provide us with
competitive advantages. Parties not affiliated with us have obtained or may
obtain United States or foreign patents or possess or may possess proprietary
rights relating to products being developed or to be developed by us. Patents
now in existence or hereafter issued to others may adversely affect the
development or commercialization of products developed or to be developed by us.
Our planned activities may infringe patents owned by others. Our patents to
Clofarabine are licensed from Southern Research Institute. The current projected
expiration date of the license is March 2021. These patents cover pharmaceutical
compositions and methods of using Clofarabine. We cannot guarantee that these
patents would survive an attack on their validity or that they will provide a
competitive advantage over our competitors. Moreover, we cannot guarantee that
Southern Research Institute was the first to invent the subject matter of these
patents. In addition, we are aware of a third party patent which is directed to
the treatment of chronic myelogenous leukemia ("CML") using specific doses of
Clofarabine. We do not believe that we will infringe this patent. If this patent
is asserted against us, even though we may be successful in defending against
such an assertion, our defense would require substantial financial and human
resources. And, we may need a license to this patent to use the claimed dose in
the treatment of CML. However, we do not know if such a license is available at
commercially reasonable terms, if at all.
We could incur substantial costs in defending infringement suits brought
against us or any of our licensors or in asserting any infringement claims that
we may have against others. We could also incur substantial costs in connection
with any suits relating to matters for which we have agreed to indemnify our
licensors or distributors. An adverse outcome in any litigation could have a
material adverse effect on our ability to sell products or use patents in the
future. In addition, we could be required to obtain licenses under patents or
other proprietary rights of third parties. These licenses may not be made
available on terms acceptable to us, or at all. If we are required to, and do
not obtain any required licenses, we could be prevented from, or encounter
delays in, developing, manufacturing or marketing one or more products.
11
We also rely upon trade secret protection for our confidential and
proprietary information. Others may independently develop substantially
equivalent proprietary information and techniques or gain access to our trade
secrets or disclose our technology. We may not be able to meaningfully protect
our trade secrets which could limit our ability to exclusively produce products.
We require our employees, consultants, members of the scientific
advisory board and parties to collaborative agreements to execute
confidentiality agreements upon the commencement of employment or consulting
relationships or a collaboration with us. These agreements may not provide
meaningful protection of our trade secrets or adequate remedies in the event of
unauthorized use or disclosure of confidential and proprietary information.
Because we have international operations, we will be subject to risks of
conducting business in foreign countries.
We have the right to manufacture, market and distribute our lead drugs,
Clofarabine and Modrenal, in territories outside of the United States.
Specifically, we currently market Modrenal in the United Kingdom and upon
receiving European approval for Clofarabine, we intend to market the drug
throughout Europe. Further, half of our employees are employed by Bioenvision
Limited, our wholly-owned subsidiary with offices in Edinburgh, Scotland.
Because we have international operations in the conduct of our business,
we are subject to the risks of conducting business in foreign countries,
including:
o difficulty in establishing or managing distribution relationships;
o different standards for the development, use, packaging, pricing and
marketing of our products and technologies;
o our inability to locate qualified local employees, partners,
distributors and suppliers;
o the potential burden of complying with a variety of foreign laws, trade
standards and regulatory requirements, including the regulation of
pharmaceutical products and treatment; and
o general geopolitical risks, such as political and economic instability,
changes in diplomatic and trade relations, and foreign currency risks.
We do not engage in forward currency transactions which means we are susceptible
to fluctuations in the U.S. dollar against foreign currencies such as the pound
sterling. Accordingly, as the value of the dollar becomes weaker against the
pound sterling, ongoing services provided by our UK employees, Cancer Research
Organizations and other service providers become more expensive to us. No
assurance can be given that the U.S. dollar will not continue to weaken which
could have a material adverse effect on the costs associated with our drug
development activities.
We will have future capital needs and we may not be able to secure additional
financing which could affect our ability to operate as a going concern.
We consummated a private placement transaction on March 22, 2004,
pursuant to which we raised $12.8 million and issued 2,044,514 shares of our
common stock and warrants to purchase an additional 408,903 shares of our common
stock at a conversion price of $7.50 per share. We consummated a second closing
for this financing on May 13, 2004 in order to comply with certain contractual
obligations of the Company to its holders of Series A Preferred Stock which hold
preemptive rights for equity offerings of the Company. The Company raised an
additional $3.5 million in the second trance closing and issued an additional
558,384 shares of our common stock and warrants to purchase 111,677 shares of
our common stock at a conversion price of $7.50 per share. However, we may need
additional financing to continue to fund the research and development of our
products and to generally expand and grow our business. For example, we will
need to employ a European sales force within the next twelve months to
capitalize on the commercial potential for Clofarabine and Modrenal if and to
the extent our lead drugs are at market in Europe in the first half of 2005. To
the extent that we will be required to fund operating losses, our financial
position would deteriorate. There can be no assurance that we will be able to
find significant additional financing at all or on terms favorable to us. If
equity securities are issued in connection with a financing, dilution to our
stockholders may result, and if additional funds are raised through the
incurrence of debt, we may be subject to restrictions on our operations and
finances. Furthermore, if we do incur additional debt, we may be limiting our
ability to repurchase capital stock, engage
12
in mergers, consolidations, acquisitions and asset sales, or alter our lines of
business or accounting methods, even though these actions would otherwise
benefit our business. As of March 31, 2004, we had stockholders' equity of
$26,743,344 and net working capital of $17,197,041.
If adequate financing is not available, we may be required to delay,
scale back or eliminate some of our research and development programs, to
relinquish rights to certain technologies or products, or to license third
parties to commercialize technologies or products that we would otherwise seek
to develop. Any inability to obtain additional financing, if required, would
have a material adverse effect on our ability to continue our operations and
implement our business plan.
The prices we charge for our products and the level of third-party reimbursement
may decrease and our revenues could decrease.
Our ability to commercialize products successfully depends in part on
the price we may be able to charge for our products and on the extent to which
reimbursement for the cost of our products and related treatment will be
available from government health administration authorities, private health
insurers and other third-party payors. Government officials and private health
insurers are increasingly challenging the price of medical products and
services. Significant uncertainty exists as to the pricing flexibility
distributors will have with respect to, and the reimbursement status of, newly
approved health care products.
Third-party payors may attempt to control costs further by selecting
exclusive providers of their pharmaceutical products. If third-party payors were
to make this type of arrangement with one or more of our competitors, they would
not reimburse patients for purchasing our competing products. For example, if a
third-party payor in the U.K. were to pay patients for regimens of aromitase
inhibitor treatment but not treatments of Modrenal, this would cause sales of
Modrenal to decline. This lack of reimbursement would diminish the market for
products developed by us and could have a material adverse effect on us.
Our products may be subject to recall.
Product recalls may be issued at our discretion or by the FDA, the FTC
or other government agencies having regulatory authority for product sales.
Product recalls, if any in the future, may harm our reputation and cause us to
lose development opportunities, or customers or pay refunds. Products may need
to be recalled due to disputed labeling claims, manufacturing issues, quality
defects, or other reasons. We do not carry any insurance to cover the risk of
potential product recall. Any product recall could have a material adverse
effect on us, our prospects, our financial condition and results of operations.
We may face exposure from product liability claims and product liability
insurance may not be sufficient to cover the costs of our liability claims
related to technologies or products.
We face exposure to product liability claims if the use of our
technologies or products or those we license from third parties is alleged to
have resulted in adverse effects to users thereof. Product liability claims may
be brought by trial participants, although to date, no such claims have been
brought against us. If any such claims were brought against us, the cost of
defending such claims could be significant and may adversely affect our
business. Regulatory approval for commercial sale of our products does not
mitigate product liability risks. Any precautions we take may not be sufficient
to avoid significant product liability exposure. Although we have obtained
product liability insurance on our technologies and products at levels with
which management deems reasonable, no assurance can be given that this insurance
will cover any particular claim or that we have obtained an appropriate level of
liability insurance coverage for our development and marketing activities. We
currently maintain three million dollars per year, claims made product liability
insurance coverage which we believe is adequate. Existing coverage may not be
adequate as we further develop our products. In the future, adequate insurance
coverage or indemnification by collaborative partners may not be available in
sufficient amounts, or at acceptable costs, if at all. To the extent that
product liability insurance, if available, does not cover potential claims, we
will be required to self-insure the risks associated with those claims. The
successful assertion of any uninsured product liability or other claim against
us could limit our ability to sell our products or could cause monetary damages.
In addition, future product labeling may include disclosure of additional
adverse effects, precautions and contra indications, which may adversely impact
product sales. The pharmaceutical industry has experienced increasing difficulty
in maintaining product liability insurance coverage at reasonable levels, and
substantial increases in insurance premium costs in many cases have rendered
coverage economically impractical.
13
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
We have made statements under the captions "Risk Factors," and in other
sections of this prospectus that are forward-looking statements. In some cases,
you can identify these statements by forward-looking words such as "may,"
"might," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential" or "continue," the negative of these terms
and other comparable terminology. These forward-looking statements which are
subject to risks, uncertainties and assumptions about us, may include
projections of our future financial performance, or anticipated growth
strategies and anticipated trends in our business. These statements are only
predictions based on our current expectations and projections about future
events. There are important factors that could cause our actual results, level
of activity, performance or achievements to differ materially from the results,
level of activity, performance or achievements expressed or implied by the
forward-looking statements, including those factors discussed under the section
entitled "Risk Factors." You should specifically consider the numerous risks
outlined under "Risk Factors." Although we believe the expectations reflected in
the forward-looking statements are reasonable, we cannot guarantee future
results, levels of activity, performance or achievements. Moreover, neither we
nor any other person assumes responsibility for the accuracy and completeness or
any of these forward-looking statements.
USE OF PROCEEDS
The selling stockholders will receive the proceeds from the resale of
the shares of common stock. We will not receive any proceeds from the resale of
the shares of common stock by the selling stockholders. We may receive
consideration upon the exercise of options and we will receive consideration
upon the conversion of warrants which we will use for general corporate
purposes.
Expenses we are expected to incur in connection with this registration
are estimated at approximately $150,000. The selling stockholders will pay all
of their underwriting commissions and discounts and counsel fees and expenses in
connection with the resale of the shares covered by this prospectus.
DESCRIPTION OF SECURITIES
Description of Common Stock
Number of Authorized and Outstanding Shares. Our Certificate of
Incorporation authorizes the issuance of 50,000,000 shares of common stock,
$.001 par value per share, of which 26,002,829 shares were outstanding on May
13, 2004. All of the outstanding shares of common stock are fully paid and
non-assessable.
Voting Rights. Holders of shares of common stock are entitled to one
vote for each share on all matters to be voted on by the stockholders. Holders
of common stock have no cumulative voting rights. Accordingly, the holders of a
simple majority of the outstanding common stock and Series A convertible
preferred stock, voting together as a class at a stockholders meeting at which a
quorum is present, can elect all of the directors nominated for election at the
meeting.
Other. Holders of common stock have no preemptive rights to purchase our
common stock. There are no conversion rights or redemption or sinking fund
provisions with respect to the common stock.
Transfer Agent. Shares of common stock are registered at the transfer
agent and are transferable at such office by the registered holder (or duly
authorized attorney) upon surrender of the common stock certificate, properly
endorsed. No transfer shall be registered unless we are satisfied that such
transfer will not result in a violation of any applicable federal or state
securities laws. The transfer agent for our common stock is Liberty Transfer
Company, 274B New York Avenue, Huntington, New York 11743, Attention: Ms. Lisa
Conger.
Description of Preferred Stock
Number of Authorized Shares. Our certificate of incorporation authorizes
the issuance of up to 10,000,000 shares of preferred stock, par value $.001 per
share, in one or more series with such limitations and restrictions as may be
determined in the sole discretion of our board of directors, with no further
authorization by stockholders required for the creation and issuance thereof.
14
We have designated 5,920,000 shares of our preferred stock as Series A
convertible preferred stock, of which 4,373,333 shares were issued and
outstanding as of May 18, 2004. The holders of the Series A convertible
preferred stock vote as a single class with the common stock, on an as-converted
basis, on all matters upon which the holders of the common stock are entitled to
vote. Each outstanding share of Series A convertible preferred stock may
currently be converted into two shares of common stock, at the conversion price
of $1.50 per share. The shares of Series A convertible preferred stock shall be
automatically convertible into shares of common stock if the market price of the
common stock after one year from the date of issuance is $10.00 or more for 30
consecutive trading days and the trading volume is at least 150,000 shares per
trading day during such 30-day period. Holders of Series A convertible preferred
stock have a liquidation preference over holders of common stock of $3.00 per
share. Holders of the Series A convertible preferred stock are entitled to an
annual 5% dividend which may be paid in cash or additional shares of common
stock in our sole discretion.
Warrants
As of May 18, 2004, there were outstanding warrants to purchase an
aggregate of 9,329,242 shares of our common stock, exercisable at prices ranging
from $1.25 to $7.50 per share. The weighted average exercise price of the
warrants is $2.51.
Stock Options
As of May 18, 2004, there were outstanding options to purchase an
aggregate of 4,405,000 shares of our common stock, exercisable at prices ranging
from $0.735 to $3.53 per share, of which, options to purchase 3,103,334 shares
were exercisable. The weighted average exercise price of the options is $1.64.
15
SELLING STOCKHOLDERS
As discussed elsewhere in this prospectus, the selling stockholders are
individuals or entities who or which either hold shares of our common stock or
may acquire the same upon the conversion of preferred shares or upon the
exercise of certain options or warrants and, as discussed under the caption
"Plan of Distribution" below, may include certain of their pledgees, donees,
transferees or other successors-in-interest who receive shares as a gift,
pledge, partnership distribution or other non-sale related transfer. The
following table sets forth, as of the date of this prospectus:
the name of each selling stockholder;
the number of shares of common stock beneficially owned by each selling
stockholder;
the number of shares of common stock that may be sold in this offering;
and
the number and percentage of shares of common stock that will be
beneficially owned by each selling stockholder following the offering to
which this prospectus relates.
The information with respect to ownership after the offering assumes the
sale of all of the shares offered and no purchases of additional shares. The
selling stockholders may offer all or part of the shares covered by this
prospectus at any time or from time to time.
For purposes of the table below, the number of shares "beneficially
owned" are those beneficially owned as determined under the rules of the SEC.
Such information is not necessarily indicative of beneficial ownership for any
other purpose. Under such rules, beneficial ownership includes any shares as to
which a person has sole or shared voting power or investment power and any
shares for which the person has the right to acquire such power within 60 days
through the exercise of any option, warrant or right, through conversion of any
security or pursuant to the automatic termination of a power of attorney or
revocation of a trust, discretionary account or similar arrangement. Percentages
in the table below are based on 26,002,829 shares of our common stock
outstanding as of May 18, 2004.
Shares Shares
Owned Prior to Owned After
the Offering the Offering
------------ Number of Shares ------------
which may be Sold
Name Number Percent in This Offering Number Percent
------ ------- ---------------- ------ -------
Perseus-Soros
BioPharmaceuticalFund, LP (1) 9,450,053 26.94% 9,450,053 -- --
Caduceus Private Investments,
LP(2) 2,110,410 7.53% 2,110,410 -- --
OrbiMed Associates LLC (2) 43,928 * 43,928 -- --
PW Juniper Crossover Fund,
L.L.C.(2) 995,698 3.69% 995,698 -- --
Special Situations Private
Equity Fund, L.P. (3) 250,000 * 250,000 -- --
Xmark Fund, L.P. (4) 144,999 * 144,999 -- --
Xmark Fund, Ltd. (5) 354,999 1.35% 354,999 -- --
SDS Merchant Fund, LP (6) 380,001 1.44% 380,001 -- --
Orion Biomedical Offshore
Fund, LP (7) 133,875 * 133,875 -- --
Orion Biomedical Fund, LP (8) 616,125 2.31% 616,125 -- --
Beaver Ltd. (9) 75,000 * 75,000 -- --
CKH Invest Aps. (10) 50,001 * 50,001 -- --
Merlin Biomed Private Equity
Fund LP (11) 1,025,617 3.80% 1,025,617 -- --
Alexandra Global Master
Fund, ltd.(12) 310,666 1.19% 310,666 -- --
DWS Investment GmbH (13) 1,360,600 4.98% 1,360,600 -- --
Michael Sistenich (14) 125,001 * 125,001 -- --
Global Biotechnology Fund (15) 209,369 * 209,369 -- --
Oklahoma Medical Research
Foundation (16) 300,000 1.14% 300,000 -- --
Christopher B. Wood (17) 3,805,258 14.00% 3,638,592 166,666 *
Julie Wood (17) 318,750 1.23% 318,750 -- --
Stuart Smith (18) 700,000 2.64% 700,000 -- --
Thomas Nelson (19) 287,523 1.10% 287,523 -- --
Kevin Leech (20) 1,900,000 7.17% 500,000 1,400,000 5.38%
Bioaccelerate, Inc. (21) 1,227,272 4.63% 500,000 727,272 2.80%
Sterling Securities Ltd. (21) 74,045 * 74,045 -- --
Carpe DM, Inc. (21) 59,058 * 59,058 -- --
16
Michelle Tidball (21) 254,114 * 254,114 -- --
Weil Consulting
Corporation (21) 75,000 * 75,000 -- --
Kingsley Securities Ltd. (21) 124,544 * 124,544 -- --
Fontenelle LLC (21) 50,000 * 50,000 -- --
Jano Holdings, Ltd. (22) 250,000 * 250,000 -- --
George Margetts (23) 100,000 * 100,000 -- --
Nagy Habib (24) 50,000 * 50,000 -- --
NAB Holdings Ltd. (21) (25) 478,247 1.83% 478,247 -- --
SCO Capital Partners LLC
(26), (28) 7,009,946 26.86% 7,009,946 -- --
SCO Financial Group LLC
(26), (28) 100,000 * 100,000 -- --
SCO Securities LLC (26), (28) 260,291 * 260,291
Daniel DiPietro (30) 50,000 * 50,000 -- --
Jeremy Kaplan 10,000 * 10,000 -- --
Joshua Golumb 10,000 * 10,000 -- --
The Sophie C. Rouhandeh
Trust(26) 150,000 * 150,000 -- --
The Chloe H. Rouhandeh
Trust (26) 150,000 * 150,000 -- --
Jeffrey B. Davis (27),
(28), (30) 749,243 2.85% 749,243 -- --
David Berstein (28) 269,200 1.04% 269,200 -- --
Eugene Zurlo (28) 282,900 1.09% 282,900 -- --
Robert J. Donohoe (28) 282,400 1.09% 282,400 -- --
Al-Midani Investment Company
Limited (28) 14,629 * 14,629 -- --
Community Investment
Partners (28) 2,560 * 2,560 -- --
Oakwood Investors I, LLC (28) 10,240 * 10,240 -- --
Gutrafin, Ltd. (28) 14,629 * 14,629 -- --
Edward W. Kelly (28), (29) 356,013 1.37% 356,013 -- --
RRD International, Inc. (31) 175,000 * 175,000 -- --
RLB Capital, Inc. (32) 100,000 * 100,000 -- --
Stamford Capital (33) 60,000 * 60,000 -- --
Palladin Opportunity Fund LLC 13,632 * 13,632 -- --
SDS Capital Group SPC,
Ltd. (34) 159,802 * 159,802 -- --
Baystar Capital II, L.P. (35) 60,000 * 60,000 -- --
North Sound Legacy Fund,
LLC (36) 1,440 * 1,440 -- --
North Sound Legacy
Institutional Fund, LLC (37) 15,840 * 15,840 -- --
North Sound Legacy
International Fund, LLC (38) 30,720 * 30,720 -- --
Vertical Ventures, LLC (39) 115,200 * 115,200 -- --
Iroquois Capital LP (40) 76,800 * 76,800 -- --
Alpha Capital AG (41) 96,000 * 96,000 -- --
Merlin Nexus I (42) 48,000 * 48,000 -- --
Millenium Partners LP (43) 120,000 * 120,000 -- --
Jennison Associates LLC (44) 288,000 1.11% 288,000 -- --
BioPharmaceutical
Portfolio (45) 30,240 * 30,240 -- --
MP BioPharmaceutical
Partners, L.P. (46) 16,680 * 16,680 -- --
MP BioPharmaceutical
Fund Ltd. (47) 68,880 * 68,880 -- --
MP BioPharm Market-
Neutral, L.P. (48) 4,200 * 4,200 -- --
Silveroak Invenstments,
Inc. (49) 48,000 * 48,000 -- --
SF Capital Partners Ltd. (50) 288,000 1.11% 288,000 -- --
Perceptive Lifesciences
Master Fund, Ltd. (51) 216,000 * 216,000 -- --
Cranshire Capital, L.P. (52) 48,000 * 48,000 -- --
Quogue Capital LLC (53) 84,000 * 84,000 -- --
Meditor Master Curra Fund
Limited (54) 192,000 * 192,000 -- --
Atlas Equity I, Ltd. (55) 120,000 * 120,000 -- --
Steve Oliviera (56) 24,000 * 24,000 -- --
SRG Capital LLC (57) 24,000 * 24,000 -- --
StoneStreet LP (58) 60,000 * 60,000 -- --
DKR Soundshore Oasis Holding
Company, Ltd. (59) 48,000 * 48,000 -- --
Total 40,044,638 37,750,700 2,293,938
* Represents less than 1% of our outstanding shares of common stock.
(1) Includes 3,000,000 shares of Series A Preferred Stock currently
convertible into 6,000,000 shares of common stock at a conversion
price of $1.50 and a warrant to purchase 3,000,000 shares of
common stock exercisable at $2.00 per share for five years from
May 8, 2002. Also includes 375,044 common shares and a warrant to
purchase 75,009 shares of common stock exercisable at $7.50 for
five years from May 13, 2004. Based upon information contained in
its report on Schedule 13D filed with the Commission on May 20,
2002 and amended on January 8, 2003, Perseus-Soros
BioPharmaceutical Fund, L.P. reported that Perseus-Soros
BioPharmaceutical Fund, L.P. and Perseus-Soros Partners may be
deemed to have sole power to direct the voting and disposition of
the 9,000,000 shares of common stock. By virtue of the
relationships between and among Perseus-Soros BioPharmaceutical
Fund, L.P., Perseus-Soros Partners, LLC, Perseus BioTech Fund
Partners, LLC, SFM Participation, L.P., SFM AH, LLC, Frank H.
Pearl, George Soros, Soros Fund Management LLC, Perseus EC, LLC,
Perseuspur, LLC, each of such Perseus entities, other than
Perseus-Soros BioPharmaceutical Fund, L.P. and Perseus-Soros
Partners, may be deemed to share the power to direct the voting
and disposition of the
17
9,000,000 shares of common stock. After the company's May 2002
financing, Perseus-Soros named two individuals to the company's
board of directors.
(2) Includes 669,964 shares of Series A Preferred Stock currently
convertible into 1,339,928 shares of common stock at a conversion
price of $1.50, a warrant to purchase 669,964 shares of common
stock exercisable at $2.00 per share for five years from May 16,
2002, 83,765 common shares and a warrant to purchase 16,753
shares of common stock exercisable at $7.50 for five years from
May 13, 2004 all of which are held by Caduceus Private
Investments, LP; 13,945 shares of Series A Preferred Stock
currently convertible into 27,980 shares of common stock at a
conversion price of $1.50, a warrant to purchase 13,945 shares of
common stock exercisable at $2.00 per share for five years from
May 16, 2002, 1,744 common shares and a warrant to purchase 349
shares of common stock exercisable at $7.50 for five years from
May 13, 2004, all of which are held by OrbiMed Associates LLC;
and 316,091 shares of Series A Preferred Stock currently
convertible into 632,182 shares of common stock at a conversion
price of $1.50, a warrant to purchase 316,091 shares of common
stock exercisable at $2.00 per share for five years from May 16,
2002, 39,521 common shares and a warrant to purchase 7,904 shares
of common stock exercisable at $7.50 for five years from May 13,
2004, all of which are held by PW Juniper Crossover Fund, L.L.C.
Based upon information contained in its report on Schedule 13G
filed with the Commission on June 21, 2002, OrbiMed Advisors
Inc., OrbiMed Advisors LLC, OrbiMed Capital LLC and Samuel D.
Isaly reported that they share the power to direct the voting and
disposition of the shares of common stock.
(3) Warrant to purchase 250,000 shares of common stock exercisable at
$2.00 per share for five years from May 8, 2002.
(4) Includes 48,333 shares of Series A Preferred Stock currently
convertible into 96,666 shares of common stock at a conversion
price of $1.50 and a warrant to purchase 48,333 shares of common
stock exercisable at $2.00 per share for five years from May 8,
2002.
(5) Includes 118,333 shares of Series A Preferred Stock currently
convertible into 236,666 shares of common stock at a conversion
price of $1.50 and a warrant to purchase 118,333 shares of common
stock exercisable at $3.00 per share for five years from May 8,
2002.
(6) Includes 106,667 shares of Series A Preferred Stock currently
convertible into 213,334 shares of common stock at a conversion
price of $1.50 and a warrant to purchase 166,667 shares of common
stock exercisable at $2.00 per share for five years from May 8,
2002.
(7) Includes 44,625 shares of Series A Preferred Stock currently
convertible into 89,250 shares of common stock at a conversion
price of $1.50 and a warrant to purchase 44,625 shares of common
stock exercisable at $2.00 per share for five years from May 8,
2002.
(8) Includes 205,375 shares of Series A Preferred Stock currently
convertible into 410,750 shares of common stock at a conversion
price of $1.50 and a warrant to purchase 205,375 shares of common
stock exercisable at $2.00 per share for five years from May 8,
2002.
(9) Includes 25,000 shares of Series A Preferred Stock currently
convertible into 50,000 shares of common stock at a conversion
price of $1.50 and a warrant to purchase 25,000 shares of common
stock exercisable at $2.00 per share for five years from May 16,
2002.
(10) Includes 16,667 shares of Series A Preferred Stock currently
convertible into 33,334 shares of common stock at a conversion
price of $1.50 and a warrant to purchase 16,667 shares of common
stock exercisable at $2.00 per share for five years from May 14,
2002.
(11) Includes 333,334 shares of Series A Preferred Stock currently
convertible into 666,668 shares of common stock at a conversion
price of $1.50; warrant to purchase 333,334 shares of common
stock exercisable at $2.00 per share for five years from March
22, 2002; 21,346 shares of common stock and a warrant to purchase
4,269 shares of common stock at $7.50 per share for five years
from March 22, 2004. Based upon information contained in its
report on Schedule 13G filed with the Commission on June 28,
2002, Merlin BioMed Private Equity Fund, L.P. reported that it
shares the power to direct the voting and disposition of its
shares of common stock with Merlin BioMed Private Equity, LLC,
its general partner and Dominique Semon, who is the sole managing
member of the general partner.
18
(12) Includes 120,000 common shares; a warrant to purchase 166,666
shares of common stock exercisable at $2.00 per share for five
years from May 8, 2002; and a warrant to purchase 24,000 shares
of common stock exercisable at $7.50 per share for five years
from March 22, 2004.
(13) Includes 433,333 shares of Series A Preferred Stock currently
convertible into 866,666 shares of common stock at a conversion
price of $1.50, a warrant to purchase 433,333 shares of common
stock exercisable at $2.00 per share for five years from May 14,
2002, 50,501 common shares and a warrant to purchase 10,100
shares of common stock exercisable at $7.50 for five years from
May 13, 2004. Deutsche Bank AG has sole voting and investment
power with respect to these shares.
(14) Includes 41,667 shares of Series A Preferred Stock currently
convertible into 83,334 shares of common stock at a conversion
price of $1.50 and a warrant to purchase 41,667 shares of common
stock exercisable at $2.00 per share for five years from May 16,
2002.
(15) Includes 66,666 shares of Series A Preferred Stock currently
convertible into 133,332 shares of common stock at a conversion
price of $1.50 and a warrant to purchase 66,666 shares of common
stock exercisable at $2.00 per share for five years from May 14,
2002. Also includes 7,809 common shares and a warrant to purchase
1,562 shares of common stock exercisable at $7.50 for five years
from May 12, 2004.
(16) Under the terms of an amendment to a license agreement with
Oklahoma Medical Research Foundation, we issued 200,000 shares of
common stock, 100,000 of which were sold in October 2003, and a
five-year warrant to purchase an additional 200,000 shares of
common stock. Such warrant to purchase 200,000 shares of common
stock is exercisable at $2.33 per share for five years from May
14, 2002.
(17) Dr. Wood is Chairman and Chief Executive Officer of the Company.
Excludes 318,750 shares of common stock owned by Julie Wood, Dr.
Wood's spouse, as to which Dr. Wood disclaims any beneficial
interest, and 166,666 options which are exercisable at $1.45 per
share from December 31, 2003.
(18) Includes options to acquire 500,000 shares of the common stock
which are exercisable at $1.25 per share for five years from
April 30, 2001.
(19) Includes options to acquire 200,000 shares of the common stock
which are exercisable at $1.25 per share for five years from
April 30, 2001.
(20) These shares are owned of record by Phoenix Ventures Limited, a
Channel Islands (Jersey) corporation, which, to our knowledge, is
wholly-owned by Kevin Leech. These shares include 500,000 options
which are exercisable at $1.25 per share for the benefit of
Phoenix.
(21) Bioaccelerate, Inc. is a BVI corporation, owned of record by
several private investors and includes options to acquire 500,000
shares of the common stock which are exercisable at $1.25 per
share for five years from April 30, 2001. On October 8, 2003,
certain options originally issued to Bioaccelerate, Inc. were
transferred as follows:
(i) NAB Holdings Ltd. received options to purchase 500,000
shares of common stock, 350,000 of which were transferred
to Michelle Tidball on December 9, 2003;
(ii) Sterling Securities Ltd. received options to purchase
100,000 shares of common stock;
(iii) Carpe DM, Inc. received options to purchase 80,000 shares
of common stock;
(iv) Michelle Tidball received options to purchase 100,000
shares of common stock;
(v) Kingsley Securities Ltd. received options to purchase
124,544 shares of common stock; and
(vi) Fontenelle LLC received options to purchase 50,000 shares
of common stock, which it exercised in November 2003 for
50,000 shares of common stock.
19
Further, on November 25, 2003, the following recipients of such
options executed a cashless exercise of such options and received
the following shares of the Company's common stock:
(i) Sterling Securities Ltd. received 74,045 shares of common
stock;
(ii) Carpe DM, Inc. received 59,058 shares of common stock; and
(iii) Michelle Tidball received 73,811 shares of common stock. On
December 16, 2003, Ms. Tidball executed a cashless exercise
of 350,000 options transferred to her by NAB Holdings Inc.
and received 255,303 shares of the Company's common stock,
which includes 75,000 shares issued to Weil Consulting
Corporation.
Barbara Platts, in her capacity as Managing Director of
Bioaccelerate, Inc., has investment power and voting power with
respect to these shares, but disclaims any beneficial ownership
thereof.
(22) Includes an option to purchase 250,000 shares of common stock
exercisable at $1.25 per share for five years from August 8,
2001.
(23) Includes an option to purchase 100,000 shares of common stock
exercisable at $1.25 per share for five years from April 30,
2001.
(24) Includes an option to purchase 50,000 shares of common stock
exercisable at $1.25 per share for five years from April 30,
2001.
(25) Includes an option to purchase 450,000 shares of common stock
exercisable at $1.25 per share for five years from April 30,
2001. On December 16, 2003, NAB Holdings Ltd. exercised these
options and received 328,247 shares of common stock pursuant to a
cashless exercise.
(26) Includes a warrant to purchase 100,000 shares of common stock
exercisable at $1.25 per share issued to SCO Financial Group LLC
for five years from November 16, 2001. Excludes a warrant to
purchase 70,000 shares of common stock exercisable at $1.50 per
share for five years from May 8, 2002 originally held by SCO
Financial Group LLC but transferred to (i) Daniel DiPietro
(50,000); (ii) Jeremy Kaplan (10,000); and (iii) Joshua Golumb
(10,000). SCO Financial Group LLC serves as financial advisor to
the company. SCO Capital Partners LLC extended a $1 million
secured credit line to the company in November 2001. SCO
Securities LLC, a related entity, served as placement agent in
the company's May 2002 private placement of Series A Preferred
Stock. SCO Securities LLC also acted as placement agent for the
company's March 2004 private placement of common stock and
received a warrant to purchase 204,452 shares of common stock
exercisable at $6.25 for five years from March 22, 2004 and a
warrant to purchase 55,839 shares of common stock exercisable at
$6.25 for five years from May 13, 2004. After the Pathagon
acquisition, SCO Financial Group named one individual to the
company's board of directors.
(27) Includes a warrant to purchase 250,000 shares of common stock
exercisable at $1.50 per share for five years from May 8, 2002.
Mr. Davis is the President of SCO Financial Group LLC, an
affiliate of SCO Capital Partners LLC. Mr. Davis disclaims
beneficial ownership of all shares of common stock deemed
beneficially owned by SCO Capital Partners LLC.
(28) Indicates the selling stockholder was a former stockholder of
Pathagon.
(29) Mr. Kelly has executed a consulting agreement with us pursuant to
which we issued to him 200,000 shares of common stock which
vested over an eighteen month period.
(30) Indicates the selling stockholder is a current employee of SCO
Financial Group LLC.
(31) Warrant to purchase 175,000 shares of common stock exercisable at
$2.00 per share for three years from April 2, 2003.
(32) Warrant to purchase 100,000 shares of common stock exercisable at
$1.25 per share for three years from February 23, 2004.
20
(33) Warrant to purchase 60,000 shares of common stock exercisable at
$2.00 per share for three years from February 23, 2004.
(34) Includes 133,168 shares of common stock and warrant to purchase
26,634 shares of common stock exercisable at $7.50 per share for
five years from March 22, 2004.
(35) Includes 50,000 shares of common stock and warrant to purchase
10,000 shares of common stock exercisable at $7.50 per share for
five years from March 22, 2004.
(36) Includes 1,200 shares of common stock and warrant to purchase 240
shares of common stock exercisable at $7.50 per share for five
years from March 22, 2004.
(37) Includes 13,200 shares of common stock and warrant to purchase
2,640 shares of common stock exercisable at $7.50 per share for
five years from March 22, 2004.
(38) Includes 25,600 shares of common stock and warrant to purchase
5,120 shares of common stock exercisable at $7.50 per share for
five years from March 22, 2004.
(39) Includes 96,000 shares of common stock and warrant to purchase
19,200 shares of common stock exercisable at $7.50 per share for
five years from March 22, 2004.
(40) Includes 64,000 shares of common stock and warrant to purchase
12,800 shares of common stock exercisable at $7.50 per share for
five years from March 22, 2004.
(41) Includes 80,000 shares of common stock and warrant to purchase
16,000 shares of common stock exercisable at $7.50 per share for
five years from March 22, 2004.
(42) Includes 40,000 shares of common stock and warrant to purchase
8,000 shares of common stock exercisable at $7.50 per share for
five years from March 22, 2004.
(43) Includes 100,000 shares of common stock and warrant to purchase
20,000 shares of common stock exercisable at $7.50 per share for
five years from March 22, 2004.
(44) Includes 240,000 shares of common stock and warrant to purchase
48,000 shares of common stock exercisable at $7.50 per share for
five years from March 22, 2004.
(45) Includes 25,200 shares of common stock and warrant to purchase
5,040 shares of common stock exercisable at $7.50 per share for
five years from March 22, 2004.
(46) Includes 13,900 shares of common stock and warrant to purchase
2,780 shares of common stock exercisable at $7.50 per share for
five years from March 22, 2004.
(47) Includes 57,400 shares of common stock and warrant to purchase
11,480 shares of common stock exercisable at $7.50 per share for
five years from March 22, 2004.
(48) Includes 3,500 shares of common stock and warrant to purchase 700
shares of common stock exercisable at $7.50 per share for five
years from March 22, 2004.
(49) Includes 40,000 shares of common stock and warrant to purchase
8,000 shares of common stock exercisable at $7.50 per share for
five years from March 22, 2004.
(50) Includes 240,000 shares of common stock and warrant to purchase
48,000 shares of common stock exercisable at $7.50 per share for
five years from March 22, 2004.
(51) Includes 180,000 shares of common stock and warrant to purchase
36,000 shares of common stock exercisable at $7.50 per share for
five years from March 22, 2004.
(52) Includes 40,000 shares of common stock and warrant to purchase
8,000 shares of common stock exercisable at $7.50 per share for
five years from March 22, 2004.
21
(53) Includes 70,000 shares of common stock and warrant to purchase
14,000 shares of common stock exercisable at $7.50 per share for
five years from March 22, 2004.
(54) Includes 160,000 shares of common stock and warrant to purchase
32,000 shares of common stock exercisable at $7.50 per share for
five years from March 22, 2004.
(55) Includes 100,000 shares of common stock and warrant to purchase
20,000 shares of common stock exercisable at $7.50 per share for
five years from March 22, 2004.
(56) Includes 20,000 shares of common stock and warrant to purchase
4,000 shares of common stock exercisable at $7.50 per share for
five years from March 22, 2004.
(57) Includes 20,000 shares of common stock and warrant to purchase
4,000 shares of common stock exercisable at $7.50 per share for
five years from March 22, 2004.
(58) Includes 50,000 shares of common stock and warrant to purchase
10,000 shares of common stock exercisable at $7.50 per share for
five years from March 22, 2004.
(59) Includes 40,000 shares of common stock and warrant to purchase
8,000 shares of common stock exercisable at $7.50 per share for
five years from March 22, 2004.
PLAN OF DISTRIBUTION
The shares covered by this prospectus may be offered and sold from time
to time by the selling stockholders. The term "selling stockholders" includes
pledgees, donees, transferees or other successors in interest selling shares
received after the date of this prospectus from the selling stockholders as a
pledge, gift, partnership distribution or other non-sale related transfer. The
number of shares beneficially owned by each selling stockholder will decrease as
and when it effects any such transfers. The plan of distribution for the selling
stockholders' shares sold hereunder will otherwise remain unchanged, except that
the transferees, pledgees, donees or other successors will be selling
stockholders hereunder. To the extent required, we may amend and/or supplement
this prospectus from time to time to describe a specific plan of distribution.
The selling stockholders will act independently of us in making
decisions with respect to the timing, manner and size of each sale. The selling
stockholders may offer their shares from time to time pursuant to one or more of
the following methods:
o on the Amex or on any other market on which our common stock may from
time to time be trading;
o one or more block trades in which the broker or dealer so engaged will
attempt to sell the shares of common stock as agent but may position and
resell a portion of the block as principal to facilitate the
transaction;
o purchases by a broker or dealer as principal and resale by the broker or
dealer for its account pursuant to this prospectus;
o ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
o in public or privately-negotiated transactions;
o through the writing of options on the shares; through underwriters,
brokers or dealers (who may act as agents or principals) or directly to
one or more purchasers;
o an exchange distribution in accordance with the rules of an exchange;
through agents;
o through market sales, both long or short, to the extent permitted under
the federal securities laws; or in any combination of these methods.
The sale price to the public may be:
o the market price prevailing at the time of sale;
22
o a price related to the prevailing market price;
o at negotiated prices; or
o any other prices as the selling stockholder may determine from time to
time.
In connection with distributions of the shares or otherwise, the selling
stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the shares in
the course of hedging the positions they assume;
o sell the shares short and redeliver the shares to close out such short
positions;
o enter into option or other transactions with broker-dealers or other
financial institutions which require the delivery to them of shares
offered by this prospectus, which they may in turn resell; and
o pledge shares to a broker-dealer or other financial institution, which,
upon a default, they may in turn resell.
In addition to the foregoing methods, the selling stockholders may offer
their shares from time to time in transactions involving principals or brokers
not otherwise contemplated above, in a combination of such methods as described
above or any other lawful methods.
Sales through brokers may be made by any method of trading authorized by
any stock exchange or market on which the shares may be listed or quoted,
including block trading in negotiated transactions. Without limiting the
foregoing, such brokers may act as dealers by purchasing any or all of the
shares covered by this prospectus, either as agents for others or as principals
for their own accounts, and reselling such shares pursuant to this prospectus. A
selling stockholder may effect such transactions directly, or indirectly through
underwriters, broker- dealers or agents acting on their behalf. In effecting
sales, brokers and dealers engaged by the selling stockholders may arrange for
other brokers or dealers to participate.
Upon our being notified by the selling stockholders that any material
arrangement has been entered into with a broker-dealer for the sale of shares
offered hereby through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, we will file a
supplement to this prospectus, if required, pursuant to Rule 424(b) under the
Securities Act, disclosing:
o the names of the selling stockholder(s) and of the participating
broker-dealer(s), identifying them as underwriters, as required;
o the number of shares involved;
o the price at which such shares were sold;
o the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable; and
o other facts material to the transaction.
The shares may also be sold pursuant to Rule 144 under the securities
act, which permits limited resale of shares purchased in a private placement
subject to the satisfaction of certain conditions, including, among other
things, the availability of certain current public information concerning the
issuer, the resale occurring following the required holding period under 144 and
the number of shares during any three-month period not exceeding certain
limitations. The selling stockholders have the sole and absolute discretion not
to accept any purchase offer or make any sale of their shares if they deem the
purchase price to be unsatisfactory at any particular time.
The selling stockholders or their respective pledgees, donees,
transferees or other successors in interest, may also sell the shares directly
to market makers acting as principals and/or broker-dealers acting as agents for
themselves or their customers. These broker-dealers may receive compensation in
the form of discounts, concessions or commissions from the selling stockholders
and/or the purchasers of shares for whom these
23
broker-dealers may act as agents or to whom they sell as principal or both,
which compensation as to a particular broker-dealer might be in excess of
customary commissions. Market makers and block purchasers purchasing the shares
will do so for their own account and at their own risk. It is possible that the
selling stockholders will attempt to sell shares of common stock in block
transactions to market makers or other purchasers at a price per share which may
be below the then market price. The selling stockholders cannot assure that all
or any of the shares offered by this prospectus will be issued to, or sold by,
the selling stockholders if they do not exercise or convert the common stock
equivalents that they own. The selling stockholders and any brokers, dealers or
agents, upon effecting the sale of any of the shares offered by this prospectus,
may be deemed "underwriters" as that term is defined under the securities act or
the exchange act, or the rules and regulations under those acts. In that event,
any commissions received by the broker-dealers or agents and any profit on the
resale of the shares of common stock purchased by them may be deemed to be
underwriting commissions or discounts under the securities act.
The selling stockholders, alternatively, may sell all or any part of the
shares offered by this prospectus through an underwriter. To our knowledge, none
of the selling stockholders have entered into any agreement with a prospective
underwriter and there can be no assurance that any such agreement will be
entered into. If the selling stockholders enter into such an agreement or
agreements, then we will set forth in a post-effective amendment to this
prospectus the following information:
o the number of shares being offered;
o the terms of the offering, including the name of any selling
stockholder, underwriter, broker, dealer or agent;
o the purchase price paid by any underwriter;
o any discount, commission and other underwriter compensation;
o any discount, commission or concession allowed or reallowed or paid to
any dealer;
o the proposed selling price to the public; and
o other facts material to the transaction.
We will also file such agreement or agreements. In addition, if we are
notified by the selling stockholders that a donee, pledgee, transferee or other
successor-in-interest intends to sell more than 500 shares, a supplement to this
prospectus will be filed.
The selling stockholders and any other persons participating in the sale
or distribution of the shares will be subject to applicable provisions of the
exchange act and the rules and regulations under the exchange act, including,
without limitation, Regulation M. These provisions may restrict certain
activities of, and limit the timing of purchases and sales of any of the shares
by, the selling stockholders or any other such person. Furthermore, under
Regulation M, persons engaged in a distribution of securities are prohibited
from simultaneously engaging in market making and certain other activities with
respect to the same securities for a specified period of time prior to the
commencement of the distribution, subject to specified exceptions or exemptions.
All of these limitations may affect the marketability of the shares.
We have agreed to pay all costs and expenses incurred in connection with
the registration of the shares offered by this prospectus, except that the
selling stockholder will be responsible for all selling commissions, transfer
taxes and related charges in connection with the offer and sale of the shares
and the fees of the selling stockholder's counsel.
We have agreed with the selling stockholders to keep the registration
statement of which this prospectus forms a part continuously effective until the
earlier of the date that the shares covered by this prospectus may be sold
pursuant to Rule 144(k) of the securities act and the date that all of the
shares registered for sale under this prospectus have been sold.
We have agreed to indemnify the selling stockholders, or their
respective transferees or assignees, against certain liabilities, including
liabilities under the securities act, or to contribute to payments that the
24
selling stockholders or their respective pledgees, donees, transferees or other
successors in interest, may be required to make in respect of those liabilities.
LEGAL PROCEEDINGS
On April 1, 2003, RLB Capital, Inc. filed a complaint against the
Company in the Supreme Court of the State of New York (Index No. 601058/03). The
Complaint alleged a breach of contract by the Company and demanded judgment
against the Company for $112,500 and warrants to acquire 75,000 shares of the
Company's common stock. The Company submitted its Verified Answer on June 25,
2003 and, in pertinent part, denied RLB's allegations and asserted counterclaims
based on negligence. In September 2003, the Company filed a motion for summary
judgment and RLB filed its response on October 27, 2003. On November 12, 2003,
the Supreme Court granted the motion for summary judgment and the complaint was
dismissed. In March 2004, the complaint and two counterclaims asserted by the
Company were dismissed with prejudice.
On December 19, 2003, the Company filed a complaint against Dr. Deidre
Tessman and Tessman Technology Ltd. (the "Tessman Defendants") in the Supreme
Court of the State of New York, County of New York (Index No. 03-603984). An
amended complaint alleges, among other things, breach of contract and negligence
by Tessman and Tessman Technology and demands judgment against Tessman and
Tessman Technology in an amount to be determined by the Court. The Tessman
Defendants removed the case to federal court, then remanded it to state court
and served an answer with several purported counterclaims. The Company denies
the allegations in the counterclaims and intends to pursue its claims against
the Tessman Defendants vigorously .
25
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The names, ages as of May 18, 2004 and existing positions with the Company, if
any, are as follows:
Name of Individual Age Position with Bioenvision
------------------ --- -------------------------
Christopher B. Wood, M.D. 58 Chairman of the Board and Chief Executive Officer
Jeffrey B. Davis 41 Director
Thomas Scott Nelson, C.A. 65 Director
Steven A. Elms 40 Director
Andrew Schiff, M.D. 39 Director
Michael Kauffman M.D., Ph.D. 40 Director
David P. Luci, C.P.A., Esq. 37 Director of Finance, General Counsel and Corporate
Secretary
Hugh S. Griffith 36 Commercial Director (Europe) of Bioenvision, Ltd.
The name, principal occupation for the last five years, selected
biographical information and the period of service to the Company of each
director and executive officer is set forth below.
Christopher B. Wood, M.D. has served as our Chairman of the Board and Chief
Executive Officer since January 1999. From January 1997 to December 1998, Dr.
Wood was Chairman of Eurobiotech, Inc., a Delaware company. From March 1994 to
January 1997, Dr. Wood was a specialist surgeon in the National Health Service,
United Kingdom. From April 1979 to March 1991, Dr. Wood was a specialist surgeon
at The Royal Postgraduate Medical School, London, England. Dr. Wood holds an
M.D. from the University of Wales School of Medicine and the Fellowship of the
Royal College of Surgeons of Edinburgh.
Thomas Scott Nelson, C.A. was named a director in May 1998. Mr. Nelson served as
our Chief Financial Officer from May 1998 to September 2002. From 1996 to 1999,
Mr. Nelson served as the Director of Finance of the Management Board of the
Royal & Sun Alliance Insurance Group. From 1991 to 1996, Mr. Nelson served as
Group Finance Director of the Main Board of Sun Alliance Insurance Group. He has
served as Chairman of the United Kingdom insurance industry committee on
European regulatory, fiscal and accounting issues. He has also worked with
Deloitte in Paris and as a consultant with PA Consultants Management. Mr. Nelson
is a Member of Institute of Chartered Accountants of Scotland and a Fellow of
the Institute of Cost and Management Accountants. Mr. Nelson holds a B.A. degree
from Cambridge University.
Jeffrey B. Davis was named a director in February 2002. Mr. Davis has extensive
experience in investment banking, and corporate development and financing for
development stage companies. Mr. Davis serves as President of SCO Financial
Group LLC and SCO Securities LLC. He served as Senior Vice President and Chief
Financial Officer of HemaSure, Inc., a publicly traded development stage
healthcare technology company from November 1995 to April 1997. Prior to that,
from June 1990 to November 1995, Mr. Davis was Vice President, Corporate
Finance, at Deutsche Morgan Grenfell, both in the U.S. and Europe. Mr. Davis
also served in senior marketing and product management positions at AT&T Bell
Laboratories and Philips Medical Systems North America, where he was also a
member of the technical staff.
Steven A. Elms was named a director in May 2002. Mr. Elms serves as a Managing
Director of the Perseus-Soros BioPharmaceutical Fund. For five years prior to
joining Perseus-Soros, Mr. Elms was a Principal in the Life Science Investment
Banking group of Hambrecht & Quist (now J.P. Morgan H&Q). During his five years
at H&Q, Mr. Elms was involved in over 60 financing and M&A transactions, helping
clients raise in excess of $3.3 billion of capital. Mr. Elms' primary areas of
focus were the genomics and drug discovery technology sectors.
Andrew Schiff, M.D. was named a director in May 2002. Dr. Schiff currently
serves as a Managing Director of Perseus-Soros Biopharmaceutical Fund. Over the
last 10 years, Schiff has practiced internal medicine at The New York
Presbyterian Hospital where he maintains his position as a Clinical Assistant
Professor of Medicine. In addition, he has also been a partner of a small family
run investment fund, Kuhn, Loeb & Co since September 1993.
Michael Kauffman M.D., Ph.D. was named a director in January 2004. Dr. Kauffman
is currently the President and CEO of Predix Pharmaceuticals. Prior to that he
was the Vice President, Medicine, and Proteasome Inhibitor (VELCADE(TM)) Program
Leader at Millennium Pharmaceuticals Inc. Prior to that, Dr.
26
Kauffman held senior positions at Millennium Predictive Medicine, Inc., as
cofounder and Vice President of Medicine, and at Biogen Corporation. Dr.
Kauffman received his M.D. and Ph.D. (molecular biology and biochemistry) at
Johns Hopkins and his postdoctoral training at Harvard University. He is board
certified in internal medicine, and comes with over 10 years of experience in
drug discovery and development.
David P. Luci, C.P.A., Esq. has served as Director of Finance, General Counsel
and Corporate Secretary since July 2002. From September 1994 to July 2002, Mr.
Luci served as a corporate associate at Paul, Hastings, Janofsky & Walker LLP
(New York office). Prior to that, Mr. Luci served as a senior auditor at Ernst &
Young LLP (New York office). Mr. Luci is a certified public accountant. He holds
a Bachelor of Science in Business Administration with a concentration in
accounting from Bucknell University and a J.D. from Albany Law School of Union
University.
Hugh S. Griffith has served as Commercial Director (Europe) of Bioenvision,
Ltd., a wholly-owned sales and marketing subsidiary of the Company since October
2002. From January 2002 to October 2002, Mr. Griffith served as Executive
Commercial Director of QuantaNova Ltd. From January 2000 to December 2001, Mr.
Griffith served as Senior Business Unit Manager at Abbott Laboratories, Ltd.
where he was responsible for strategic development, implementation and
commercialization of a new neonatology business unit. This role encompassed the
management of the sales force, marketing, PR, policy and healthcare liaison
teams whilst also directing the clinical development programme for the
neonatology portfolio. From April 1998 to January 2000, Mr. Griffith was the HIV
Business Unit Manager at Abbott Laboratories Ltd where he was responsible for
the profitability of the HIV franchise. Mr Griffith managed the Norvir capsule
crisis including the fully comprehensive named patient programme. At Abbott
Laboratories Ltd., Mr. Griffith also served as Business Development Manager
(July 1997 to April 1998) and as Area Sales Manager (October 1995 to July 1997).
Mr. Griffith holds a Masters of Business Administration from Cardiff Business
School, a Diploma of Marketing and a Bachelor of Science in Honours Biology from
University of Stirling.
27
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of common stock, as of May 18, 2004, by (i) each person
whom we know to beneficially own 5% or more of the common stock, (ii) each of
our directors, (iii) each person listed on the Summary Compensation Table set
forth under "Executive Compensation" and (iv) all of our directors and executive
officers. The number of shares of common stock beneficially owned by each
stockholder is determined in accordance with the rules of the Commission and
does not necessarily indicate beneficial ownership for any other purpose. Under
these rules, beneficial ownership includes those shares of common stock over
which the stockholder exercises sole or shared voting or investment power. The
percentage ownership of the common stock, however, is based on the assumption,
expressly required by the rules of the Commission, that only the person or
entity whose ownership is being reported has converted or exercised common stock
equivalents into shares of common stock; that is, shares underlying common stock
equivalents are not included in calculations in the table below for any other
purpose, including for the purpose of calculating the number of shares
outstanding generally. The table below does not reflect the right of ILEX to
purchase from us $1.0 million of our common stock at the then applicable market
price within 30 days of the completion of the Phase II trial for Clofarabine,
and an additional $2.0 million of our common stock at the then applicable market
price within 30 days of submittal to the FDA of the NDA for Clofarabine.
BENEFICIAL OWNERSHIP CURRENT PERCENTAGE OF
NAME OF STOCK CLASS (1)
Perseus-Soros Biopharmaceutical
Fund, LP (2)
888 Seventh Avenue, 29th Floor
New York, New York 10106.................... 9,450,053 26.94%
OrbiMed Advisors Inc. (3)
767 Third Avenue, 30th Floor
New York, New York 10017.................... 3,150,036 10.81 %
SCO Capital Partners LLC (4)
1285 Avenue of the Americas, 35th Floor
New York, New York 10019.................... 7,370,237 27.85%
Kevin Leech (5)
The Old Chapel
Sacre Couer
Rouge Boullion
St Helier
Jersey, Channel Islands..................... 1,900,000 7.17%
Bioaccelerate, Inc. (6)
PO Box 3175
Road Town
Tortolla
British Virgin Islands...................... 1,227,272 4.63%
Christopher B. Wood, M.D. (7)
c/o Bioenvision, Inc.
509 Madison Avenue, Suite 404
New York, New York 10022.................... 3,805,258 14.00%
28
David P. Luci (8)
c/o Bioenvision, Inc.
509 Madison Avenue, Suite 404
New York, New York 10022.................... 280,000 1.07%
Hugh Griffith (9)
c/o Bioenvision, Inc.
509 Madison Avenue, Suite 404
New York, New York 10022
100,000 *
Thomas Scott Nelson (10)
c/o Bioenvision, Inc.
509 Madison Avenue, Suite 404
New York, New York 10022.................... 287,523 1.09%
Jeffrey B. Davis (11)
1285 Avenue of the Americas, 35th Floor
New York, New York 10019................... 749,243 2.85%
Steven A. Elms
888 Seventh Avenue, 29th Floor
New York, New York 10106.................... 0 *
Andrew N. Schiff, M.D.
888 Seventh Avenue, 29th Floor
New York, New York 10106.................... 0 *
Michael Kauffman M.D., Ph.D.
c/o Bioenvision, Inc.
509 Madison Avenue, Suite 404
New York, New York 10022.................... 0 *
All Executive Officers and Directors as a
group (eight persons) (12).................. 5,222,024 18.16%
----------------
* Represents holdings of less than one percent (1%).
(1) Based on a total of 26,002,829 shares of common stock outstanding as of May
18, 2004.
(2) Includes 3,000,000 shares of Series A Preferred Stock currently convertible
into 6,000,000 shares of common stock at a conversion price of $1.50 and a
warrant to purchase 3,000,000 shares of common stock exercisable at $2.00
per share for five years from May 8, 2002. Also includes 375,044 common
shares and a warrant to purchase 75,009 shares of common stock exercisable
at $7.50 for five years from May 13, 2004. Based upon information contained
in its report on Schedule 13D filed with the Commission on May 20, 2002,
Perseus-Soros BioPharmaceutical Fund, L.P. reported that Perseus-Soros
BioPharmaceutical Fund, L.P. and Perseus-Soros Partners may be deemed to
have sole power to direct the voting and disposition of the 9,000,000 shares
of common stock. By virtue of the relationships between and among
Perseus-Soros BioPharmaceutical Fund, L.P., Perseus-Soros Partners, LLC,
Perseus BioTech Fund Partners, LLC, SFM Participation, L.P., SFM AH, Inc.,
Frank H. Pearl, George Soros, Soros Fund Management LLC, Perseus EC, LLC,
Perseuspur, LLC, each of such Perseus entities, other than Perseus-Soros
BioPharmaceutical Fund, L.P. and Perseus-Soros Partners, may be deemed to
share the power to direct the voting and disposition of the 9,000,000 shares
of common stock.
(3) Includes 669,964 shares of Series A Preferred Stock currently convertible
into 1,339,928 shares of common stock at a conversion price of $1.50, a
warrant to purchase 669,964 shares of common stock exercisable at $2.00 per
share for five years from May 16, 2002, 83,765 common shares and a warrant
to purchase 16,753 shares of common stock exercisable at $7.50 for five
years from May 13, 2004 all of which are held by Caduceus Private
Investments, LP; 13,945 shares of Series A Preferred Stock currently
convertible into 27,980 shares of common stock at a conversion price of
$1.50, a warrant to purchase 13,945 shares of common stock exercisable at
$2.00 per share for five years from May 16, 2002, 1,744 common shares and a
warrant to purchase 349 shares of common stock exercisable at $7.50 for five
years from May 13, 2004, all of which are held by OrbiMed Associates LLC;
and 316,091 shares of Series A
29
Preferred Stock currently convertible into 632,182 shares of common stock
at a conversion price of $1.50, a warrant to purchase 316,091 shares of
common stock exercisable at $2.00 per share for five years from May 16,
2002, 39,521 common shares and a warrant to purchase 7,904 shares of common
stock exercisable at $7.50 for five years from May 13, 2004, all of which
are held by PW Juniper Crossover Fund, L.L.C. Based upon information
contained in its report on Schedule 13G filed with the Commission on June
21, 2002, OrbiMed Advisors Inc., OrbiMed Advisors LLC, OrbiMed Capital LLC
and Samuel D. Isaly reported that they share the power to direct the voting
and disposition of the shares of common stock.
(4) Includes a warrant to purchase 100,000 shares of common stock exercisable at
$1.25 per share issued to SCO Financial Group LLC for five years from
November 16, 2001. Excludes a warrant to purchase 70,000 shares of common
stock exercisable at $1.50 per share for five years from May 8, 2002
originally held by SCO Financial Group LLC but transferred to (i) Daniel
DiPietro (50,000); (ii) Jeremy Kaplan (10,000); and (iii) Joshua Golumb
(10,000). SCO Financial Group LLC serves as financial advisor to the
company. SCO Capital Partners LLC extended a $1 million secured credit line
to the company in November 2001. SCO Securities LLC, a related entity,
served as placement agent in the company's May 2002 private placement of
Series A Preferred Stock. SCO Securities LLC also acted as placement agent
for the company's March 2004 private placement of common stock and received
a warrant to purchase 204,452 shares of common stock exercisable at $6.25
for five years from March 22, 2004 and a warrant to purchase 55,839 shares
of common stock exercisable at $6.25 for five years from May 13, 2004. After
the Pathagon acquisition, SCO Financial Group named one individual to the
company's board of directors.
(5) These shares are owned of record by Phoenix Ventures Limited, a Channel
Islands (Jersey) corporation, which, to our knowledge, is wholly-owned by
Kevin Leech. These shares include 500,000 options which are exercisable at
$1.25 per share for the benefit of Phoenix Ventures Limited.
(6) Bioaccelerate, Inc. is a BVI corporation, owned of record by several private
investors and includes options to acquire 500,000 shares of the common stock
which are exercisable at $1.25 per share for five years from April 30, 2001.
Barbara Platts, in her capacity as Managing Director of Bioaccelerate, Inc.,
has investment power and voting power with respect to these shares, but
disclaims any beneficial ownership thereof.
(7) Dr. Wood is Chairman and Chief Executive Officer of the Company. Excludes
318,750 shares of common stock owned by Julie Wood, Dr. Wood's spouse, as to
which Dr. Wood disclaims any beneficial interest. Includes 1,500,000 options
which are exercisable at $1.25 for five years from April 30, 2001 and
166,666 options which are exercisable at $1.45 per share from December 31,
2003.
(8) Includes options to acquire 170,000 shares of common stock which are
exercisable at $0.735 per share from March 31, 2003 and 110,000 options
which are exercisable at $0.74 per share from March 31, 2004.
(9) Includes options to acquire 100,000 shares of the common stock which are
exercisable at $1.45 per share for five years from October 23, 2003.
(10)Includes options to acquire 200,000 shares of the common stock which are
exercisable at $1.25 per share for five years from April 30, 2001.
(11)Includes a warrant to purchase 250,000 shares of common stock exercisable
at $1.50 per share for five years from May 8, 2002. Mr. Davis is the
President of SCO Financial Group LLC, an affiliate of SCO Capital Partners
LLC. Mr. Davis disclaims beneficial ownership of all shares of common stock
deemed beneficially owned by SCO Capital Partners LLC.
(12)Includes options to purchase 2,496,666 shares of common stock, and a
warrant to purchase 250,000 shares of common stock.
LEGAL MATTERS
The validity of the shares of common stock offered by this prospectus
and other legal matters relating to this offering will be passed on by Paul,
Hastings, Janofsky & Walker LLP, New York, New York.
30
EXPERTS
Our auditors are Grant Thornton LLP. Our consolidated financial
statements as at and for the years ended June 30, 2003 and June 30, 2002
appearing in this registration statement have been audited by Grant Thornton LLP
as set forth in their report dated September 22, 2003, appearing elsewhere in
this Prospectus, and are included in reliance upon such report given upon the
authority of this firm as experts in accounting and auditing.
WHERE YOU CAN GET MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any materials we have
filed with the SEC at the SEC's public reference rooms. The SEC also maintains a
web site (http://www.sec.gov) that contains reports, proxy statements and other
information concerning us. Please call the SEC at 1-800-SEC-0330 for information
concerning the operations of the public reference rooms or visit the SEC at the
following locations:
Public Reference Room Midwest Regional Office
450 Fifth Street Citicorp Center
Room 1024 500 West Madison Street
Washington, D.C. 20549 Suite 1400
Chicago, Illinois 60661-2511
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Our bylaws provide that directors and officers shall be indemnified by
us to the fullest extent authorized by the Delaware General Corporation Law,
against all expenses and liabilities reasonably incurred in connection with
services for us or on our behalf.
Insofar as indemnification for liabilities arising under the Securities
Act might be permitted to directors, officers or persons controlling our company
under the provisions described above, we have been informed that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
31
DESCRIPTION OF BUSINESS
Bioenvision is an emerging biopharmaceutical company. Our primary
business focus is the acquisition, development and distribution of drugs to
treat cancer. We have a broad range of products and technologies under
development, but our two lead drugs are Clofarabine and Modrenal(R).
We believe that our two lead products have the following competitive advantages
over existing products at market:
Modrenal(R)(emerging endocrine resistance Clofarabine (purine nucleoside
technology) anti-metabolite technology)
o Novel mode of action on estrogen o Next generation, halogenated-purine
receptors nucleoside analogue, designed to
overcome the limitations and
o Increases estrogen binding to ER(beta) incorporate the best qualities of both
resulting in decreased cancer cell fludarabine (Fludara(R)) and cladribin
proliferation (Leustatin(R)).
o 35% overall clinical benefit rate in o Multiple Mechanisms of Action:
multi-center clinical trial:
meta-analysis of 714 patients with o Potent Inhibition of DNA Synthesis
advanced progressive post-menopausal and Repair (active in dividing
breast cancer cancer cells).
o 55% clinical benefit rate in patients o Induces Apoptotic (cell death)
who have become resistant to tamoxifen Pathway (active in non-dividing
therapy cancer cells).
o Possible synergistic combination o Potent ability to kill cancer cells in
therapy with tamoxifen a wide range of cell lines, including
leukemia, non-small cell lung, colon,
o Phase II clinical trial commencing in melanoma, ovarian, renal, prostate,
prostate cancer Q2 of calendar 2004 and breast cancer lines.
o Significant clinical benefit
demonstrated in both pediatric and
adult leukemias:
o Overall response rates in
relapsed/refractory pediatric
acute leukemias of between 25% and
36% achieved.
o Overall response rates in
relapsed/refractory adult acute
myeloid leukaemia (AML) and
chronic myeloid leukaemia in blast
crisis (CML-BP) of between 55% and
64% achieved.
o Solid tumor studies initiated with
both the oral and intravenous
formulations of clofarabine.
32
Anti-Cancer Product Portfolio
-----------------------------
Our anti-cancer product portfolio includes three products, Modrenal(R),
Clofarabine, Gossypol, used or which may be useful in eight indications and one
technology, Gene Therapy, which may be useful in two indications.
Modrenal(R)
We have the exclusive right to market and distribute Modrenal(R)
(trilostane) throughout the world for all human applications. Our exclusive
license expires upon the last to expire of the patents used or useful in
connection with the marketing of Modrenal(R). Given that we have new patent
applications filed which are subject to issuance, we expect the last to expire
of our underlying patents will be 2020.
Modrenal(R) is currently at market in the United Kingdom for the
treatment of women with advanced post menopausal breast cancer. We have a very
small marketing team that markets Modrenal(R) in the United Kingdom, and we
record revenues accordingly.
Modrenal is in Phase II clinical studies in prostate cancer trials, and
in Q2-Q3 2004, we intend to commence a Phase IV study in postmenopausal breast
cancer and a Phase II study in pre-menopausal breast cancer.
Clofarabine
We have the exclusive right to manufacture, market and distribute
Clofarabine for all human applications in all areas of the world other than
Japan and Southeast Asia. We sublicensed the right to manufacture, market and
distribute Clofarabine in the U.S. and Canada to ILEX Oncology, Inc. solely with
respect to human cancer applications. We maintain our exclusive rights until the
last to expire of the patents used or useful in our development and sales
efforts which we expect to occur in 2020.
Currently, Clofarabine is in pivotal Phase II Clinical Trials for the
treatment of pediatric acute leukemias. The final part of a rolling NDA will be
filed with the FDA by early Q2, 2004. The drug has a Fast Track Designation and
therefore we expect an FDA ruling by Q3,2004. As indicated in the previous
paragraph, ILEX has the rights to market Clofarabine in the U.S. and we would
receive a royalty on U.S. annual net sales.
Clofarabine is also in Phase II Clinical Trials in a range of
hematological cancers and Phase I clinical trials in solid tumors.
Gossypol
We have the exclusive world-wide right to manufacture and market an
optical isomer of gossypol for human and veterinary applications. Currently
gossypol, to which we have ascribed the provisional trade name of Velostan, is
completing the manufacturing process. We have developed a novel method of
separating the enantiomers of gossypol and we are seeking patent protection for
the process. We expect to initiate Phase I clinical trials with the drug in Q2,
2004. The primary indication we are targeting for the drug is in bladder cancer,
although the drug may show efficacy in other tumor indications
Gene Therapy
We have the exclusive world-wide right to develop products from a gene
therapy platform technology. To date, we have incorporated three human genes
into the proprietary technology and we have tested two of these in preliminary
clinical trials, with the emphasis on the treatment of patients with end-stage
liver disease. Management believes the technology may also have application in
patients undergoing chemotherapy for cancer. We maintain our exclusive rights
until the last to expire of the patents which we expect to occur in 2017.
33
Non-Cancer Product Portfolio
----------------------------
Our non-cancer product portfolio is as follows:
Oligon(R) and Methylene Blue
We have the exclusive world-wide right to manufacture and market an
anti-infective technology for the use of thiazine dyes, including Methylene
Blue, and for other anti-infective uses. With the acquisition of Pathagon in
February 2002, we acquired the exclusive worldwide license to this technology
and license this technology from Oklahoma Medical Research Foundation. We
maintain our exclusive license until the last to expire of the underlying
patents. Currently, there are six patents issued in the U.S. and additional
patents have been filed in the U.S., Europe, Canada and Japan.
We have sub-licensed the right to market the technology in the U.S. to
Edwards Lifesciences which is currently marketing the technology in its line of
short-term vascular access catheters. Bioenvision earns a nominal royalty on
annual net sales from Edwards Lifesciences.
Products and Technologies
The following is a description of our current portfolio of platform
technologies.
Purine Nucleoside Technology
We have a license from Southern Research Institute, Birmingham, Alabama,
to develop and market purine nucleoside analogs which, based on third-party
studies conducted to date, may be effective in the treatment of leukemia and
lymphoma. These studies were conducted by MD Anderson Cancer Center on behalf of
the Company, ILEX and several United States hospitals involved with ILEX
clinical studies. The lead compound of these purine-based nucleosides is known
as Clofarabine. To facilitate its development, we entered into a co-development
agreement with Ilex Oncology, Inc. ("Ilex") in March 2001, pursuant to which we
granted Ilex an option on a sub-license to make, sell and distribute Clofarabine
in the United States and Canada, subject to successful completion of certain
milestones. Clofarabine has successfully completed Phase I/II clinical trials at
M.D. Anderson Cancer Center, Houston, Texas. Three Phase II clinical trials have
begun at MD Anderson and will be extended to other leading centers in the United
States and Europe. In addition, a clinical trial exemption certificate has been
granted for Clofarabine in the United Kingdom and approval for a Phase I/II
trial of Clofarabine in lymphoma has been obtained in Switzerland. In January
2002, the European orphan drug application for use of Clofarabine to treat acute
leukemia in adults was approved. The drug also has been granted orphan drug
status in the United States. The combination of the Phase II trials in acute
leukemia at M.D. Anderson Cancer Center and other leading cancer centers in the
U.S. and Europe and the encouraging results from the Phase I, early Phase II
studies and current Phase II studies lead us to be enthusiastic for the
prospects of Clofarabine reaching the market, possibly as soon as the third
quarter of calendar year 2004. The United States Food and Drug Administration
recently indicated that it would review clofarabine for the treatment of
refractory or relapsed ALL in children more quickly than normal after having
granted "fast track" status to clofarabine. "Fast track" status means that the
FDA will start reviewing clinical trial data even before the entire New Drug
Application ("NDA") is complete. The FDA could complete its review within six
months rather than the normal 12 month review period. We believe the set of
clinical data from the current Phase II clinical trials could serve as the basis
for a marking application, which we believe could be filed as early as April
2004.
ILEX is obligated to pay us royalties on US and Canadian annual net
sales of Clofarabine on a sliding scale from 5.25% to 11.25%. The minimum
royalty of 5.25% applies to annual net sales of up to $30 million per year and
the maximum 11.25% royalty rate applies to annual net sales at or above $500
million per year. SRI receives royalties on the same scale of US and Canadian
annual net sales from 3.5% to 7.5% from each of Bioenvision and ILEX. We pay
royalties to each of SRI and ILEX in the amount of 3.5% to 7.5% on the same
scale as applies to the ILEX royalty payment obligations noted above. ILEX also
is responsible for 50% of our research and development costs associated with
Clofarabine development in the Territory (worldwide outside of Japan and
Southeast Asia) other than the US and Canada.
Under the terms of the agreement with Southern Research Institute, we
were granted the exclusive worldwide license, excluding Japan and Southeast
Asia, to make, use and sell products derived from the technology for a term
expiring on the date of expiration of the last patent covered by the license
(subject to earlier termination under certain circumstances), and to utilize
technical information related to the technology to
34
obtain patent and other proprietary rights to products developed by us and by
Southern Research Institute from the technology. The current projected
expiration date of the license is March 2021. We currently are developing
Clofarabine for the treatment of leukemia and lymphoma and we plan to study its
potential role in treatment of solid tumors. In August 2003, SRI granted us an
irrevocable, exclusive option to make, use and sell products derived from the
technology in Japan and Southeast Asia. We intend to convert the option to a
license upon sourcing an appropriate co-marketing partner to develop these
rights in such territory.
Pre-clinical and clinical testing of Clofarabine demonstrated that the
drug has anti-tumor activity against a range of human and animal cancers,
including hematological malignancies and several solid tumors. Approximately 360
people participated in this clinical testing. In addition, Clofarabine has been
shown to have good oral bioavailability, and in conjunction with ILEX, we have
developed and expect to complete an oral formulation for clofarabine prior to
December 2003. Results from ongoing clinical studies indicate that Clofarabine
may be an effective treatment for relapsed acute leukemias in adult and
pediatric patients, as well as acute leukemias in adult and pediatric patients
that have become resistant, or refractory, to prior treatments. According to
researchers at M.D. Anderson Cancer Center, interim Phase II study results
showed that 45% of adults with acute myelogenous leukemia (AML) achieved a
complete remission (CR) rate, and acute lymphocytic leukemia (ALL) patients
achieved a 20% CR rate when treated with Clofarabine as a single agent. Data
from a separate Phase I dose-escalation study demonstrated a 25% CR rate, and an
overall response rate of 40%, in children with acute leukemias who were
refractory to previous therapy. Trials in pediatric acute leukemias are
currently ongoing in the U.S. and are planned to commence in Europe later this
calendar year. Complete remission, in this context, means complete clearance of
all leukemic cells from the blood and normalization of the blood count,
sustained for a period of more than four weeks. In this context, a response, or
partial response, has largely the same meaning, except that the bone marrow may
still contain more than five percent but less than 25% blast cells (leukemic
cells).
Clofarabine appears to attack cancer cells in at least four ways:
(1) damaging DNA in cancer cells;
(2) preventing DNA repair by damaged cancer cells;
(3) damaging the cancer cell's important control structures--the mitochondria;
and
(4) initiating the process of programmed cell death (apoptosis) in cancer cells.
Clofarabine combines many of the favorable properties of the two most
commonly used nucleoside analog drugs, fludarabine(R) and cladribine(R), but has
several-fold greater potency, when compared to fludarabine(R), at damaging the
DNA of leukemia cells. Clofarabine appears to achieve this greater potency by a
process of breaking DNA chains and inhibiting an important enzyme,
ribonucleotide reductase. Clofarabine distinguishes itself from other drugs by
its broader activity; in particular, the manner in which it damages the cells
mitochondria and initiates the process of programmed cell death (apoptosis).
(See Blood 2000; volume 96, page 3537).
Because Clofarabine is a potent inhibitor of DNA repair, we, along with
our co-development partners in North America, ILEX, are exploring the potential
use of Clofarabine in combination with DNA damaging agents. This strategy has
already been validated through the combination of Fludarabine(R) with
cyclophosphamide in the treatment of chronic lymphocytic leukemia (CLL) because
Fludarabine, like clofarabine, is in the same class of compounds, known as
purine nucleoside analogs, with similar mechanisms of action in that the both
work by damaging DNA in a cancer cell. Public reports indicate that Fludarabine,
used in combination with a cyclophosphamide agent, blocks enzymes which promote
cancer cell growth. Because Clofarabine and Fludarabine are in the same class of
cancer agents with similar modes of action, we believe use of Clofarabine in
combination with DNA damaging agents may have the same effect as with
Fludarabine.
Purine Nucleoside--Solid Tumor. In pre-clinical tests, Clofarabine has
shown anti-tumor activity against several human cancers, including cancers of
the colon, kidney and prostate, as well as its action against leukemic cells.
This activity against solid tumors distinguishes Clofarabine from other drugs in
its class which have shown relatively little activity against solid tumors. We
intend to develop Clofarabine as a potential drug for the treatment of certain
solid tumors, such as colon and prostate cancer. The development strategy for
Clofarabine as a solid tumor agent will run in conjunction with the program for
hematological cancers, but is expected to take longer to complete clinical
trials and will require a different marketing approach.
Cancer of the colon is one of the most common cancers in the Western
world with approximately 200,000 new cases in the United States each year.
Surgery is the most successful treatment for the primary tumor. Once the cancer
has spread the results of chemotherapy are disappointing and long-term survival
figures have changed very little in the past 50 years. There is a great need for
an effective chemotherapeutic agent to treat this disease,
35
and a huge market potential exists for any drug that can induce tumor regression
in patients with metastatic colon cancer. Prostate cancer affects 181,000 new
patients in the United States each year. Initial treatment is directed at
hormonal control of the disease, but in the event control is not achieved,
chemotherapy usually is required. We intend to develop Clofarabine, or a
derivative of Clofarabine, as a potential drug for the treatment of advanced
colon and prostate cancer.
Selective Steroid Receptor Modulation Technology
Selective steroid receptor modulation technology, the lead compound of
which is currently approved by regulatory authorities in the United Kingdom for
the treatment of advanced breast cancer in post-menopausal women, has also been
approved by regulatory authorities in Germany, for the treatment of certain
adrenal disorders, such as Cushing's Disease. The product had also received
marketing approval for the treatment of Cushing's disease in certain other
European countries and the United States. The lead product, trilostane, is
currently approved for marketing under the names Modrenal(R) and Modrastane(R).
We receive royalty payments from Dechra on sales of trilostane in the veterinary
market in Europe.
Breast cancer is, in general, a hormone-dependent disease, with estrogen
being the principal hormone driving cell growth. Consequently, a major part of
modern treatment is directed at blocking the action of estrogen, either at the
site of production in the body or at the cell's estrogen receptor. The most
widely used drug in this area, Tamoxifen(R), has been very successful in
improving response rates and survival in women with breast cancer. Until
recently, it was believed that estrogen acted via a single receptor on the
cancer cell. However, it is now known that more than one estrogen receptor
exists. Recent scientific data from Professor Gavin Vinson's laboratory at Queen
Mary & Westfield College, London, England (part of the University of London)
have shown that trilostane has a unique and previously unrecognized mode of
action. The drug inhibits estrogen binding to the classical estrogen receptor
(ER(alpha)) in an indirect (allosteric) fashion and also modulates estrogen
binding to the newly-described second receptor, ER(beta). This action makes
trilostane the first drug in a new class of agents that specifically modulate
ligand binding to ER(beta). This novel action may explain the high clinical
response rates seen when the drug was given to breast cancer patients with
Tamoxifen(R) resistance. Furthermore, trilostane's action is different from that
of other known "hormonal agents" although its actions may be complementary to
those of other drugs. Extensive clinical trials with the drug have shown that it
is effective in a significant proportion of breast cancer patients, particularly
those with hormone-sensitive tumors. Trilostane has no aromatase inhibitor
activity, which distinguishes it from some of the competitor hormonal products
currently marketed for the treatment of breast cancer. We believe that the new
data presents the drug with considerable market potential, although there can be
no assurance that the medical profession or the FDA will accept this new data or
that the drug will be successful in the marketplace.
Trilostane has been extensively studied in controlled trials in the
United States, Europe and Australia, and almost 800 patients with breast cancer
have been treated with trilostane. Of these 800 patients, 87 of them were given
the drug in the United States as part of an FDA-approved trial. Its anti-tumor
activity has been well documented and the drug has been shown to produce tumor
response rates (i.e. arrest the growth of the tumor) of up to 55% in women with
hormone-sensitive breast cancer. In a sub-set analysis of the clinical trial
data, patients with hormone-sensitive breast cancer who had responded to one or
more hormonal therapies were given trilostane upon relapse of the cancer. The
response rate was above 40% in this group of patients. This compares to a
response rate of about 30-35% with currently marketed aromatase inhibitors and
approximately 25% with herceptin given as second line therapy. Most of the
patients in the sub-set had received Tamoxifen(R) as first-line therapy. Thus,
trilostane given as follow-on, or salvage, therapy has a response rate in excess
of those reported for the drugs currently in use for second-line treatment in
this disease. Furthermore, trilostane has an acceptable side-effect profile. On
the basis of these data, trilostane was granted a product license in the United
Kingdom for the treatment of post-menopausal breast cancer.
We hold an exclusive license, until the expiration of existing and new
patents related to trilostane, to market trilostane in major international
territories, and an agreement with a United Kingdom company to co-develop
trilostane for other therapeutic indications. Trilostane is currently
manufactured by third-party contractors in accordance with good manufacturing
practices. We have no plans to establish our own manufacturing facility for
trilostane, but will continue to use third-party contractors.
We launched Modrenal(R) in May 2003 in the United Kingdom for use in the
treatment of post-menopausal breast cancer. We also intend to seek regulatory
approval for Modrenal(R) in the United States as salvage therapy for
hormone-sensitive breast cancers and hormone independent prostate cancers. This
would target patients that have hormone-sensitive cancers and have become
refractory to prior hormone treatments, such as Tamoxifen(R) or aromatase
inhibitors. We believe that the potential market for Modrenal(R), based upon
36
the sales of currently available drugs for hormonal therapy for breast cancers,
is in excess of $1.8 billion of sales per annum worldwide. The results of 11
clinical trails to date, with a total of 783 patients tested, in the United
States, Europe and Australia with Modrenal(R) show that it is at least as
effective in second line or third line treatment of advanced breast cancer as
the currently available hormonal treatments, such as the selective estrogen
receptor modulators, or SERMs, and aromatase inhibitors. In the view of several
clinicians and investigators familiar with Modrenal's mode of action,
Modrenal(R) is most effective in certain specific patient types, such as those
who have become Tamoxifen(R)-refractory. Furthermore, our management currently
intends to price Modrenal(R) in such a manner as to make treatment with
Modrenal(R) compare very favorably, on a price basis, with the cost of treatment
with the existing drugs used for second line or third line therapy. We believe
that this pricing strategy should result in cost benefits for physicians,
patients and health-care systems.
Anti-Estrogen Prostate. We have received Institutional Review Board
approval from the Massachusetts General Hospital for a Phase II study of
trilostane for the treatment of androgen independent prostate cancer. The study
will be conducted by The Dana Faber Cancer Institute and currently is intended
to commence in October 2003.
The human prostate gland is under the control of several hormones,
including androgens and estrogen. Receptors for estrogen have been identified in
the prostate gland, and the newly discovered "second receptor," ER(beta), has
been isolated from the human prostate gland. ER(beta) is also highly expressed
in uterine and ovarian tissue. Prostate cancer, in most cases, is initially
hormone-dependent and treatment of the disease is usually directed toward
blocking the action of the relevant hormones. Unfortunately, it is a common
occurrence for the cancer cells to become resistant to the standard hormonal
agents. We believe that this is probably due to the inability of currently
available treatments to block all the receptors on the prostate cancer cells.
The ability of trilostane to control prostate cell growth by altering hormone
binding on important receptors could expand the treatment options for patients
with prostate cancer.
Since adrenal disorders are relatively uncommon in humans, our strategy
is not to aggressively market trilostane for these indications, but, rather, to
focus our marketing efforts on trilostane for the treatment of breast and
prostate cancer, which have considerably greater market potential. We intend to
file for applicable regulatory approval of trilostane for treatment of breast
cancer in the United States within months after discussing the appropriate
course of regulatory consideration with applicable regulators. We will, however,
pursue opportunities for adrenal disorder products on a smaller scale,
principally in the veterinary market, which we believe will generate modest
revenues over the near term. Marketing approval for trilostane's use in the
veterinary market has been granted in the United Kingdom and the drug is being
distributed by a third party. Under the terms of a co-development agreement, we
were granted the exclusive worldwide license, excluding Japan and South Africa,
to make, use and sell products derived from this technology for a term expiring
on the date of expiration of the last patent covered by the license, subject to
earlier termination under certain circumstances, in exchange for, among other
things, certain royalty payments based on gross sales of products derived from
the technology.
We also plan to devote our research efforts to discover new applications
for trilostane and related products. The latest work has allowed new patents to
be filed which, if granted, will extend broadly the commercial potential for
trilostane and related products. In addition, a new analog of trilostane, which
shows increased activity compared with trilostane, is being developed and is the
subject of new patent filings.
OLIGON(R) Technology
With the acquisition of Pathagon in February 2002, we acquired patents,
technology and technology patents relating to OLIGON(R) anti-infective
technology, and have licensed rights from Oklahoma Medical Research Foundation
to the use of thiazine dyes, including methylene blue, for other anti-infective
uses.
The OLIGON(R) technology is based on the antimicrobial properties of
silver ions. The broad spectrum activity of silver ions against bacteria,
including antibiotic-resistant strains, has been known for decades. OLIGON(R)
materials have application in a wide range of devices and products, including
vascular access devices, urology catheters, pulmonary artery catheters and
thoracic devices, renal dialysis catheters, orthopedic devices and several other
medical and consumer product applications. One application of the OLIGON(R)
technology has been licensed to a third party, which is currently marketing the
technology in its line of short-term vascular access catheters.
Six U.S. patents for the OLIGON(R) technology have been granted and
additional patents have been filed. In addition, patents have been filed in
Europe, Canada and Japan. The OLIGON(R) technology
37
specifically targets hospital-acquired infections, the rate of which tripled
between 1980 and 1990 and which accounts for approximately $11 billion of extra
expense to the U.S. healthcare system each year. According to the U.S. Centers
for Disease Control, $6.5 billion of this expense is related to infections
associated with medical devices, including vascular access and urology
catheters, and is unreimbursable to hospitals. OLIGON(R) devices will be
marketed as next generation products into large existing markets. Manufacturers
of existing products are aware of the seriousness of device related infections,
but none has been able to develop technology that imparts antimicrobial efficacy
to surfaces of implanted devices over long periods of time. OLIGON(R)
effectively addresses these requirements.
Methylene Blue Technology
We have licensed from Oklahoma Medical Research Foundation the rights to
use a range of thiazine dyes, the most well known of which is methylene blue,
for the in vitro and in vivo inactivation of pathogens in biological fluids.
Methylene blue, especially when irradiated by light, acts by preventing
replication of nucleic acid (DNA and RNA) in pathogens. Currently, we do not
derive any revenues from its commercial use.
Blood transfusions are required to treat a variety of medical conditions
and, to meet that need, over 90 million blood donations occur each year. Of
these, approximately 39 million donations occur in North America, Western Europe
and Japan. Methylene blue is currently used in several European countries to
inactivate pathogens in fresh frozen plasma (FFP). We intend to work closely
with international blood collection agencies to maximize the value of our
intellectual property position.
Gene Therapy Technology
Our product portfolio also includes a variety of gene therapy products
which, we believe, may offer advancements in the field of cancer treatment and
may have additional applications in certain non-cancer diseases such as
diabetes, cystic fibrosis and other auto-immune disorders. Pursuant to a
co-development agreement with the Royal Free and University College Medical
School and a Canadian biotechnology company, we are developing DNA vector
technologies which, based on pre-clinical research and early Phase I clinical
trials, we believe are capable of elevating albumin levels in cancer and
cirrhosis patients with hypo-albuminemia, a serious physiological disorder. We
believe this has considerable market potential since low albumin levels are
considered to be very dangerous consequences of many diseases, including
cirrhosis and liver cancer.
Cytostatic Technology
We have acquired a license to develop a distinct group of compounds that
we believe could play an important role in controlling the rate of growth of
cancer cells. In some cancers, such as cancer of the bladder and skin, drugs
that stop cell growth (cytostatics) can be as effective as drugs that kill the
cell by direct toxicity (cytotoxics). The cytostatic drugs we are developing are
believed to work by blocking cell division and reversing the malignant process
in the cancer cell. The first compound is a synthetic analog of a drug derived
from a naturally grown plant, which has been widely tested for a variety of
clinical indications. The results of this testing have been published in the
medical literature. In particular, the drug has shown efficacy against certain
cancers by, it is believed, preventing cell division and promoting cell
differentiation.
We plan to develop more potent analogs and to study their role in the
process of cell differentiation and the prevention of the spread of cancer
cells. The first compound derived from this technology is currently approved for
a Phase I clinical trial at a leading United Kingdom cancer center.
Animal Health Products
We also have one animal health product, Veteryl(R), at market in the
United Kingdom for the treatment of Cushing's disease in dogs. In November 2001,
we granted to Arnolds Ltd., a major distributor of animal products in the United
Kingdom, the right to market the drug for a six-month trial period, after which
time, if the results were satisfactory to Arnolds, we would enter into a
licensing arrangement whereby Arnolds would pay royalties to us on sales from
April 2002 onward. During the trial period, Arnolds posted more than $400,000 of
sales of the drug. Arnolds has licensed the drug from us for sale in the United
Kingdom market in consideration of a payment of a 5% royalty on sales.
Separately, in May 2003, we granted to Dechra Pharmaceuticals, PLC, an affiliate
of Arnolds Ltd., the exclusive right to market the drug in the United States for
$5.5 million of total consideration (including milestone payments) and a royalty
of 2%-4% of annual net sales.
38
Patents and Proprietary Rights
Our success will depend, in part, upon our ability to obtain and enforce
protection for our products under United States and foreign patent laws and
other intellectual property laws, preserve the confidentiality of our trade
secrets and operate without infringing the proprietary rights of third parties.
Our policy is to file patent applications in the United States and/or foreign
jurisdictions to protect technology, inventions and improvements to our
inventions that are considered important to the development of our business.
Also, we will rely upon trade secrets, know-how, continuing technological
innovations and licensing opportunities to develop a competitive position.
Through our current license agreements, we have acquired the right to
utilize the technology covered by five issued patents and six patent
applications, as well as additional intellectual property and know-how that
could be the subject of further patent applications in the future. We evaluate
the desirability of seeking patent or other forms of protection for our products
in foreign markets based on the expected costs and relative benefits of
attaining this protection. There can be no assurance that any patents will be
issued from any applications or that any issued patents will afford adequate
protection to us. Further, there can be no assurance that any issued patents
will not be challenged, invalidated, infringed or circumvented or that any
rights granted thereunder will provide competitive advantages to us. Parties not
affiliated with us have obtained or may obtain United States or foreign patents
or possess or may possess proprietary rights relating to our products. There can
be no assurance that patents now in existence or hereafter issued to others will
not adversely affect the development or commercialization of our products or
that our planned activities will not infringe patents owned by others.
As a result of the licenses described above, we are the exclusive
licensee or sublicensee of three United States patents expiring in 2005, 2008
and 2014 relating to compounds, pharmaceutical compositions and methods of use
encompassing clofarbine. We have also filed two United States patent
applications relating to the use of clofarbine in autoimmune diseases. Although
the basic patents to trilostane have expired, we are the exclusive licensee of
several United States and foreign patent applications relating to the use of
trilostane alone or in combination with anticancer agents.
We could incur substantial costs in defending ourselves in infringement
suits brought against us or any of our licensors or in asserting any
infringement claims that we may have against others. We could also incur
substantial costs in connection with any suits relating to matters for which we
have agreed to indemnify our licensors or distributors. An adverse outcome in
any litigation could have a material adverse effect on our business and
prospects. In addition, we could be required to obtain licenses under patents or
other proprietary rights of third parties. No assurance can be given that any of
these licenses would be made available on terms acceptable to us, or at all. If
we are required to, and do not obtain any required licenses, we could be
prevented from, or encounter delays in, developing, manufacturing or marketing
one or more of our products.
We also rely upon trade secret protection for our confidential and
proprietary information. There can be no assurance that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to our trade secrets or disclose this
technology or that we can meaningfully protect our trade secrets.
It is our policy to require our employees, consultants, members of the
Scientific Advisory Board and parties to collaborative agreements to execute
confidentiality agreements upon the commencement of employment or consulting
relationships or a collaboration with us. These agreements provide that all
confidential information developed or made known during the course of the
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 resulting from work performed for us,
utilizing our property or relating to our business and conceived or completed by
the individual during employment shall be our exclusive property to the extent
permitted by applicable law.
Sales and Marketing
We intend to establish strategic partnerships for the marketing, sales
and distribution of our products in North America and certain countries in
Europe. As of the date of this annual report on From 10-KSB, we have one such
arrangement in place with Ilex for the co-development and marketing of one of
our initial lead products, clofarabine, and another arrangement with Edwards
Lifesciences for the marketing of short-term vascular access catheters using the
OLIGON(R) technology. We have also engaged in our own marketing and sales
efforts in connection with the marketing and sale of Modrenal(R) in the United
Kingdom and upon regulatory authorities' granting mutual recognition with which
we intend to apply during calendar 2004, throughout Europe. However, in order to
market any of our products effectively, we would need to establish a
39
much more integrated marketing and sales force with technical expertise and
distribution capability or contract with other pharmaceutical and/or health care
companies with distribution systems and direct sales forces.
Our marketing policy will be to generate awareness of our products and
target the two key audiences for our products - doctors and patients. Medical
education will be a priority, with the use of peer-opinion leaders, clinical
trials at major centers, satellite symposia and conferences, product advertising
in specific scientific journals and trained sales personnel. Patient education
is carefully controlled and is important to our marketing approach. Patient
education is particularly important because Modrenal(R), our first product for
which we have obtained regulatory approval (in the United Kingdom) for marketing
for use in a type of cancer treatment, is effective for patients with
post-menopausal breast cancer, one of the most common cancers in women. In
particular, the drug is approved as follow-on treatment for patients who have
previously responded to hormonal therapy. If the trials of trilostane in
prostate cancer prove successful, we will have a drug for treating a cancer
found in approximately 180,000 men each year in the United States. We will work
with patient help organizations, inform the lay public through consumer journals
and television.
Manufacturing
We do not have and do not intend to establish any internal product
testing, manufacturing or distribution capabilities. Our strategy is to enter
into collaborative arrangements with other companies for the clinical testing,
manufacture and distribution of its products. These collaborators are generally
expected to be responsible for funding or reimbursing all or a portion of the
development costs, including the costs of clinical testing necessary to obtain
regulatory clearances and for commercial-scale manufacturing, in exchange for
exclusive or semi-exclusive rights to market specific products in particular
geographic territories. Manufacturers of our products will be subject to Good
Manufacturing Practices prescribed by the FDA or other rules and regulations
prescribed by foreign regulatory authorities.
Raw Materials
Our raw materials (such as laboratory chemicals) and other supply items
to be used in our research and development processes are available from many
different suppliers and are generally available in sufficient quantities in
timely fashion. We do not anticipate any significant problems in the
availability of, or significant price increases for, required raw materials or
other production items in the foreseeable future.
Research and Development
In developing new products, we consider a variety of factors including:
(i) existing or potential marketing opportunities for these products; (ii) our
capability to arrange for these products to be manufactured on a commercial
scale; (iii) whether or not these products complement our existing products;
(iv) the opportunities to leverage these products with the development of
additional products; and (v) the ability to develop co-marketing relationships
with pharmaceutical and/or other companies with respect to the products. We
intend to fund future research and development activities at a number of medical
and scientific centers in Europe and the United States. Costs related to these
activities are expected to include: clinical trial expenses; drug production
costs; salaries and benefits of scientific, clinical and other personnel; patent
protection costs; analytical and other testing costs; professional fees; and
insurance and other administrative expenses. We currently have three scientists
currently working on a full-time basis who are involved in research and
development activities. We have spent approximately $1,900,000 and $1,700,000 on
research and development activities in 2002 and 2003, respectively.
Industry Overview
We believe the biopharmaceutical industry has evolved significantly
since its commercial inception in the 1970s and is currently approaching a
period of sustained growth. To be successful, we believe biopharmaceutical
companies must have the ability to harness rapidly advancing technology, provide
solutions for previously unmet therapeutic needs, ensure faster development of
new drugs and allow flexibility to exploit changing market conditions. We seek
to engage in this new generation of biopharmaceutical companies, linking the
technological skills of doctors and scientists in Europe and North America with
the U.S. and European capital markets.
The National Cancer Institute estimated in 2000 the overall costs for
cancer to be $107 billion in the United States; $37 billion for direct costs,
$11 billion for morbidity costs and $59 billion for mortality costs. Treatment
of breast, lung and prostate cancer account for over half the direct medical
costs.
40
The table below shows the forecast global cancer treatment market for the period
2001-2007. The overall market is forecast to grow from $29.4 billion in 2001 to
$42.8bn in 2007, representing an average annual growth rate of 6.5%.
Forecast Global Cancer Treatment Market 2001 - 2007 (amounts in $ billions)
Drug Class 2001 2002 2003 2004 2005 2006 2007
------------------- -------- -------- -------- -------- -------- -------- --------
Adjunct therapies $11,321 $11,834 $12,347 $12,860 $13,373 $13,752 $14,132
Cytotoxics 8,651 9,136 9,501 9,881 10,277 10,585 10,902
Hormonals 5,720 5,841 5,950 5,952 5,856 5,688 5,464
Innovative agents 3,679 4,665 5,650 7,126 8,602 10,432 12,261
-------- -------- -------- -------- -------- -------- --------
TOTALS $29,372 $31,476 $33,448 $35,820 $38,108 $40,457 $42,760
======== ======== ======== ======== ======== ======== ========
Source: Reuters, 2002
We believe that new cancer therapies increasingly will be required to be
more cost-effective and allow for alternate site or in-home treatment and to
improve patient quality of life during treatment.
With respect to our products and technologies within the overall cancer
market, Clofarabine and Gossypol constitute cytotoxic agents and Modrenal
constitutes a hormonal agent, in each case, which we believe may have
significant market potential both in the U.S. and other parts of the world.
Although we have received orphan drug status for Clofarabine in the U.S. and
Europe in pediatric and adult acute leukemias, we continue to develop the drug,
in conjunction with our U.S. co-development partner, ILEX Oncology, Inc., in
other indications with broader markets including solid tumors and combination
studies. If Clofarabine demonstrates efficacy in all of these indications, we
believe it has potential to be a leading drug in the U.S. and Europe in
hematological cancers with widespread use in solid tumors. We believe efficacy
data on the use of Gossypol in bladder cancers will be available as early as Q1
2005 upon completion of our initial clinical trial. Modrenal is an approved
agent which we market for the treatment of post-menopausal women with advanced
breast cancer in the United Kingdom and we anticipate receiving mutual
recognition from other European Union member states in Q1 2005. Taken together,
we believe this portion of our cancer drug portfolio could create a significant
commercial advantage for our company and our stockholders.
Government Regulation
The FDA and comparable regulatory agencies in state and local
jurisdictions and in foreign countries impose substantial requirements upon the
clinical development, manufacture and marketing of pharmaceutical products.
These agencies and other federal, state and local entities regulate research and
development activities and the testing, manufacture, quality control, safety,
effectiveness, labeling, storage, record keeping, approval, advertising and
promotion of our drug delivery products.
The process required by the FDA under the new drug provisions of the Federal
Food, Drug and Cosmetics Act before our products may be marketed in the United
States generally involves the following:
o pre-clinical laboratory and animal tests;
o submission to the FDA of an investigational new drug application, or
IND, which must become effective before clinical trials may begin;
o adequate and well-controlled human clinical trials to establish the
safety and efficacy of the proposed pharmaceutical in our intended
use;
o submission to the FDA of a new drug application; and
o FDA review and approval of the new drug application.
The testing and approval process requires substantial time, effort, and
financial resources and we cannot be certain that any approval will be granted
on a timely basis, if at all.
Pre-clinical tests include laboratory evaluation of the product, its
chemistry, formulation and stability, as well as animal studies to assess the
potential safety and efficacy of the product. The results of the pre-clinical
tests, together with manufacturing information and analytical data, are
submitted to the FDA as part of an IND, which must become effective before we
may begin human clinical trials. The IND automatically becomes
41
effective 30 days after receipt by the FDA, unless the FDA, within the 30-day
time period, raises concerns or questions about the conduct of the trials as
outlined in the IND and imposes a clinical hold. In such a case, the IND sponsor
and the FDA must resolve any outstanding concerns before clinical trials can
begin. There is no certainty that pre-clinical trials will result in the
submission of an IND or that submission of an IND will result in FDA
authorization to commence clinical trials.
Clinical trials involve the administration of the investigational
product to human subjects under the supervision of a qualified principal
investigator. Clinical trials are conducted in accordance with protocols that
detail the objectives of the study, the parameters to be used to monitor safety
and the efficacy criteria to be evaluated. Each protocol must be submitted to
the FDA as part of the IND. Further, each clinical study must be conducted under
the auspices of an independent institutional review board at the institution
where the study will be conducted. The institutional review board will consider,
among other things, ethical factors, the safety of human subjects and the
possible liability of the institution.
Human clinical trials are typically conducted in three sequential phases
which may overlap:
o PHASE I: The drug is initially introduced into healthy human
subjects or patients and tested for safety, dosage tolerance,
absorption, metabolism, distribution and excretion;
o PHASE II: Studies are conducted in a limited patient population to
identify possible short term adverse effects and safety risks, to
determine the efficacy of the product for specific targeted diseases
and to determine dosage tolerance and optimal dosage;
o PHASE III: Phase III trials are undertaken to further evaluate
clinical efficacy and to further test for safety in an expanded
patient population, often at geographically dispersed clinical study
sites. Phase III or IIb/III trials are often referred to as pivotal
trials, as they are used for the final approval of a product.
In the case of products for life-threatening diseases such as cancer,
the initial human testing is often conducted in patients with disease rather
than in healthy volunteers. Since these patients already have the targeted
disease or condition, these studies may provide initial evidence of efficacy
traditionally obtained in Phase II trials and so these trials are frequently
referred to as Phase I/II trials. We cannot be certain that we will successfully
complete Phase I, Phase II or Phase III testing of our product candidates within
any specific time period, if at all. Furthermore, we, the FDA, the institutional
review board or the sponsor may suspend clinical trials at any time on various
grounds, including a finding that the subjects or patients are being exposed to
an unacceptable health risk.
The results of product development, pre-clinical studies and clinical
studies are submitted to the FDA as part of a new drug application for approval
of the marketing and commercial shipment of the product. The FDA may deny a new
drug application if the applicable regulatory criteria are not satisfied or may
require additional clinical data. Even if the additional data is submitted, the
FDA may ultimately decide that the new drug application does not satisfy the
criteria for approval. Once issued, the FDA may withdraw product approval if
compliance with regulatory standards for production and distribution is not
maintained or if safety problems occur after the product reaches the market. In
addition, the FDA requires surveillance programs to monitor approved products
which have been commercialized, and the agency has the power to require changes
in labeling or to prevent further marketing of a product based on the results of
these post-marketing programs.
The FDA has a Fast Track program intended to facilitate the development
and expedite the review of drugs that demonstrate the potential to address unmet
medical needs for treatment of serious or life-threatening conditions. Under
this program, if the FDA determines from a preliminary evaluation of clinical
data that a fast track product may be effective, the FDA can review portions of
a new drug application for a Fast Track product before the entire application is
complete, and undertakes to complete its review process within six months of the
filing of the new drug application. The FDA approval of a Fast Track product can
include restrictions on the product's use or distribution such as permitting use
only for specified medical procedures or limiting distribution to physicians or
facilities with special training or expertise. The FDA may grant conditional
approval of a product with Fast Track status and require additional clinical
studies following approval.
Satisfaction of FDA requirements or similar requirements of state, local
and foreign regulatory agencies typically takes several years and the actual
time required may vary substantially, based upon the type, complexity and
novelty of the pharmaceutical product. Government regulation may delay or
prevent marketing
42
of potential products for a considerable period of time and impose costly
procedures upon our activities. Success in pre-clinical or early stage clinical
trials does not assure success in later stage clinical trials. Data from
pre-clinical and clinical activities is not always conclusive and may be
susceptible to varying interpretations which could delay, limit or prevent
regulatory approval. Even if a product receives regulatory approval, the
approval may be significantly limited to specific indications. Further, even
after the FDA approves a product, later discovery of previously unknown problems
with a product may result in restrictions on the product or even complete
withdrawal of the product from the market.
Any products manufactured or distributed under FDA clearances or
approvals are subject to pervasive and continuing regulation by the FDA,
including record-keeping requirements and reporting of adverse experiences with
the products. Drug manufacturers and their subcontractors are required to
register with the FDA and state agencies, and are subject to periodic
unannounced inspections by the FDA and state agencies for compliance with good
manufacturing practices, which impose procedural and documentation requirements
upon manufacturers and their third party manufacturers.
We are subject to numerous other federal, state and local laws relating
to such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control, and disposal of hazardous or
potentially hazardous substances. We may incur significant costs to comply with
such laws and regulations now or in the future. In addition, we cannot predict
what adverse governmental regulations may arise from future United States or
foreign governmental action.
We also are subject to foreign regulatory requirements governing human
clinical trials and marketing approval for pharmaceutical products which we sell
outside the United States. The requirements governing the conduct of clinical
trials, product licensing, pricing and reimbursement vary widely from country to
country. Whether or not we obtain FDA approval, we must obtain approval of a
product by the comparable regulatory authorities of foreign countries before
manufacturing or marketing the product in those countries. The approval process
varies from country to country and the time required for these approvals may
differ substantially from that required for FDA approval. We cannot assure you
that clinical trials conducted in one country will be accepted by other
countries or that approval in one country will result in approval in any other
country. For clinical trials conducted outside the United States, the clinical
stages generally are comparable to the phases of clinical development
established by the FDA.
Competition
Competition in the pharmaceutical industry is intense. Potential
competitors in the United States and Europe are numerous and include
pharmaceutical, chemical and biotechnology companies, most of which have
substantially greater capital resources, marketing experience, research and
development staffs and facilities than us. Although we seek to limit potential
sources of competition by developing products that are eligible for orphan drug
designation or other forms of protection, there can be no assurance that our
competitors will not succeed in developing similar technologies and products
more rapidly than are being or will be developed by us.
One of Bioenvision's lead drugs, Clofarabine, has been granted Orphan
Drug Status in the U.S. and Europe, and is currently undergoing multi-center
Phase II trials. Listed below are other Cytotoxic Agents currently at market.
Growth
1999 2000 2001 2000-01
Company Brand Generic Class ($m) ($m) ($m) (%)
-------------- ------------- ------------- ------------------ ------- ------ ----- -----------
BMS Taxol Paclitaxel Other Cytotoxics 1,481 1,592 1,197 -24.8
Aventis Taxotere Docctaxel Other Cytotoxics 461 686 925 34.8
Lilly Gemzar Gemcitabine Antimetabolite 453 559 723 29.3
BMS Paraplatin Carboplatin Other Cytotoxics 600 690 702 1.7
Pharmacia Camptosar irinorccan Other Cytotoxics 293 441 613 39.0
Taiho UFT tegafur Antimetabolite 460 440 420e -4.5
uracil
Pharmacia Pharmorubicin/ cpirubein Cytotoxic 206 199 261 31.2
Ellence Antibiotics
Ivax Paxene paclitaxel Other Cytotoxics n/a 35 215 514.3
Roche Furtulon doxifluridine Antimetabolite 166 201 201 0.0
Aventis Campro irinotecan Other Cytotoxics 83 139 186 33.8
Sanofi Eloxatine oxilaplatin Other Cytotoxics 72 130 181 39.2
SP Temodar temozolomide Alkylating agents 36 121 180 48.8
Roche Xeloda capecitabine Antimetabolite 53 89 155 74.0
GSK Hycarntin topotecan Other Cytotoxics 141 144 131 -9.0
43
Growth
1999 2000 2001 2000-01
Company Brand Generic Class ($m) ($m) ($m) (%)
-------------- ------------- ------------- ------------------ ------- ------ ----- -----------
Schering AG Fludara fludarabine Antimetabolite 79 102 120 17.6
BMS Ifex ifosfamide Alkylating agents 88 108 120e 11.1
Alza US Doxil/Caelyx liposomal/ Cytotoxic 66 82 100 22.0
doxorubicin Antibiotics
Pierre Fabre Navelbine vinorelbine Vae 76 82 90e 9.8
Wyeth Novantrone mitoxantrone Cytotoxic 45 60 71 18.7
BMS VcPesid ctoposide Vae 77 70 65e -7.1
GSK Navelbine vinorelbine Vae 67 65 63e -3.1
Pharmacia Adriamycin doxorubicin Cytotoxic 65 62 55e -11.3
BMS Hydrea hydroxyurea Alkylating agents 56 52 48e -7.7
Others 1,824 1,776 1,829 3.0
------ ------ ------ -----
TOTAL 6,948 7,925 8,651 9.2
====== ====== ====== =====
Source: Reuters, 2002
Another of Bioenvision's lead drugs, Modrenal(R) is approved in the UK
for the treatment of post-menopausal patients with advanced breast cancer. In
particular, the drug is approved as follow-on treatment for patients who
previously have responded to hormonal therapy.
Listed below are other hormonal therapies currently at market.
Growth
1999 2000 2001 2000-01
Company Brand Generic Class ($m) ($m) ($m) (%)
-------------- ------------- ------------- ------------------ ------- ------ ----- -----------
TAP Lupron Leuprorelin LHRH agonsists 775 798 833 4.4
AstraZeneca Zoladex Goserelin LHRH agonsists 686 734 728 -0.8
AstraZeneca Nolvadex Tamoxifen Anti-estrogens 573 576 630 9.4
AstraZeneca Casodex Bicalulamide Anti-estrogens 340 433 569 31.4
Takeda Leuplin leuprorelin LHRH agonsists 485 515 530e 2.9
Barr Tamoxifen Tamoxifen Anti-estrogens 297 322 501 55.6
Pharmacia Depo-Provera Medroxy Progestagens 252 272 283 4.0
AstraZeneca Arimidex Anastrozole Aromatase 140 156 191 22.4
Inhibitors
Abbott Lupron leuprorelin LHRH agonsists 140 153 163 6.5
BMS Megace megestrol Progestagens 114 180 150e -16.7
Novartis Femara letrozole Aromatase 57 74 125 68.9
Inhibitors
Ipsen Deccapepryl triptorelin LHRH agonsists 100 105 110e 4.8
Aventis Nilandron nilutamide Anti-androgens 72 87 93e 6.9
Schering AG Androcur cyproterone Anti-androgens 91 95 92 -3.0
Aventis Suprecur/ buserelin LHRH agonsists 83 84 85e 1.7
Suprefact
SP Eulexin flutamide Anti-androgens 155 128 83 -35.2
Pharmacia Aromasin exemestane Aromatase n/a 36 65e 80.6
Inhibitors
Nihun Kayaku Odyne flutamide Anti-androgens 71 65 62e -4.5
Teikoku Prostal chlormadinone Progestagens 63 63 62e -1.6
Hormone
Novartis Lentaron formestane Aromatase 47 45 43e -4.4
Inhibitors
Nihun Kayaku Fareston toremifene Anti-estrogens 44 43 40e -6.1
Novartis Afema tadrozole Aromatase 22 25 23e -8.0
Inhibitors
Mitsui Tasuomin Tamoxifen Anti-estrogens 10 9 9e -3.2
Others 237 240 250 4.3
------ ------ ------ -----
TOTAL 4,855 5,237 5,720 9.2
====== ====== ====== =====
Source: Reuters, 2002
The generic drug industry is intensely competitive and includes large
brand name and multi-source pharmaceutical companies. Because generic drugs do
not have patent protection or any other market exclusivity, our competitors may
introduce competing generic products, which may be sold at lower prices or with
more aggressive marketing. Conversely, as we introduce branded drugs into our
product portfolio, we will face competition from manufacturers of generic drugs
which may claim to offer equivalent therapeutic benefits at a lower price.
44
We expect that our proposed products will compete on the basis of, among
other things, safety, efficacy, reliability, price, quality of life factors
(including the frequency and method of drug administration), marketing,
distribution, reimbursement and effectiveness of intellectual property rights.
We believe that our competitive success will be based partly on our ability to
attract and retain scientific personnel, establish specialized research and
development capabilities, gain access to manufacturing, marketing and
distribution resources, secure licenses to external technologies and products,
and obtain sufficient development capital. We intend to obtain many of these
capabilities from pharmaceutical or biotechnology companies through
collaborative or license arrangements. However, there is intense competition
among early stage biotechnology firms to establish these arrangements. Our
development products may not be of suitable potential market size or provide a
compelling return on investment to attract other firms to commit resources to a
collaboration. Even if collaborations can be established, there can be no
assurance that we will secure financial terms that meet our commercial
objectives.
Employees
As of May 13, 2004, we had seven full-time and three part-time
employees. Of these, three are in management, three are in sales/marketing,
three are in administration and three are in research and development. We
believe our relationships with our employees are satisfactory.
Corporate History
We were incorporated as Express Finance, Inc. under the laws of the
State of Delaware on August 16, 1996, and changed our name to Ascott Group, Inc.
in August 1998 and further to Bioenvision, Inc. in December 1998, at which time
the Company merged with Bioenvision, Inc, (`Old Bioenvision') a development
stage Company primarily engaged in the research and development of products and
technologies for the treatment of cancer.
On February 1, 2002, we completed the acquisition of Pathagon Inc., the
successor in interest to Bridge Blood Technologies L.L.C., d/b/a Pathagon, a
non-public company focused on the development of novel anti-infective products
and technologies. Pathagon's principal products, OLIGON(R) and methylene blue,
are ready for market. Affiliates of SCO Capital Partners LLC, our financial
advisor and consultant, owned 82% of Pathagon prior to the acquisition. We
acquired 100% of the outstanding shares of Pathagon in exchange for 7,000,000
shares of our common stock. The acquisition has been accounted for as a purchase
business combination in accordance with SFAS 141. With the acquisition, we added
rights to OLIGON(R) and methylene blue to our product portfolio.
DESCRIPTION OF PROPERTY
Facilities
As of the date of this report we do not own any interest in real
property. We currently lease 3,229 square feet of office space at our principal
executive offices at 509 Madison Avenue, Suite 404, New York, New York 10022 for
approximately $13,000 per month. These facilities are the center for all of our
administrative functions in the United States. We also rent 250 square feet of
office space at 32 Haymarket, London SW1Y 4TP for approximately $1,000 per
month. This office space is used to perform certain marketing functions
throughout Europe. Also, we rent on a month-to-month basis approximately 500
square feet of office space in Edinburgh, Scotland for approximately $3,000 per
month. To date, most of our drug development programs have been conducted at
scientific institutions around the world. It is our policy to continue
development at leading scientific institutions in the United States and Europe.
We do not plan to conduct laboratory research in any of our facilities in the
near future, rather, we will conduct research through collaborative arrangements
with Southern Research Institute, M.D. Anderson and others.
Investment Policies
We do not currently have any investments in real estate or interests in real
estate; investments or interests in real estate mortgages or in the securities
of or interests in persons primarily engaged in real estate. We generally
acquire our assets for the purpose of ultimately producing sales revenues from
the exploitation of such assets in the development of our biopharmaceutical
business. We currently invest our surplus cash in interest-bearing deposit
accounts and short-term certificates of deposit.
45
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding of our
results of operations and financial condition. The discussion should be read
together with our consolidated financial statements, included herein, for
further details.
Summary of Significant Accounting Policies
Financial Reporting Release No. 60, which was recently released by the
SEC, requires all companies to include a discussion of critical accounting
policies or methods used in the preparation of the consolidated financial
statements. In addition, Financial Reporting Release No. 61 was recently
released by the SEC, which requires all companies to include a discussion to
address, among other things, liquidity, off-balance sheet arrangements,
contractual obligations and commercial commitments. The following discussion is
intended to supplement the summary of significant accounting policies as
described in Note 1 of the Notes To Consolidated Financial Statements for the
year ended June 30, 2003 included herein.
These policies were selected because they represent the more significant
accounting policies and methods that are broadly applied in the preparation of
the consolidated financial statements.
Revenue Recognition - Revenue under research contracts is recorded as
earned under the contracts, as services are provided. In accordance with SEC
Staff Accounting Bulletin No. 101, upfront nonrefundable fees associated with
license and development agreements where the Company has continuing involvement
in the agreement, are recorded as deferred revenue and recognized over the
period of involvement. If the estimated service period is subsequently modified,
the period over which the up-front fee is recognized would be modified
accordingly on a prospective basis. Revenues from the achievement of research
and development milestones, which represent the achievement of a significant
step in the research and development process, are recognized when and if the
milestones are achieved.
Stock Based Compensation - In accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for
Stock-Based Compensation, we apply Accounting Principles Board Opinion 25 and
related interpretations in accounting for our stock option plan and,
accordingly, we do not recognize compensation expense for employee stock options
granted with exercise prices equal to or greater than fair market value.
Non-employee stock-based compensation arrangements are accounted for in
accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force
No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services.
Under EITF No. 96-18, as amended, where the fair value of the equity instrument
is more reliably measurable than the fair value of services received, such
services will be valued based on the fair value of the equity instrument.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles of the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements as well as the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates, and such differences may be material to the financial
statements.
Results of Operations
Year Ended June 30, 2003 Compared to Year Ended June 30, 2002
We reported revenues of $505,000 and $803,000 for the years ended June
30, 2003 and 2002, respectively. Revenues reflect recognition of consideration
received pursuant to our agreements with co-development and sub-licensing
partners in connection with our platform of drugs and technologies. Of the
revenues recorded for the year ended June 30, 2003, $12,000 was recognized from
Dechra, pursuant to the Sub-License Agreement, dated May 13, 2003.
Research and development costs for the years ended June 30, 2003 and
2002 were $1,689,000 and $1,912,000, respectively, representing a decrease of
$223,000.
46
Our research and development costs include costs associated with six
projects of which the Company devotes significant time and resource. Clofarabine
research and development costs for the year ended June 30, 2003 and 2002 were
$871,000 and $596,000, respectively, representing an increase of $275,000. The
increase primarily reflects the costs associated with our having commenced
clinical trials in Europe to develop Clofarabine. Modrenal research and
development costs for the year ended June 30, 2003 and 2002 were $913,000 and
$923,000, respectively, representing a decrease of $10,000. Gossypol research
and development costs were $30,000 and $90,000, respectively, representing a
decrease of $60,000. The decrease primarily reflects a decrease in the amount of
resource devoted by the Company to this compound while the Company focused on
developing its lead drugs. Gene Therapy research and development costs for the
year ended June 30, 2003 were $(130,000) and $303,000, respectively,
representing a decrease of $433,000. The decrease primarily reflects an accrued
expense in the year ended 2002 of $200,000 which was determined to be less than
originally estimated by the Company in the year ended June 30, 2003. The
clinical trials and development strategy for the Clofarabine and Modrenal
projects, in each case, is anticipated to cost several million dollars and will
continue for several years based on the number of clinical indications within
which we plan to develop these drugs. Currently, management cannot estimate the
timing or costs associated with these projects because many of the variables,
such as interaction with regulatory authorities and response rates in various
clinical trials, are not predictable. Estimated total costs to date for each of
these four projects is as follows: (i) Clorfarabine research and development
costs have been approximately $3.0 million; (ii) Modrenal research and
development costs have been approximately $2.35 million; (iii) Gossypol research
and development costs have been approximately $150,000; and (iv) Gene Therapy
research and development costs have been approximately $450,000. Our other two
research and development projects involve our two ancillary technologies; OLIGON
and Methylene Blue. We do not currently devote any significant time or resources
to these research and development projects, but we intend to do so if and to the
extent we successfully commercialize our lead drugs, Clorfarabine and Modrenal ,
over the next two years.
Administrative expenses for the year ended June 30, 2003 and 2002 were
$4,567,000 and $2,128,000, respectively, representing an increase of $2,439,000.
Of this amount, $1,600,000 of this increase was due to the expansion of the
internal management team from one full time employee to eight full time
employees; approximately $150,000 of this increase was due to lease expenses and
office supplies /equipment for the newly opened New York and Edinburgh, Scotland
offices, both of which we opened during the year; approximately $300,000 of the
increase was due to an increase in investor and public relations expenses
related to pre-marketing activities with Clofarabine and marketing costs
associated with Modrenal; approximately $200,000 of the increase was related to
increases in related travel expense to successfully manage our drug development
activities; and approximately $150,000 of the increase was due to increases in
our consulting and legal expenses as the result of our recent growth.
We reported interest and finance charges of $325,000 for the year ended
June 30, 2003, representing a decrease of $1,848,000 from the year ended June
30, 2002. This decrease reflects the retirement of our credit facility in May
2002 and the fact that we carried no long term debt during the year ended June
30, 2003.
Depreciation and amortization expense totaled $1,345,000 for the year
ended June 30, 2003, representing an increase of $766,000 from the year ended
June 30, 2002. The increase is primarily due to the amortization of certain
intangible assets we acquired in the Pathagon transaction which we consummated
in February 2002.
Year Ended June 30, 2002 Compared to Year Ended June 30, 2001
We reported revenues of $803,000 and $245,000 for the years ended June
30, 2002 and 2001, respectively. Revenues reflect our agreements with our
co-development partners and/or licensees in connection with our platform of
drugs and technologies.
Research and development costs for the years ended June 30, 2002 and
2001 were $1,912,000 and $1,566,000, respectively, representing an increase of
approximately $346,000. This increase primarily is attributable to a full year
amortization of deferred royalties, which represent advance royalties paid to
SRI that are being amortized over the same period that related revenue is being
recognized.
Administrative expenses for the year ended June 30, 2002 and 2001 were
$2,128,000 and $550,000, respectively, representing an increase of $1,578,000.
Of this amount, (i) approximately $650,000 related to an increase in legal and
other professional fees paid during the year, (ii) approximately $750,000
related to an increase in printing, investor and public relations costs and
(iii) approximately $85,000 was due to an increase in travel expenses related to
the Company's expansion of the internal management team.
We reported interest and finance charges of $2,173,000 and $229,000 for
the years ended June 30, 2002 and 2001, respectively, representing an increase
of $1,944,000. This increase reflects charges related to the issuance of
warrants in connection with the Company's various financings.
47
Depreciation and amortization expense totaled $579,000 and $23,000 for
the years ended June 30, 2002 and 2001, respectively. This increase primarily is
due to the amortization of certain intangible assets we acquired in the Pathagon
transaction, which we consummated in February 2002.
Results of Operations
Three and Nine Month Period ended March 31, 2004 Compared to Three and Nine
Month Period Ended March 31, 2003
The Company recorded revenues for the three months ended March 31, 2004
and 2003 of approximately $846,000 and $46,000, respectively, representing an
increase of $800,000. The Company recorded revenues for the nine months ended
March 31, 2004 and 2003 of approximately $1,758,000 and $464,000, respectively,
representing an increase of $1,294,000. Approximately $620,000 and $1,390,000 of
the increase for the three and nine month periods ended March 31, 2004,
respectively, relates to reimbursement for Clofarabine research and development
costs incurred by the Company for European drug development (partially offset,
for the nine months ended March 31, 2004, by an extension of the time period
within which the Company recognizes Clofarabine milestone revenues, which has
the effect of reducing revenue recognized for such milestones by approximately
$300,000 during the period). Revenues reflect our agreement with our
co-development partners and/or licenses in connection with our platform of drugs
and technologies and includes sales of Clofarabine in Europe pursuant to the
Company's Named Patient Program.
Research and development costs for the three months ended March 31, 2004
and 2003 were $994,000 and $320,000, respectively, representing an increase of
$674,000.
Research and development costs for the nine months ended March 31, 2004
and 2003 were $2,545,000 and $1,162,000, respectively, representing a increase
of $1,383,000.
Our research and development costs include costs associated with six
projects for which the Company devotes significant time and resource.
Clofarabine research and development costs for the nine months ended March 31,
2004 and 2003 were $1,612,000 and $730,000, respectively, representing an
increase of $881,000. The increase primarily reflects the costs associated with
our having commenced clinical trials in Europe to develop Clofarabine. Modrenal
research and development costs for the nine months ended March 31, 2004 and 2003
were $744,000 and $561,000, respectively, representing a decrease of $183,000.
Gossypol research and development costs were $152,000 and $27,000, respectively,
representing a increase of $124,000. Gene Therapy research and development costs
for the nine months ended March 31, 2004 and 2003 were 0 and $(158,000),
respectively, representing a decrease of $158,000. The decrease primarily
reflects an accrued expense in the year ended 2002 of $200,000 which was
determined to be less than originally estimated by the Company in the year ended
June 30, 2003. The clinical trials and development strategy for the Clofarabine
and Modrenal projects, in each case, is anticipated to cost several million
dollars and will continue for several years based on the number of clinical
indications within which we plan to develop these drugs. Currently, management
cannot estimate the timing or costs associated with these projects because many
of the variables, such as interaction with regulatory authorities and response
rates in various clinical trials, are not predictable. Our other two research
and development projects involve our two ancillary technologies; OLIGON and
Methylene Blue. We do not currently devote any significant time or resources to
these research and development projects, but we intend to do so if and to the
extent we successfully commercialize our lead drugs, Clofarabine and Modrenal ,
over the next two years.
Selling, general and administrative expenses for the three months ended
March 31, 2004 and 2003 were $3,722,000 and $1,050,000, respectively,
representing an increase of $2,672,000. Selling, general and administrative
expenses for the nine months ended March 31, 2004 and 2003 were $7,080,000 and
$2,743,000, respectively, representing an increase of $4,337,000. Approximately
$1,943,000 and $2,597,000 of the increase for the three and nine month periods
ended March 31, 2004, respectively, relates to stock based compensation recorded
during the period resulting from the repricing of the options issued to an
officer of the Company. Approximately $57,000 and $155,000 of the increase for
the three and nine month periods ended March 31, 2004, respectively, was due to
the expansion of the internal management team from one full time employee to
eight full time employees during the three and nine month periods then ended.
Approximately $98,000 and $532,000 of the increase for the three and nine month
periods ended March 31, 2004, respectively, was due to an increase in investor
and public relations expenses related to pre-marketing activities with
Clofarabine and marketing costs associated with Modrenal. Approximately $2,000
and $107,000 of the increase for the three and nine month periods ended March
31, 2004, respectively, was related to increases in travel related expenses
incurred in order to successfully manage our more active drug development
activities during the three and nine month periods then ended. Approximately
$562,000 and $817,000 of the increase in Selling, general and
48
administrative expense for the three and nine month periods ended March 31,
2004, respectively, was due to increases in our consulting and legal expenses as
the result of our recent growth internally and operationally during the three
and nine month periods ended March 31, 2004, respectively.
Depreciation and amortization expense for the three months ended March
31, 2004 and 2003 were $343,000 and $339,000, respectively, representing an
increase of $5,000. Depreciation and amortization expense for the nine months
ended March 31, 2004 and 2003 were $1,023,000 and $1,006,000, respectively,
representing an increase of $17,000. The increase is primarily due to the
amortization of certain intangible assets we acquired.
Liquidity and Capital Resources
We anticipate that we may continue to incur significant operating losses
for the foreseeable future. There can be no assurance as to whether or when we
will generate material revenues or achieve profitable operations. We are
actively seeking strategic alliances in order to develop and market our range of
products.
We consummated a private placement transaction on March 22, 2004,
pursuant to which we raised $12.8 million and issued 2,044,514 shares of our
common stock and warrants to purchase an additional 408,903 shares of our common
stock at a conversion price of $7.50 per share. We consummated a second closing
for this financing on May 13, 2004 in order to comply with certain contractual
obligations of the Company to its holders of Series A Preferred Stock which hold
preemptive rights for equity offerings of the Company. The Company raised an
additional $3.5 million in the second closing and issued an additional 558,384
shares of our common stock and warrants to purchase 111,677 shares of our common
stock at a conversion price of $7.50 per share.
We received an initial payment from Dechra of $1,250,000 on May 13, 2003
upon execution of our sub-license agreement with Dechra. This agreement expires
upon expiration of the last patent related to modrenal or the completion of the
last royalty obligation as set forth therein.
We received a milestone payment from ILEX of $3.5 million on December
30, 2003, upon executing an amendment to the co-development agreement. This
payment related to the achievement of a milestone; namely, completion of pivotal
phase II trials. Pursuant to the Company's co-development agreement with SRI,
the Company immediately paid $1.75 million of such milestone payment to SRI.
On March 31, 2004, we have cash and cash equivalents of $17,558,813 and
working capital of $17,197,041, which management believes will be sufficient to
continue currently planned operations over the next twelve months. Although we
do not currently intend to raise any additional funds for the next twelve
months, we cannot ensure additional funds will not be raised during such period
because of the significant scale-up of our operating activities, including
Clofarabine development and the launch of Modrenal.
Further, a key element of our business strategy is to continue to
develop new technologies and products that we believe offer unique market
opportunities and/or complement our existing product lines. We are not presently
considering any such transactions, and we do not presently expect to acquire any
significant assets over the coming twelve month period, but if any such
opportunity arises and we deem it to be in our interests to pursue such an
opportunity, it is possible that additional financing would be required for such
a purpose.
Future commitments of the Company for the twelve-month period April 1st
through March 31 are as follows:
Payments Due:
Total 2005 2006
Employee Contracts 2,436,186 1,218,093 1,218,093
Occupancy Lease 248,605 164,972 83,633
Total 2,684,791 1,383,065 1,301,726
In management's opinion, cash flows from operations and borrowing
capacity combined with cash on hand will provide adequate flexibility for
funding the Company's working capital obligations for the next twelve months.
However, there can be no assurance that suitable debt or equity financing will
be available for the Company. The Company has a commitment under its operating
lease with the New York office. The Company leases 3,229 square feet under a
lease that expires on September 30, 2005. The Company is a party to an
additional month-to-month lease agreement for its subsidiary, Bioenvision
Limited.
49
The Company is required to accrue for and pay a dividend of 5%, subject
to certain adjustments, on its cumulative Series A Convertible Participating
Preferred Stock. In the event of a voluntary or involuntary liquidation or
dissolution of the Company, before any distribution of assets shall be made to
the holders of the Company's securities which are junior to the preferred stock
(such as the common stock), holders of the preferred stock shall be paid out of
the assets of the Company legally available for distribution to the Company's
stockholders an amount per share equal to the initial original issue price
($3.00) subject to certain adjustments plus all accrued but unpaid dividends on
such preferred stock.
Plan of Operation
We are an emerging biopharmaceutical company with a primary business
focus on the acquisition, development and distribution of drugs to treat cancer.
We have acquired development and marketing rights to a portfolio of six platform
technologies developed over the past 15 years from which a range of products
have been derived and additional products may be developed in the future.
Although we have commenced marketing one of our lead products, Modrenal(R), and
intend to continue to develop Clofarabine, and our existing platform
technologies and commercializing products derived from such technologies, a key
element of our business strategy is to continue to acquire, obtain licenses for,
and develop new technologies and products that we believe offer unique market
opportunities and/or complement our existing product lines. Once a product or
technology has been launched into the market for a particular disease
indication, we plan to work with numerous collaborators, both pharmaceutical and
clinical, in the oncology community to extend the permitted uses of the product
to other indications. In order to market our products effectively, we intend to
develop marketing alliances with strategic partners and may co-promote and/or
co-market in certain territories.
We plan to continue to initiate clinical trials of Clofarabine in
Europe. The emphasis will be on the use of Clofarabine in the treatment of
refractory acute leukemia in children and adults. The drug has received orphan
drug designation in Europe.
We plan to identify licensing partners for OLIGON(R) and to continue
developing new aspects of the technology. We also plan to continue development
of methlylene blue and other products in our pipeline. With respect to our gene
therapy technology, we have completed laboratory research which confirms proof
of principal of our gene therapy technology and has added to the pre-clinical
data which will be important for any subsequent regulatory submission. This
laboratory research was required to allow the Company and the research
departments of the relevant universities assisting with this technology to file
patents for which the Company has licensing rights. We now plan to perform
additional clinical trials with the two lead products related to this
technology.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In August 2001 Bioenvision issued 208,333 shares at the rate of $1.25
per share in lieu of salary and consulting fees as follows: Christopher B. Wood,
98,684 shares; Thomas Nelson, 27,412 shares; and Stuart Smith, 82,237 shares.
In August 2001, we obtained a $1 million line of credit facility, which
expires in September 2002, from Jano Holdings Limited, one of our stockholders.
This credit facility was terminated in May 2002.
In October 2001, we issued 134,035 shares of common stock to officers as
payment for salaries accrued to September 30, 2001.
On November 16, 2001, we entered into an engagement letter with SCO
Financial Group, pursuant to which SCO would act as our financial advisor. In
connection with the engagement letter, we issued a warrant to purchase 100,000
shares of common stock at an exercise price of $1.25 per share, subject to
certain anti-dilution adjustments. The warrants expire five years from the date
of issuance. Pursuant to this engagement letter, among other things, SCO
Financial Group performs investor relations services for the Company and earns a
monthly fee of $9,000 per month in connection therewith.
On November 16, 2001, in connection with securing a credit facility with
SCO Capital, we issued warrants to purchase 1,500,000 shares of our common stock
at a strike price of $1.25 per share, subject to certain anti-dilution
adjustments. The warrants expire five years from the date of issuance. The
credit facility with SCO Capital was terminated in May 2002.
50
On February 5, 2002, we completed the acquisition of Pathagon Inc. In
connection therewith, on February 1, 2002 we issued 7,000,000 shares of common
stock to the former stockholders of Pathagon Inc.
In May 2002, we completed a private placement pursuant to which we
issued an aggregate of 5,916,666 shares of Series A convertible participating
preferred stock for $3.00 per share and warrants to purchase an aggregate of
5,916,666 shares of common stock and in March and May of 2004 we completed a
private placement pursuant to which we issued an aggregate of 2,602,898 shares
of our common stock and warrants to purchase an aggregate of 780,870 shares of
common stock. An affiliate of SCO Capital Partners LLC, one of our stockholders,
served as financial advisor to the Company in connection with these financings
and earned a placement fee of approximately $1,200,000 in connection with the
May 2002 private placement and warrants to purchase 260,291 shares of common
stock for $6.25 per share for the March and May 2004 financings. This affiliate
of SCO Capital Partners LLC continues to serve as a financial advisor to the
Company.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
In August 2003, we received notice that our application to list our
shares of common stock had been approved by the American Stock Exchange. Our
shares of common stock commenced trading on the American Stock Exchange on
September 8, 2003. The following represents the range of reported high and low
bid quotations for our common stock on a quarterly basis since July 1, 2001 as
reported on the OTC Bulletin Board through the first quarter of 2003 and as
reported on AMEX for the second quarter of 2003 and all subsequent periods.
Throughout this period and through September 5, 2003, our trading symbol was
"BIOV" Our trading symbol was changed to "BIV" on September 8, 2003 upon
commencement of listing our shares of common stock on the American Stock
Exchange. The quotations also reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not represent actual transactions.
High Low
---- ---
Fiscal Year Ended June 30, 2002
First Quarter $2.50 $1.60
Second Quarter $2.50 $1.15
Third Quarter $3.00 $2.25
Fourth Quarter $3.60 $1.75
Fiscal Year Ended June 30, 2003
First Quarter $2.55 $1.35
Second Quarter $2.25 $1.10
Third Quarter $1.55 $0.39
Fourth Quarter $2.89 $0.77
Nine Months Ended March 31, 2004
First Quarter $4.90 $1.70
Second Quarter $5.40 $3.13
Third Quarter $10.25 $3.74
On May 18, 2004, we had 189 stockholders of record.
We have never declared or paid cash dividends on our capital stock, and
our board of directors does not intend to declare or pay any dividends on the
common stock in the foreseeable future. However, the Company is required to
accrue for and pay a dividend of 5%, subject to certain adjustments, on its
cumulative Series A Convertible Participating Preferred Stock. We have not paid
dividends on our cumulative Series A Convertible Participating Preferred Stock
since May 8, 2002 but have accrued the dividends since that time. Our earnings,
if any, are expected to be retained for use in expanding our business. The
declaration and payment in the future of any cash or stock dividends on the
common stock will be at the discretion of the board of directors and will depend
upon a variety of factors, including our ability to service our outstanding
indebtedness and to pay our dividend obligations on securities ranking senior to
the common stock, our future earnings, if any, capital requirements, financial
condition and such other factors as our board of directors may consider to be
relevant from time to time.
EXECUTIVE COMPENSATION
The following table sets forth information for each of the fiscal years
ended June 30, 2003, 2002 and 2001 concerning the compensation paid and awarded
to all individuals serving as (a) our chief executive officer, (b) each of our
four other most highly compensated executive officers (other than our chief
executive officer) at the end of our fiscal year ended June 30, 2003 whose total
annual salary and bonus exceeded $100,000 for these periods, and (c) up to two
additional individuals, if any, for whom disclosure would have been provided
51
pursuant to (b) except that the individual(s) were not serving as our executive
officers at the end of our fiscal year ended June 30, 2003:
Summary Compensation Table
Annual compensation Long term compensation
------------------------------ -------------------------------------------------------
Awards Payouts
Name & Securities All other
Principal Restricted underlying LTIP compen-
Position Year Salary Bonus Other Stock Awards options/SARs payouts sation
-------- ---- ------ ----- ----- ------------ ------------ ------- ------
$ $ $ $ $ $
Christopher B.
Wood (1) 2003 225,000 -
2002 225,000 - 500,000
2001 180,000 - 1,500,000
David P. Luci (2) 2003 205,200 57,000(3) 500,000
2002 - -
2001 - -
Hugh Griffith (4) 2003 180,000 20,000 300,000
2002 - -
2001 - -
Stuart Smith (5) 2003 - -
2002 150,000 - -
2001 150,000 - 500,000
--------------------------
(1) On April 30, 2001, Dr. Wood was granted options to purchase 1,500,000
shares of our common stock. The options are immediately exercisable and
originally expired on April 30, 2004 but have been extended to April 30,
2006. On December 31, 2002, Dr. Wood was granted options to purchase
500,000 shares of our common stock which vest and become exercisable in
equal amounts on the first, second and third anniversaries of the December
31, 2002 grant date.
(2) On July 22, 2002, Mr. Luci was granted options to purchase 380,000 shares
of our common stock. On March 31, 2003, in connection with the execution
of an employment agreement between the Company and Mr. Luci, these options
were cancelled and the Company issued options to purchase 500,000 shares
of common stock at a then-current fair market value. Of these options,
options to purchase 170,000 shares of our common stock are immediately
exercisable and, subject to certain circumstances, options to purchase
110,000 shares of common stock vest and become exercisable on each of the
first, second and third anniversaries of March 31, 2003, the grant date.
(3) This annual bonus was prorated for the portion of calendar year 2002
within which Mr. Luci was employed by the Company. The net amount of the
bonus paid to Mr. Luci after such pro-ration was equal to $25,000.
(4) On October 23, 2002, Mr. Griffith was granted options to purchase 300,000
shares of our common stock at a then-current fair market value. Of these
options, options to purchase 100,000 shares of our common stock vest and
become exercisable, subject to certain circumstances, on each of the
first, second and third anniversaries of October 23, 2002, the grant date.
(5) On April 30, 2001, Mr. Smith was granted options to purchase 500,000
shares of our common stock. The options are immediately exercisable and
originally expired on April 30, 2004 but have been extended to April 30,
2006. On September 30, 2002, Stuart Smith resigned from his position as
Senior Vice President of the Company and his employment agreement was
terminated.
Employment Agreements
We have entered into employment agreements with each of our principal
executive officers. Pursuant to these agreements, our executive officers agree
to devote all or a substantial portion of their business and professional time
efforts to our business as executive officers. The employment agreements provide
for certain compensation packages, which include bonuses and other incentive
compensation. The agreements also contain covenants restricting the employees
from competing with us and our business and prohibiting them from disclosing
confidential information about us and our business.
52
On September 1, 1999, we entered into an employment agreement with
Christopher B. Wood, M.D. under which he serves as our Chairman and Chief
Executive Officer. The initial term of Dr. Wood's employment agreement is two
years with automatic one-year extensions thereafter unless either party gives
written notice to the contrary. On December 31, 2002, we entered into a new
employment agreement with Dr. Wood, under which he continues to serve as our
Chairman and Chief Executive Officer. Under this contract, the term is one year,
with automatic one-year extensions thereafter unless either party provides
written notice to the contrary. Dr. Wood's new employment agreement provides for
an initial base salary of $225,000, a bonus as determined by the Board of
Directors, health insurance and other benefits currently or in the future
provided to key employees of the Company. If Dr. Wood's employment is terminated
other than for cause or if he resigns for good reason or if a change of control
occurs, he will receive a lump sum payment in an amount equal to his then
current annual base salary and any and all unvested options will vest and
immediately become exercisable.
On January 1, 2000, we entered into an employment agreement with Stuart
Smith under which he serves as our Senior Vice President. The initial term of
Mr. Smith's employment agreement is two years, with automatic one-year
extensions thereafter unless either party gives written notice to the contrary.
Mr. Smith's agreement provides for an initial base salary of $150,000, a bonus
as determined by the board of directors, life insurance benefits equal to his
annual salary, health insurance and other benefits currently or in the future
provided to our key employees. On September 30, 2002, Mr. Smith resigned from
his position as Senior Vice President of the Company; his employment agreement
was terminated and the Company agreed to issue shares of its common stock to Mr.
Smith at the then current fair market value in satisfaction of all outstanding
obligations of the Company to Mr. Smith pursuant to the employment agreement.
On March 31, 2003, we entered into an employment agreement with David P.
Luci, pursuant to which he serves as our Director of Finance, General Counsel
and Corporate Secretary. The initial term of Mr. Luci's employment agreement is
one-year, with automatic one-year extensions thereafter unless either party
provides written notice to the contrary. If Mr. Luci's employment is terminated
other than for cause or if he resigns for good reason or if a change of control
occurs, he will receive a lump sum payment in an amount equal to 1.5 multiplied
by the sum of (i) his then current annual base salary plus (ii) his then average
annual bonus for the preceding two years and any and all unvested options will
vest and immediately become exercisable.
Director Compensation
Our policy is that non-management directors are entitled to receive a
director's fee of $1,000 per meeting for attendance at meetings of the board of
directors, and are reimbursed for actual expenses incurred in respect of such
attendance. We do not separately compensate employees for serving as directors.
We do not provide additional compensation for committee participation or special
assignments of the board of directors.
Stock Options
Our Board of Directors has adopted, and our stockholders have approved
our 2003 Stock Incentive Plan. The plan was adopted to recognize the
contributions made by our employees, officers, consultants, and directors, to
provide those individuals with additional incentive to devote themselves to our
future success and to improve our ability to attract, retain and motivate
individuals upon whom our growth and financial success depends.
The key provisions of the plan are as follows:
Eligibility and Administration.
The plan authorizes the Board of Directors or the compensation committee
(the "Administrator"), to (i)select the participants who are to be granted
options, restricted shares or performance units, (ii)determine the number of
shares of Common Stock to be granted to each participant, (iii)designate
options, to the extent the award consists of options, as incentive stock options
or nonstatutory stock options, (iv)determine the vesting schedule and
performance criteria, if any, for restricted shares and performance units and
(v)determine to what extent the awards may be transferable. As of the date
hereof, there are approximately 7 employees who are currently eligible to
participate in the plan under the Company's policies. All directors and
consultants are currently eligible to participate in the plan. The
Administrator's interpretations and construction of the plan are final and
binding on the Company.
53
Shares Available for Issuance Under the Plan
The stock subject to options granted under the plan are shares of the
Company's authorized but unissued or reacquired shares of Common Stock. On March
23, 2004, the closing price of the common stock on the American Stock Exchange
of the Common Stock was $8.45 per share. There are 3,000,000 shares reserved for
grants of options under the plan. On the same date, there were 22,934,616 shares
of Common Stock outstanding.
Grant, Exercise and other Terms of Awards.
Options issued under the plan are designated as either incentive stock
options or nonstatutory stock options. Incentive stock options are options
meeting the requirements of Section 422 of the Code, and nonstatutory options
are options not intended to so qualify.
The exercise price of options granted under the plan may not be less
than 100% of the fair market value of the Common Stock of the Company (as
defined by the plan) on the date of the grant. With respect to any participant
who owns stock representing more than 10% of the voting rights of the
outstanding Common Stock of the Company, the exercise price of any incentive
stock option granted must equal at least 110% of the fair market value of the
Common Stock on the grant date, and the maximum term of any such incentive stock
option must not exceed five years.
Options, restricted shares and performance units are evidenced by
written award agreements in a form approved by the Administrator from time to
time and no award is effective until the applicable award agreement has been
executed by both parties thereto. Options granted under the plan may become
exercisable in cumulative increments over a period of months or years, or
otherwise, as determined by the Administrator. The purchase price of options
shall be paid in cash; provided, however, that if the applicable award agreement
so provides, or the Administrator, in its sole discretion otherwise approves
thereof, the purchase price may be paid in shares of Common Stock having a fair
market value on the exercise date equal to the exercise price or in any
combination of cash and shares of Common Stock, as long as the sum of the cash
so paid and the fair market value of the shares so surrendered equals the
aggregate purchase price. In addition, the Administrator may permit deferred
compensation elections by certain directors and executive officers. The award
agreement evidencing the restricted shares and/or performance units shall set
forth the terms upon which the Common Stock subject to any awards or the
achievement of any cash bonus may be earned.
No options granted under the plan are exercisable after the expiration
of ten years (or less in the discretion of the Administrator) from the date of
the grant, and no incentive stock options granted under the Amended Award Plan
to a participant who owns more than ten percent of the total combined voting
power of all classes of outstanding stock of the Company shall be exercisable
after the expiration of five years (or less, in the discretion of the
Administrator) from the date of the grant. The aggregate fair market value (as
of the respective date or dates of grant) of the shares of Common Stock
underlying the incentive stock options that are exercisable for the first time
by a participant during any calendar year under the plan and all other similar
plans maintained by the Company may not exceed $100,000. If a participant ceases
to be an employee of the Company for any reason other than his or her death,
Disability or Retirement (as such terms are defined in the plan), such
participant shall have the right, subject to certain restrictions, to exercise
that option at any time within ninety days (or less, in the discretion of the
Administrator) after cessation of employment, but, except as otherwise provided
in the applicable award agreement, only to the extent that, at the date of
cessation of employee, the participant's right to exercise such option had
vested and had not been previously exercised. The Administrator, in its sole
discretion, may provide that the option shall cease to be exercisable on the
date of such cessation if such cessation arises by reason of termination for
Cause (as such term is defined in the Amended Award Plan) or if the participant
becomes an employee, director or consultant of an entity that the Administrator
determines is in direct competition with the Company.
In the event a participant dies before such participant has fully
exercised his or her option, then the option may be exercised at any time within
twelve months after the participant's death by the executor or administrator of
his or her estate or by any person who has acquired the option directly from the
participant by bequest or inheritance, but except as otherwise provided on the
applicable award agreement, only to the extent that, at the date of death, the
participant's right to exercise such option had vested pursuant to the terms of
the applicable award agreement and had not been forfeited or previously
exercised.
In the event a participant ceases to be an employee of the Company by
reason of Disability, such
54
participant shall have the right, subject to certain restrictions, to exercise
the option at any time within twelve months (or such shorter period as the
Administrator may determine) after such cessation of employment, but only to the
extent that, at the date of cessation of employment, the participant's right to
exercise such option had previously vested pursuant to the terms of the
applicable award agreement and had not previously been exercised.
In the event a participant ceases to be an employee of the Company by
reason of Retirement, such participant shall have the right, subject to certain
restrictions, to exercise the option at any time within ninety days (or such
longer or shorter period as the Administrator may determine) after cessation of
employment, but only to the extent that, at the date of cessation of employment,
the participant's right to exercise such option had vested pursuant to the terms
of the applicable award agreement and had not previously been exercised.
Adjustment of Awards Upon Certain Events.
If the Company merges with another corporation and the Company is the
surviving corporation in such merger and under the terms of such merger the
shares of Common Stock outstanding immediately prior to the merger remain
outstanding and unchanged, each outstanding award shall continue to apply to the
shares subject thereto and will also pertain and apply to any additional
securities and other property, if any, to which a holder of the number of shares
subject to the option would have been entitled as a result of the merger.
In the event all or substantially all of the assets of the Company are
sold, the Company engages in a merger where the Company does not survive or the
Company is consolidated with another corporation, each participant shall receive
immediately before the effective date of such sale, merger or consolidation
restricted shares and the value of any performance units to which the
participant is then entitled (regardless of any vesting condition) and each
outstanding option will become exercisable (without regard to the vesting
provisions thereof) for a period of at least 30 days ending five days prior to
the effective date of the transaction. Notwithstanding the foregoing, the
surviving corporation may, in its sole discretion, (i) (a) grant to participants
with options, options to purchase shares of the surviving corporation upon
substantially the same terms as the options granted under the plan, (b) tender
to all participants with restricted shares, an award of restricted shares of the
surviving or acquiring corporation, and (c) tender to all participants with
performance units, an award of performance units of the surviving or acquiring
corporation, or (ii) (a) permit participants with restricted shares to receive
unrestricted shares immediately prior to the effective date of any transaction,
(b) permit participants with performance units to receive cash with respect to
the value of any performance units immediately before the effective date of the
transaction and (c) provide participants with options the choice of exercising
the option prior to the consummation of the transaction or receiving a
replacement option.
Notwithstanding anything to the contrary and except as otherwise
expressly provided in the applicable award agreement, the vesting or similar
installment provisions relating to the exercisability of any award, option or
replacement option tendered as described in the previous sentence shall be
accelerated, and the participant with restricted shares or performance units
shall become fully vested, and the participant with options shall have the
right, for a period of at least 30 days, to exercise such options; provided that
such accelerations of vesting and exercisability shall occur only in the event
that the participant's employment with or services for the Company should
terminate within two years following a Change of Control (as defined in the
plan), unless such employment or services are terminated by the Company for
Cause (as defined in the plan) or by the participant voluntarily without Good
Reason (as defined in the plan), or such employment or services are terminated
due to the death or Disability of the participant. Notwithstanding the
foregoing, no incentive stock option shall become exercisable pursuant to the
foregoing without the participant's consent, if the result would be to cause
such option not to be treated as an incentive stock option.
The number of shares of Common Stock covered by the plan, the number of
shares of Common Stock covered by each outstanding option, restricted share and
performance unit and the exercise price of any options shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a subdivision or consolidation of such shares or a stock
split or the payment of a stock dividend (but only of Common Stock) or any other
increase or decrease in the number of issued shares effected without receipt of
consideration by the Company.
Transfer of Awards.
Unless an award is designated transferable by the Administrator upon
grant, during the lifetime of the participant who has been granted an award, the
award shall be shall not be assignable or transferable. No
55
incentive stock option may be designated as transferable. In the event of the
participant's death, any nontransferable award shall be transferable by the
participant's will or the laws of descent and distribution.
Amendment and Termination.
The plan will continue in effect until terminated by the Board of
Directors or until expiration of the plan on November 17, 2013. The Board may
suspend or discontinue the plan or revise or amend it.
The following table sets forth information concerning option/SAR grants
in our fiscal year ended June 30, 2003 to all individuals serving as (a) our
chief executive officer, (b) each of our four other most highly compensated
executive officers (other than our chief executive officer) at the end of our
fiscal year ended June 30, 2003 whose total annual salary and bonus exceeded
$100,000 for these periods, and (c) up to two additional individuals, if any,
for whom disclosure would have been provided pursuant to (b) except that the
individual(s) were not serving as our executive officers at the end of our
fiscal year ended June 30, 2003:
Option/SAR Grants in Last Fiscal Year
[Individual Grants]
Number of securities Percent of total
underlying options/SARs granted
options/SARs to employees in fiscal Exercise or base price
Name granted (#) year ($/Share) Expiration Date
-------------------- -------------------- ---------------------- ---------------------- ---------------
Christopher B. Wood 500,000 35.84% $1.45 12/31/12
David P. Luci 500,000 35.84% $0.74 3/31/13
Hugh Griffith 300,000 21.51% $1.45 10/22/12
All Executive 1,300,000 93.13% n/a n/a
Officers
There were no options/SARs exercised in our fiscal year ended June 30, 2003 by the named executive officers.
The following table shows the June 30, 2003 fiscal year-end value of the
stock options held by the Named Executive Officers.
Year End 2003 Option/SAR Values
Number of Securities
Underlying Unexercised Value of Unexercised In-the-Money
Options/SARs at Year End Options/SARs at Year End (1)
-------------------------------- ---------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Christopher B. Wood 1,500,000 500,000 $1,455,000 $385,000
David P. Luci 170,000 330,000 $251,600 $448,400
Hugh Griffith 100,000 200,000 $77,000 $154,000
----------------------------------
(1) Amounts shown reflect the excess of the market value of the underlying our
common stock at year end based upon the $2.22 per share closing price on June
30, 2003 over the exercise prices for the stock options. The actual value, if
any, an executive may realize is dependent upon the amount by which the market
price of our common stock exceeds the exercise price when the stock options are
exercised.
56
Equity Compensation Plan Information
The following table provides information about the securities authorized
for issuance under the Company's equity compensation plans as of June 30, 2003:
Number of securities
remaining available for
Number of securities future issuance under
to be issued upon Weighted-average equity compensation
exercise of outstanding exercise price of plans (excluding
options, warrants outstanding options, securities
and rights warrants and rights reflected in column (a))
Plan category (a) (b) (c)
------------------------------ -------------------- ---------------------- --------------------------
Equity compensation plans
approved by security
holders (1) -- -- --
Equity compensation plans
not approved by security
holders 6,378,333 $1.30 --
Total 6,378,333 $1.30 --
(1) At June 30, 2003, the Company had no equity compensation plans approved by
security holders.
FINANCIAL STATEMENTS
The consolidated financial statements of Bioenvision, Inc. and its
subsidiaries including the notes thereto and the report thereon, is presented
beginning at page F-1.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None.
57
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheets as of June 30, 2003 and 2002 F-2
Consolidated Statements of Operations for years ended June 30, 2003 and F-3
2002
Consolidated Statements of Stockholders' Equity (Deficit) for years F-4
ended June 30, 2003 and 2002
Consolidated Statements of Cash Flows for years ended June 30, 2003 and F-5
2002
Notes to Consolidated Financial Statements F-6
Consolidated Balance Sheets as of December 31, 2003 F-24
Consolidated Statements of Operations for the six month period ended F-25
December 31, 2003 and 2002 (Unaudited)
Consolidated Statements of Cash Flows for the six month period ended F-26
December 31, 2003 and 2002 (Unaudited)
Notes to Consolidated Financial Statements (Unaudited) F-27
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders of Bioenvision, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Bioenvision,
Inc. and Subsidiaries as of June 30, 2003 and 2002 and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Bioenvision, Inc.
and Subsidiaries as of June 30, 2003 and 2002, and the consolidated results of
their operations and cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
/s/ Grant Thornton LLP
GRANT THORNTON LLP
New York, New York
September 22, 2003
F-1
Bioenvision, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
June 30, June 30,
2003 2002
------------- ------------
ASSETS
Current assets
Cash and cash equivalents $ 7,929,686 $ 12,882,521
Restricted cash 290,000
Deferred costs - current 22,727 184,091
Accounts receivable 25,000 50,000
Other assets 105,976
------------- ------------
Total current assets 8,373,389 13,116,612
Property and equipment, net 49,265 587
Deferred costs - long term 224,937
Intangible assets, net 15,779,399 16,921,792
Goodwill 3,902,705 4,704,100
Security deposits 79,111
Other Long term assets 126,869
--------------- ------------
Total assets $ 28,535,675 $ 34,743,091
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 411,392 $ 434,316
Accrued expenses 730,722 1,513,859
Accrued dividends payable 1,009,146 131,328
Deferred revenue - current 113,636 368,182
-------- -------------
Total current liabilities 2,264,896 2,447,685
Deferred revenue - long term 1,124,685
Deferred tax liability - non-current 6,317,702 7,656,000
------------ ------------
Total liabilities 9,707,283 10,103,685
----------- -----------
COMMITMENTS AND CONTINGENCIES
Stockholders' equity
Preferred stock - $0.001 par value; 5,920,000 shares
authorized and 5,916,966 shares issued and outstanding
at June 30, 2003 and June 30, 2002, respectively
(liquidation preference $17,750,898) 5,917 5,917
Common stock - $0.001 par value; 50,000,000 shares
authorized and 17,122,739 and 16,887,786 shares issued
and outstanding at June 30, 2003 and June 30, 2002,
respectively 17,123 16,887
Additional paid-in capital 47,304,449 45,491,555
Accumulated deficit (28,651,443) (21,027,299)
Accumulated other comprehensive income 152,346 152,346
------------- -------------
Stockholders' equity 18,828,392 24,639,406
------------- -------------
Total liabilities and stockholders' equity $ 28,535,675 $ 34,743,091
============= =============
The accompanying notes are an integral part of these statements.
F-2
Bioenvision, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended
June 30,
----------------------------
2003 2002
---------- ----------
Revenue $ 504,857 $ 802,965
---------- ----------
Costs and expenses
Research and development 1,689,278 1,912,258
General and administrative 4,567,413 2,127,664
Depreciation and amortization 1,344,969 579,342
---------- ----------
Total costs and expenses 7,601,660 4,619,264
---------- ----------
Loss from operations (7,096,803) (3,816,299)
Interest income (expense)
Interest and finance charges (325,000) (2,172,682)
Interest income 138,574
---------- ----------
(186,426) (2,172,682)
Net loss before income tax benefit (7,283,229) (5,988,981)
Income tax benefit 536,903 253,000
---------- ----------
NET LOSS (6,746,326) (5,735,981)
Cumulative preferred stock dividend (877,818) (131,328)
Beneficial conversion preferred stock dividend (9,351,339)
---------- ----------
Net loss available to common stockholders $(7,624,144) $(15,218,648)
=========== ==========
Basic and diluted net loss per share of common stock $ (0.45) $ (1.25)
=========== ==========
Weighted-average shares used in
computing basic and diluted
net loss per share 16,920,939 12,184,152
========== ==========
The accompanying notes are an integral part of these statements.
F-3
Bioenvision, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Accumulated Total
Preferred Additional Other Stockholders'
Stock Common Stock Paid In Acccumlated Comprehensive Equity
--------------------------------------------
Shares $ Shares $ Capital Deficit Income (Deficit)
------ - ------ -
Balance at June 30,
2001 8,248,919 8,249 3,165,540 (5,808,651) 152,346 (2,482,516)
Net loss for the year (5,735,981) (5,735,981)
Shares issued to
employees for accrued
salaries 1,048,352 1,048 1,269,864 1,270,912
Shares issued to
consultants for
services 390,515 391 168,083 168,473
Shares issued in
connection with
acquisition of
Pathagon 7,000,000 7,000 12,484,926 12,491,926
Shares issued in
connection with
licensing agreement - OMRF 200,000 200 619,800 620,000
Warrants issued in
connection with
licensing agreement - OMRF 425,600 425,600
Gross proceeds from
issuance of preferred
stock 5,916,966 5,917 17,744,081 17,749,998
Direct costs incurred
to issue preferred
stock (3,911,906) (3,911,906)
Cumulative preferred
stock dividend (131,328) (131,328)
Beneficial conversion
preferred stock
dividend 9,351,339 (9,351,339)
Warrants issued in
connection with credit
facility 1,872,000 1,872,000
Warrants issued for
services rendered 2,302,228 2,302,228
------------------------------------------------------------------------------------------------------------
Balance at June 30,
2002 5,916,966 5,917 16,887,786 16,888 45,491,554 (21,027,299) 152,346 24,639,405
Net loss for the year (6,746,326) (6,746,326)
Cumulative preferred
stock dividend (877,818) (877,818)
Shares issued to
consultants for
services 234,953 235 1,258,080 1,258,080
Warrants issued in
connection with
services 182,350 182,350
Rrepricing of options 372,465 372,465
------------------------------------------------------------------------------------------------------------
Balance at June 30,
2003 5,916,966 $5,917 17,122,739 $17,123 47,304,449 $(28,651,443) $152,346 $18,828,392
========= ====== ========== ======= ========== ============= ======== ===========
The accompanying notes are an integral part of this statement.
F-4
Bioenvision, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended
June 30,
--------------------------------
2003 2002
----------- ------------
Cash flows from operating activities
Net loss $ (6,746,326) $ (5,735,981)
----------- -----------
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 1,344,969 579,342
Financing charges - noncash 2,129,482
Deferred tax benefit (536,903)
Compensation costs - shares and warrants issued
to nonemployees 1,440,429
Compensation costs - re-pricing of options 372,465
Changes in assets and liabilities
Deferred costs (63,573) 337,500
Deferred revenue 870,139 (736,364)
Accounts payable (22,924) (350,817)
Other current assets (105,976)
Other long term assets (126,869)
Accounts receivable 25,000 (50,000)
Security deposits (79,111)
Officer's salary for equity conversion 52,090
Other accrued expenses and liabilities (782,901) 1,099,636
------------- ------------
Net cash used in operating activities (4,411,581) (2,675,113)
------------ -----------
Cash flows from investing activities
Purchase of intangible assets (191,848) (455,500)
Capital expenditures (59,406)
Restricted cash (290,000)
------------
Net cash used in investing activities (541,254) (455,500)
------------ ------------
Cash flows from financing activities
Bank overdraft (127,241)
Proceeds from loan financing 982,943
Repayment of loan financing (982,943)
Proceeds from issuance of preferred stock 17,749,998
Costs incurred in connection with offering (1,609,623)
------------ -----------
Net cash provided by financing activities 16,013,134
------------ -----------
Net (decrease) increase in cash and cash
equivalents (4,952,835) 12,882,521
Cash and cash equivalents, beginning of year 12,882,521 -
------------ -----------
Cash and cash equivalents, end of year $ 7,929,686 $12,882,521
============ ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for
Interest $ - $ 43,200
Supplemental disclosure of noncash investing and
financing activities:
Noncash conversion of officer's salary into common
stock $ - $ 1,270,912
Noncash conversion of trade payables into common stock $ - $ 168,473
Noncash issuance of warrants related to SCO financing
agreement $ - $ 1,872,000
Noncash issuance of warrants in connection with
preferred stock $ - $ 2,302,283
Noncash issuance of stock related to Pathagon
acquisition $ - $12,491,926
Noncash issuance of warrants and shares related to
OMRFA $ - $ 1,145,600
The accompanying notes are an integral part of these statements.
F-5
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
Note 1 - Organization and significant accounting policies
Description of business
Bioenvision, Inc. ("Bioenvision" or the "Company") is an emerging
biopharmaceutical company whose primary business focus is the acquisition,
development and distribution of drugs to treat cancer. The Company has a broad
range of products and technologies under development, but its two lead drugs are
Clofarabine and Modrenal(R). Modrenal(R)is approved for marketing in the U.K.
for advanced breast cancer. The Company's plan is to bring Modrenal(R)into the
U.S. to perform further clinical trials and to access the U.S. market. Most of
the Company's other drugs are now in clinical trials in various stages of
development.
The Company was incorporated as Express Finance, Inc. under the laws of the
State of Delaware on August 16,1996, and changed its name to Ascot Group, Inc.
in August 1998 and further to Bioenvision, Inc. in December 1998.
On February 1, 2002, the Company completed the acquisition of Pathagon Inc.
("Pathagon"), a privately held company focused on the development of novel
anti-infective products and technologies. Pathagon's principal products are
OLIGON(R) and methylene blue. Affiliates of SCO Financial Group, the Company's
financial advisor and consultant, owned 82% of Pathagon prior to the
acquisition. The Company acquired 100% of the outstanding shares of Pathagon in
exchange for 7,000,000 shares of the Company's common stock. The acquisition has
been accounted for as a purchase business combination in accordance with SFAS
141.
Basis of presentation
Prior to the acquisition of Pathagon and the May 2002 private placement in which
the Company raised gross proceeds of $17.7 million (see note 6), the Company
devoted most of its efforts to establishing a new business (raising capital,
research and development, etc.) and had been a development stage enterprise.
Management believes they now have the financial resources to market some of the
Company's late-stage products which can lead to significant revenues from
royalty payments and drug sales. Accordingly, effective June 30, 2002, the
financial statements do not reflect the required disclosure for a Development
Stage Enterprise.
Principles of consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. Inter-company accounts and
transactions have been eliminated.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles of the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates, and such differences may be material to the financial statements.
F-6
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
Note 1 - Organization and significant accounting policies - continued
Revenue Recognition
In accordance with SEC Staff Accounting Bulletin No. 101, upfront nonrefundable
fees associated with research and development collaboration agreements where the
Company has continuing involvement in the agreement, are recorded as deferred
revenue and recognized over the estimated research and development period using
the straight-line method. If the estimated period is subsequently modified, the
period over which the up-front fee is recognized is modified accordingly on a
prospective basis using the straight-line method. Revenues from the achievement
of research and development milestones, which represent the achievement of a
significant step in the research and development process, are recognized when
and if the milestones are achieved. Continuation of certain contracts and grants
are dependent upon the Company and/or its co-development partners' achieving
specific contractual milestones; however, none of the payments received to date
are refundable regardless of the outcome of the project.
Upfront nonrefundable fees associated with licensing arrangements are recorded
as deferred revenue and recognized over the licensing arrangement using the
straight line method, which approximates the life of the patent.
Research and development
Research and development costs are charged to expense as incurred.
Stock based compensation
At June 30, 2003, the Company has stock based compensation plans which are
described more fully in Note 9. As permitted by SFAS No. 123, "Accounting for
Stock Based Compensation", the Company accounts for stock based compensation
arrangements with employees in accordance with provisions of Accounting
Principles Board ("APB") Opinion No. 25 "Accounting for Stock Issued to
Employees". Compensation expense for stock options issued to employees is based
on the difference on the date of grant, between the fair value of the Company's
stock and the exercise price of the option. Under APB 25, no stock based
employee compensation cost is reflected in reported net loss, when options
granted to employees have an exercise price equal to the market value of the
underlying common stock at the date of grant. For year ended June 30, 2003, the
Company recognized stock based employee compensation cost of $372,465 as a
result of the March 31, 2003 re-pricing of 380,000 options granted to an
employee pursuant to the terms of his Employment Agreement (see Note 7).
The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS 123 and Emerging Issues Task Force no.
96-18, "Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling Goods or Services," as
amended by EITF 00-27. Under EITF No. 96-18, where the fair value of the equity
instrument is more reliably measurable than the fair value of services received,
such services will be valued based on the fair value of the equity instrument.
The Company expects to continue applying the provisions of APB 25 for equity
issuances to employees.
F-7
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
Note 1 - Organization and significant accounting policies - continued
The following table illustrates the effect on net loss and loss per share as if
the fair value based method had been applied to all outstanding and unvested
awards in each period.
Year Ended June 30,
--------------------------------
2003 2002
---- ----
Net loss available to common stockholders, as reported $(7,624,144) $(15,218,648)
Add: Stock based employee compensation expense
included in reported net loss 372,465 --
Deduct: Total stock based employee compensation
expense determined under fair value based method
for all awards (1,214,723) --
Pro forma net loss available to common stockholders $(8,466,402) $(15,218,648)
Loss per share
Basic and diluted - as reported $(0.45) $(1.25)
Basic and diluted - pro forma $(0.50) $(1.25)
The fair value of options at the date of grant was established using the Black-Scholes model with the following assumptions:
2003
----
Expected life (years) 4.00
Risk free interest rate 3.00%
Expected volatility 80%
Expected dividend yield 0.00
Income taxes
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (FAS 109). Under FAS 109,
deferred tax assets and liabilities are determined based on the differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates that will be in effect when the differences
are expected to reverse. The Company records a valuation allowance for certain
temporary differences for which it is more likely than not that it will not
receive future tax benefits.
Net loss per share
Basic net loss per share is computed using the weighted average number of common
shares outstanding during the periods. Diluted net loss per share is computed
using the weighted average number of common shares and potentially dilutive
common shares outstanding during the periods. Options and warrants to purchase
15,749,543 and 13,604,543 shares of common stock have not been included in the
calculation of net loss per share for the years ended June 30, 2003 and 2002,
F-8
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
Note 1 - Organization and significant accounting policies - continued
respectively, as their effect would have been anti-dilutive.
Foreign currency translation
Through June 30, 2001, the functional currency of the Company was the Pound
Sterling and its reporting currency was the United States dollar. Translation
adjustments arising from differences in exchange rates from these transactions
were reported as accumulated other comprehensive income in stockholders' equity
(deficit). Effective July 1, 2001, the functional and reporting currency is the
United States dollar.
Cash and cash equivalents
The Company considers all highly liquid financial instruments with a maturity of
three months or less when purchased to be cash equivalents. The Company invests
all its funds with a single financial institution which provides for FDIC
insurance of $100,000.
Advertising costs
Costs related to advertising and other promotional expenditures are expensed as
incurred. Advertising costs totaled $144,300 and $4,850, respectively, for the
years ended June 30, 2003 and 2002, respectively.
Deferred costs
Deferred costs represents royalty payments that became due and payable to SRI
upon the Company's execution of the co-development agreement with Ilex Oncology
advance royalties. These costs have been presented together with research and
development costs on the statement of operations for the years ended June 30,
2003 and 2002.
Property and equipment
Property and equipment are stated at cost, net of accumulated depreciation and
amortization. Property and equipment are depreciated on a straight-line basis
over an estimated three-year useful life.
Goodwill and Other Intangible Assets
Goodwill represents the excess of costs over the fair value of identifiable net
assets of Pathagon. Intangible assets include patents and licensing rights
acquired in connection with the acquisition of Pathagon. The Company accounts
for these assets in accordance with Statement of Financial Accounting Standards
("SFAS") No. 142, Goodwill and Other Intangible Assets. Goodwill and intangible
assets acquired in a purchase business combination and determined to have an
indefinite useful life are not amortized, but instead tested for impairment at
least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142
also requires that intangible assets with estimable useful lives be amortized
over their respective estimated useful lives to their estimated residual values,
and reviewed for impairment in accordance with SFAS No. 144, Accounting for
Impairment or Disposal of Long-Lived Assets ("SFAS No. 144"). The Company does
not have any intangible assets with an indefinite useful life.
Long-Lived Assets
The Company adopted the provisions of SFAS No. 144 on July 1, 2003. In
accordance with SFAS No. 144, long-lived assets, such as property and equipment
and intangible assets subject to amortization are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable.
F-9
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
Note 1 - Organization and significant accounting policies - continued
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to estimated undiscounted future cash flows expected
to be generated by the asset. If the carrying amount of an asset exceeds its
estimated future cash flows, an impairment charge is recognized by the amount by
which the carrying amount of the asset exceeds the fair value of the asset.
Prior to the adoption of SFAS No. 144, the Company accounted for long-lived
assets in accordance with SFAS No. 121, Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of.
Impact of recently issued accounting pronouncements
In July 2002, the FASB Issued Statement 146, "Accounting for Costs Associated
with Exit or Disposal Activities" ("SFAS 146"). This Statement addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Cost
to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The
principal difference between this Statement and Issue 94-3 relates to its
requirements for recognition of a liability for a cost associated with an exit
or disposal activity. This Statement requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. Under Issue 94-3, a liability for an exit cost as defined in Issue
94-3 was recognized at the date of an entity's commitment to an exit plan. The
provisions of this Statement are effective for exit or disposal activities that
are initiated after December 31, 2002. Effective January 1, 2003, the Company
adopted the provisions of SFAS 146 which did not have an impact on the results
of operations or financial position.
In November 2002, the FASB issued Interpretation No. 45, "Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" ("FIN 45"). FIN 45 requires that certain guarantees be
initially recorded at fair value, which is different from the general current
practice of recording a liability only when a loss is probable and reasonably
estimable. FIN 45 also requires a guarantor to make significant new disclosures
for virtually all guarantees. Effective January 1, 2003, the Company adopted the
disclosure requirements under FIN 45 which did not have a material impact on the
results of operations or financial position of the Company.
On December 31, 2002, the FASB issued SFAS No. 148, "Accounting for Stock Based
Compensation Transition and Disclosure" ("SFAS 148"). SFAS 148 amends FASB
Statement No. 123, "Accounting for Stock Based Compensation," to provide
alternative methods of transition to SFAS 123's fair value method of accounting
for stock-based employee compensation. SFAS 148 also amends the disclosure
provisions of SFAS 123 and APB Opinion No. 28, "Interim Financial Reporting," to
require disclosure on the summary of significant accounting policies of the
effects of an entity's accounting policy with respect to stock-based employee
compensation on reported net income and earnings per share in annual and interim
financial statements. While SFAS 148 does not amend SFAS 123 to require
companies to account for employee stock options using the fair value method, the
disclosure provisions of SFAS 148 are applicable to all companies with
stock-based employee compensation, regardless of whether they account for the
compensation using the fair value method of SFAS 123 or the intrinsic value
method of APB Opinion 25. The Company adopted the required disclosure provisions
of SFAS 148 as described under accounting policy footnote "Stock based
compensation".
F-10
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
Note 1 - Organization and significant accounting policies - continued
In January 2003, the FASB issued interpretation No. 46, "Consolidation of
Variable Interest Entities--An Interpretation of ARB No. 51" ("FIN 46"), which
addresses consolidation of variable interest entities. FIN 46 expands the
criteria for consideration in determining whether a variable interest entity
should be consolidated by a business entity, and requires existing
unconsolidated variable interest entities (which include, but are not limited
to, Special Purpose Entities, or SPE's) to be consolidated by their primary
beneficiaries if the entities do not effectively disburse risks among parties
involved. This interpretation applies immediately to variable interest entities
created after January 31, 2003 and variable interest entities in which an
enterprise obtains and interest after that date. It applies in the first fiscal
year or interim period beginning after June 15, 2003 to variable interest
entities in which an enterprise holds a variable interest that it acquired
before February 1, 2003. The adoption of FIN 46 is not expected to have a
material impact on the results of operation or financial position of the
Company.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity" (SFAS 150").
The objective of SFAS No. 150 is to establish standards for how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. SFAS 150 is effective for financial instruments
entered into or modified after May 31, 2003 and for existing financial
instruments after July 1, 2003. The adoption of SFAS 150 is not expected to have
a material impact on the results of operations or financial position of the
Company.
In May 2003, the Emerging Issues Task Force ("EITF") reached a consensus on EITF
Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables" ("EITF
00-21"). EITF 00-21 provides guidance on how to determine when an arrangement
that involves multiple revenue-generating activities or deliverables should be
divided into separate units of accounting for revenue recognition purposes, and
if this division is required, how the arrangement consideration should be
allocated among the separate units of accounting. The guidance in the consensus
is effective for revenue arrangements entered into in quarters beginning after
June 15, 2003. The adoption of EITF 00-21 did not impact the Company's
consolidated financial position or results of operations, but could affect the
timing or pattern of revenue recognition for future collaborative research
and/or license agreements.
NOTE 2 - Acquisition of Pathagon
On February 1, 2002, the Company completed the acquisition of Pathagon. The
acquisition was accounted for as a purchase business combination in accordance
with SFAS 141. The Company issued 7,000,000 shares of common stock to complete
the acquisition, which was valued at $12,600,000 based on the 5-day average
trading price of the stock ($1.80) surrounding November 22, 2001, the day of the
Company's announcement of the agreed upon acquisition. The acquired patents and
licensing rights of OLIGON(R) and methylene blue (collectively referred to as
"Purchased Technologies"), were recorded at their fair market value which was
approximately $17,576,000. The patent and licensing rights acquired are being
amortized over 13 years, which is the estimated remaining contractual life of
these assets. Since the estimated fair value of the Purchased Technologies was
at least equal to the amount paid, the purchase price, net of assumed
liabilities, was allocated to Purchased Technologies. The transaction qualified
as a tax-free merger which resulted in a difference between the tax basis value
of the assets acquired and the fair market value of the patents and licensing
rights. As a result, a deferred tax liability was recorded for approximately
$7,909,000. The purchase price exceeded the fair market value of the net assets
acquired resulting in the recording of Goodwill of $4,704,100. The Company
recorded a charge to goodwill of $801,395 for fiscal year ended June 30, 2003 as
a result of a change in tax rates used to compute the deferred tax liability
arising as a result of this acquisition. Pathagon had no operations other than
holding the patents and licenses acquired. As Pathagon had no operations, its
pro-forma financials would not be meaningful and thus are not presented.
The Company now has the worldwide rights to the use of thiazine dyes, including
methylene blue, for in vitro and in vivos inactivation of pathogens in
biological fluids. Methylene blue is one of only two compounds used commercially
to inactivate pathogens in blood products, and is currently used in many
European countries to inactivate pathogens in fresh frozen plasma. The Company
believes that, as a result of the mechanism of action of its
F-11
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
Note 2 - Acquisition of Pathagon - continued
proprietary technology, its systems also have the potential to inactivate many
new pathogens before they are identified and before tests have been developed to
detect their presence in the blood supply. Because the Company's systems are
being designed to inactivate rather than merely test for pathogens, the
Company's systems also have the potential to reduce the risk of transmission of
pathogens that would remain undetected by testing.
The OLIGON(R) technology is a patented anti-microbial technology that can be
incorporated into the manufacturing process of many implantable devices. The
patented process, involving two dissimilar metals (silver and platinum) creates
an electrochemical reaction that releases silver ions that destroy bacteria,
fungi and other pathogens. The Company intends to commercialize the technology
in partnership with leading medical devices manufacturers.
On May 6, 1997, Baxter Healthcare Corporation acting through its Edwards
Clinical-Care Division ("Edwards") entered into an Exclusive License Agreement
with Implemed, Inc. ("Implemed"), a predecessor in interest to the Pathagon and,
by virtue of the acquisition of Pathagon, a predecessor in interest to the
Company. Pursuant to the terms of the License Agreement, among other things,
Edwards licensed certain intellectual property technology relating to the
manufacture of anti-microbial polymers from Implemed.
On May 7, 2002, the Company executed an amendment to the original license
agreement between Oklahoma Medical Research Foundation ("OMRF") and Bridge
Therapeutic Products, Inc. ("BTP"), a predecessor of Pathagon, relating to the
licensing of methylene blue. Under the terms of the amendment, OMRF agreed to
the assignment of the original license agreement by BTP to Pathagon. Pursuant to
the amendment, the Company paid OMRF $100,000 and issued 200,000 shares of the
Company's common stock and a five-year warrant to purchase an additional 200,000
shares of common stock. The exercise price of the warrant is $2.33 per share,
subject to adjustment. The Company capitalized the costs of approximately
$1,145,600 related to this amendment as an intangible asset and will amortize
this asset over the remaining life of the methylene blue license agreement.
NOTE 3 - Intangible Assets
Intangible assets consist of the following: June 30, 2003 June 30, 2002
Patents and licensing rights $17,644,521 $17,487,548
Less: accumulated amortization 1,865,122 565,756
----------- ----------
$15,779,399 $16,921,792
=========== ==========
Amortization of patents and licensing rights amounted to $1,334,241 and $561,832
for the years ended June 30, 2003 and June 30, 2002, respectively. Amortization
for each of the next five fiscal years will amount to approximately $1,342,000
annually.
NOTE 4 - License and Co-Development Agreements
Clofarabine
We have a license from Southern Research Institute ("SRI"), Birmingham, Alabama,
to develop and market purine nucleoside analogs which, based on third-party
studies conducted to date, may be effective in the treatment of leukemia and
lymphoma. The lead compound of these purine-based nucleosides is known as
Clofarabine. Under the terms of the agreement with SRI, we were granted the
exclusive worldwide license, excluding Japan and Southeast Asia, to make, use
and sell products derived from the technology for a term expiring on the date of
expiration of the last patent covered by the license (subject to earlier
termination under certain circumstances), and to utilize technical
F-12
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
Note 4 - License and Co-Development Agreements - continued
information related to the technology to obtain patent and other proprietary
rights to products developed by us and by SRI from the technology. We plan to
develop Clofarabine initially for the treatment of leukemia and lymphoma and to
study its potential role in treatment of solid tumors.
In August 2003, SRI granted us an irrevocable, exclusive option to make, use and
sell products derived from the technology in Japan and Southeast Asia. We intend
to convert the option to a license upon sourcing an appropriate co-marketing
partner to develop these rights in such territory.
To facilitate the development of Clofarabine, we entered into a co-development
agreement with ILEX Oncology, Inc. ("ILEX") in March 2001. Under the terms of
the co-development agreement, ILEX is required to pay all development costs in
the United States and Canada, and 50% of approved development costs worldwide
outside the U.S. and Canada (excluding Japan and Southeast Asia). ILEX is
responsible for conducting all clinical trials and the filing and prosecution of
applications with applicable regulatory authorities in the United States and
Canada. The Company retains the right to handle those matters in all territories
outside the United States and Canada (excluding Japan and Southeast Asia). The
Company retained the exclusive manufacturing and distribution rights in Europe
and elsewhere worldwide, except for the United States, Canada, Japan and
Southeast Asia. Under the co-development agreement, ILEX will have certain
rights if it performs its development obligations in accordance with that
agreement. The Company would be required to pay ILEX a royalty on sales outside
the U.S., Canada, Japan and Southeast Asia. In turn, ILEX, which would have U.S.
and Canadian distribution rights, would pay the Company a royalty on sales in
the U.S. and Canada. In addition, the Company is entitled to certain milestone
payments. The Company also granted Ilex an option to purchase $1 million of
Common Stock after completion of the pivotal Phase II clinical trial, and ILEX
has an additional option to purchase $2 million of Common Stock after the filing
of a new drug application in the United States for the use of Clofarabine in the
treatment of lymphocytic leukemia. The exercise price per share for each option
is determined by a formula based around the date of exercise. Under the
co-development agreement, ILEX also pays royalties to Southern Research
Institute based on certain milestones. The Company is obligated to milestones
and royalties to Southern Research Institute in respect to Clofarabine.
The Company received a nonrefundable, upfront payment of $1.35 million when they
entered into the agreement with ILEX and is entitled to receive milestone
payments of $2.5 million upon completion of management designed pivotal Phase II
clinical trials of Clofarabine and $5.0 million after submission of a new drug
application with the FDA. The upfront payment was deferred and recognized as
revenues ratably, on a straight-line basis over the related service period
through December 2002. The Company recognized revenues of approximately $490,000
and $800,000_in connection with the up-front payment of ILEX agreement for the
years ended June 30, 2003 and 2002, respectively.
Deferred costs represents royalty payments that became due and payable to SRI
upon the Company's execution of the co-development agreement with Ilex Oncology.
The Company also defers all royalty payments made to SRI and recognizes these
costs ratably, on a straight-line basis concurrent with revenue that is
recognized in connection with Ilex agreement. Research and Development includes
approximately $207,000 and $368,000 for the years ended June 30, 2003 and 2002,
respectively, related to such charges.
F-13
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
Note 4 - License and Co-Development Agreements - continued
Modrenal(R)
The Company holds an exclusive license, until the expiration of existing and new
patents related to Modrenal(R), to market Modrenal(R) in major international
territories, and an agreement with a United Kingdom company to co-develop
Modrenal(R) for other therapeutic indications. Management believes that
Modrenal(R) currently is manufactured by third-party contractors in accordance
with good manufacturing practices. The Company has no plans to establish its own
manufacturing facility for Modrenal(R), but will continue to use third-party
contractors.
Anti-Estrogen Prostate. We have received Institutional Review Board approval
from the Massachusetts General Hospital for a Phase II study of trilostane for
the treatment of androgen independent prostate cancer. The study will be
conducted by The Dana Faber Cancer Institute and currently is intended to
commence in May 2004.
Operational Developments
In June 2003, we entered into a supply agreement with Ferro-Pfanstiehl
Laboratories ("Ferro"), pursuant to which Ferro has agreed to manufacture and
supply 100% of Bioenvisions global requirements for Clofarabine-API. Subject to
certain circumstances, this agreement will expire on the fifth anniversary date
of the first regulatory approval of Clofarabine drug product.
In June 2003, the Company entered into a development agreement with Ferro,
pursuant to which Ferro agreed to perform certain development activities to
scale up, develop, finalize, and supply CTM and GMP supplier qualifications of
the API-Clofarabine. Subject to certain circumstances, this agreement expires
upon the completion of the development program. The development agreement is
milestone based and payments are to be paid upon completion of each milestone.
If Ferro has not completed the development agreement by December 2007, the
development agreement will automatically terminate without further action by
either party. Through June 30, 2003, the Company paid and capitalized $50,000
related to development costs.
In May 2003, we entered into a sub-license agreement with Dechra, pursuant to
which Dechra has been granted a sub-license for all of Bioenvision's rights and
entitlements to market and distribute modrenal in the United States and Canada
solely in connection with animal health applications. Subject to certain
circumstances, this agreement expires upon expiration of the last patent related
to modrenal or the completion of the last royalty set forth in the agreement.
Through June 30, 2003, we have recognized deferred revenue and deferred costs
related to this agreement as described below in this Note 4. The Company
received an upfront non-refundable payment of $1.25 million upon execution of
this agreement and may receive up to an additional $3.75 million upon the
achievement by Dechra of certain milestones set forth in the agreement.
In May 2003, we entered into a master services agreement with
Penn-Pharmaceutical Services Limited ("Penn"), pursuant to which Penn has agreed
to label, package and distribute clofarabine on behalf of and at our request.
The services to be performed by Penn also include regulatory support and the
manufacture , quality control, packaging and distribution of proprietary
medicinal products including clinical trials supplies and samples. Subject to
certain circumstances, the term of this agreement is twelve months and renews
for subsequent twelve month periods unless either party tenders notice of
termination upon no less than three month prior written notice.
F-14
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
NOTE 4 - License and Co-Development Agreements - continued
In April 2003, we entered into an exclusive license agreement with CLL-Pharma
("CLL"), pursuant to which CLL has agreed to perform certain development works
and studies to create a new formulation of modrenal in the form of a soft gel
capsule. CLL intends to use its proprietary MIDDS.-patented technology to
perform this service on behalf of the Company. This new formulation, once in
hand, will allow the Company to apply for necessary authorization, as required
by applicable European health authorities, to sell modrenal throughout Europe.
Through June 30, 2003, the Company paid an advance of $175,000 related to
development services to be provided by CLL over an eighteen month period, which
advance was recorded as a prepaid development cost by the Company.
Note 5 - Income taxes
The components of the income tax benefit are as follows:
June 30,
----------------------
2003 2002
-------- --------
Current:
Federal $ -- $ --
-------- --------
State -- --
-------- --------
Deferred:
Federal (404,000) (160,000)
State (133,000) (93,000)
-------- --------
(537,000) (253,000)
-------- --------
Total benefit $(537,000) $(253,000)
=========== ===========
F-15
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
Note 5 - Income taxes - continued
Significant components of the company's deferred tax assets and liability at
June 30 are as follows:
June 30,
----------------------
2003 2002
-------- --------
Deferred tax liability
Acquired intangibles $(6,318,000) $(7,656,000)
Deferred tax assets
Net operating loss 5,512,000 3,256,000
Depreciation 11,000 13,000
Net deferred revenue 401,000 --
Other 66,000 1,000
----------- -----------
Total deferred tax assets 5,990,000 3,270,000
Valuation allowance for deferred tax assets (5,990,000) (3,270,000)
----------- -----------
Net deferred tax asset -- --
------------ -----------
Net deferred tax liability (6,318,000) (7,656,000)
============ ===========
At June 30, 2003, the Company had approximately $13,609,000 of net operating
loss carryforwards for U.S. Federal and state income tax purposes that expire
fiscal year ending 2019, with a tax value of $5,512,000. A full valuation
allowance has been established for the deferred tax assets due to the
uncertainty of the utilization of such deferred tax asset.
The Tax Reform Act of 1986 enacted a complex set of rules (Internal Revenue Code
Section 382) limiting the utilization of NOLs to offset future taxable income
following a corporate "ownership change." Generally, this occurs when there is a
greater than 50 percentage point change in ownership. Accordingly, such change
could limit the amount of NOLs available in a given year, which could ultimately
cause NOLs to expire prior to utilization.
The income tax benefit as recognized differs from the benefit that would be
recognized at the Federal statutory rate on the pre-dividend net loss primarily
due to the valuation allowance established against the net operating loss
deferred tax assets.
F-16
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
NOTE 6 - Stockholders' transactions
Common Stock and Securities Convertible into Common Stock
In April 2001, in accordance with the terms of the Company's stock option plan,
the Company issued the following options at an exercise price of $1.25 per
share, which immediately vested:
o a total of 2,200,000 options to employees (Christopher Wood - 1,500,000
options; Stuart Smith - 500,000 options; and Thomas Scott Nelson - 200,000
options);
o a total of 2,654,544 options to certain consultants to the Company; and
o a total of 500,000 options to Phoenix Ventures, which were issued in
connection with a credit facility made available to the Company by Glen
Investments Limited, a Jersey (Cnannel Islands) corporation wholly owned by
Kevin R. Leech, a U.K. citizen and one of the Company's stockholders, which
facility was terminated in August 2001.
Originally, the terms of the options were that each option could be exercised
after April 30, 2001 for a period of three years, whereby the options would no
longer be able to be exercised after April 30, 2004 unless otherwise agreed to
with the Company. In July 2002, the Company changed the three-year term to a
five-year term. The extension of the foregoing options to a five-year term
required the Company to record additional compensation, interest and finance
charges and consulting fees and expenses of $422,500 in the quarter ended
September 30, 2002.
In August 2001, the Board of Directors approved the issuance of 208,333 shares
of common stock to its officers and directors in exchange for accrued
compensation at a rate of $1.25 per share. In October 2001, the Board of
Directors approved the issuance of 134,055 shares of commons stock to its
officers and directors in exchange for accrued compensation of approximately
$206,000.
In connection with securing the Facility with SCO Capital in November 2001, the
Company issued warrants to purchase 1,500,000 shares of the Company's common
stock at a strike price of $1.25 per share, subject to certain anti-dilution
adjustments. The warrants expire five years from the date of issuance. The
Company measured the fair market value of the warrants and recorded financing
costs of $1,872,000, which were amortized over the term of the Facility. The
warrants expire five years from the date of issuance. The credit facility with
SCO Capital was terminated in May 2002 at which time the Company received a
payoff letter evidencing such termination.
In December 2001, the Company granted 200,000 shares of common stock to a
consultant to the Company, these shares vesting over an eighteen month period.
Compensation expense of $212,108 and $80,456 were recorded as consulting fees
for the years ended June 30, 2003 and 2002, respectively.
On February 1, 2002, in connection with the Company's acquisition of Pathagon,
the Company issued 7,000,000 shares of its common stock. In connection with the
closing of the acquisition of Pathagon, the Company also entered into
Registration Rights Agreements, with the persons or entities who were
shareholders of Pathagon, pursuant to which the Company is required to register
the offer and resale of the shares of common stock issued in the acquisition.
Affiliates of SCO Capital owned 82% of Pathagon prior to the acquisition.
On May 12, 2002, a majority of the Company's shareholders delivered a written
consent to authorize amendment of the Company's certificate of incorporation,
approved by the Company's Board of Directors, to increase the number of
authorized shares of common stock from 25,000,000 to 50,000,000 and to authorize
the issuance of 10,000,000 shares of the Company's Series A Convertible
Preferred Stock. The shareholder action became effective, and the amendment was
filed and became effective, on April 30, 2002.
F-17
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
Note 6 - Stockholders' transactions - continued
In March 2002, the Company issued 705,984 shares of common stock to its officers
and directors as payment for salaries accrued through June 30, 2001 of $910,000
In June 2002, the Company granted options to an officer of the Company to
purchase 380,000 shares of common stock at an exercise price of $1.95 per share,
which equaled the stock price on the date of the grant. Of this amount, 50,000
options vested on June 28, 2002 and the remaining 330,000 options vest ratably
over a three-year period on each anniversary date. On March 31, 2003 the Company
entered into an Employment Agreement with such officer of the Company, pursuant
to which, among other things, the exercise price for all 380,000 options were
changed to $0.735 per share, which equaled the stock price on that date. In
addition, the Company issued an additional 120,000 options at an exercise price
of $0.735 per share which vested immediately. As a result of the re-pricing of
380,000 options, the Company will re-measure the intrinsic value of these
options at the end of each reporting period and will adjust compensation expense
based on changes in the stock price. Compensation expense recognized as a result
of this re-pricing amounted to $372,465 for the year ended June 30, 2003.
On October 23, 2002, the Company granted options to purchase 300,000 shares of
common stock at an exercise price of $1.45 per share to the Commercial Director
(Europe) of the Company. Of these options, options to purchase 100,000 shares of
common stock vest and become exercisable on each of the first, second and third
anniversary of October 23, 2002, the grant date.
On October 23, 2002, the Company granted options to purchase 50,000 shares of
common stock at an exercise price of $1.45 per share to another employee of the
Company. Of these options, options to purchase 50,000 shares of common stock
vest and become exercisable on each of the first and second anniversary of
October 23, 2002, the grant date.
On December 31, 2002 the Company issued options to purchase 500,000 shares of
common stock at an exercise price equal to $1.45 per share (average of the high
and low bid price on the grant date), to its Chairman and Chief Executive
Officer, Dr. Christopher B. Wood. Of these options, subject to certain
circumstances, options to purchase 166,666 shares of common stock vest on each
of the first, second and third anniversary of the grant date.
On December 31, 2002 the Company issues options to purchase 200,000 shares of
common stock at an exercise price of $2.00 per share to a consultant to the
Company who performs European regulatory services for the Company. Of these
options, options to purchase 66,666 shares of common stock vest on each of the
first, second and third anniversary of the grant date. Compensation expense of
$24,333 was recorded as consulting fees for the year ended June 30, 2003.
On January 9, 2003 the Company issued to an employee of the Company, options to
purchase 20,000 shares of common stock at an exercise price of $1.42 per share,
which equaled the stock price on the date of grant. Of these options, subject to
certain circumstances, options to purchase 10,000 shares of common stock vest
and become exercisable on the first anniversary of the grant date and the
remaining options to purchase 10,000 shares of common stock vest and become
exercisable on the second anniversary of the grant date.
In January 2003, we entered into an agreement with RRD International LLC
("RRD"), pursuant to which RRD serves as the global product development
consultant to the Company in connection with the development of Clofarabine,
Modrenal (TM) and OLIGON and assists with designing and managing our clinical
development program for our products. On April 2, 2003, the Company and RRD
further memorialized their agreement pursuant to a
F-18
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
NOTE 6 - Stockholders' transactions - continued
formal Master Services Agreement and Registration Rights Agreement and, in
connection therewith, the Company issued a Warrant to RRD pursuant to which RRD
has the right to acquire 175,000 shares of our common stock at an exercise price
of $2.00 per share, which warrant includes registration rights under certain
circumstances. Compensation expense of $182,350 was recorded as consulting fees
for the year ended June 30, 2003.
Preferred Stock
On May 7, 2002 the Company authorized the issuance and sale of up to 5,920,000
shares of Series A Convertible Participating Preferred Stock, par value $0.001
per share ("Series A Preferred Stock"). Series A Preferred Stock may be
converted into two shares of common stock at an initial conversion price of
$1.50 per share of common stock, subject to adjustment for stock splits, stock
dividends, mergers, issuances of cheap stock and other similar transactions. In
May 2002, the Company consummated a Private Placement of Series A Preferred
Stock and received gross proceeds of $17.7 million (see Note 8). Holders of
Series A Preferred Stock also received, in respect of each share of Series A
Preferred Stock purchased in the May 2002 Private Placement by the Company, one
warrant to purchase one share of the Company's common stock at an initial
exercise price of $2.00, subject to adjustment. The purchasers of Series A
Preferred Stock also received certain registration rights. The preferred stock
generally carries rights to vote with the holders of common stock as one class
on a two-for-one basis. The preferred stock is convertible into the Company's
common stock on a two-for-one basis subject to certain adjustments at the
earlier to occur of (i) at the election of each holder from and after the
issuance date, or (ii) the date at any time after the one year anniversary of
the issuance date upon which both (x) the average of the market price for a
share of common stock for thirty consecutive trading days exceeds $10.00 per
share, subject to certain adjustments, and (y) the average of the trading volume
for the Company's common stock during such period exceeds 150,000, subject to
certain adjustments.
The Company is required to accrue for and pay a dividend of 5%, subject to
certain adjustments, on its cumulative Series A Convertible Participating
Preferred Stock. In the event of a voluntary or involuntary liquidation or
dissolution of the Company, before any distribution of assets shall be made to
the holders of the Company's securities which are junior to the preferred stock
(such as the common stock), holders of the preferred stock shall be paid out of
the assets of the Company legally available for distribution to the Company's
stockholders an amount per share equal to the initial original issue price
($3.00) subject to certain adjustments plus all accrued but unpaid dividends on
such preferred stock.
NOTE 7 - Related party transactions
On November 16, 2001, we entered into an engagement letter with SCO Financial
Group, pursuant to which SCO would act as our financial advisor. In connection
with the engagement letter, we issued a warrant to purchase 100,000 shares of
common stock at an exercise price of $1.25 per share, subject to certain
anti-dilution adjustments. The warrants expire five years from the date of
issuance. The issuance of these shares was capitalized as deferred financing
costs and was amortized over a twelve-month period.
In connection with securing a credit facility with SCO Capital, we issued
warrants to purchase 1,500,000 shares of our common stock at a strike price of
$1.25 per share, subject to certain anti-dilution adjustments. The warrants
expire five years from the date of issuance. The credit facility with SCO
Capital was terminated in May 2002 at which time the Company received a payoff
letter evidencing such termination.
On February 5, 2002, we completed the acquisition of Pathagon Inc. Affiliates of
SCO Capital owned 82% of Pathagon prior to the acquisition. In connection
therewith, on February 1, 2002 we issued 7,000,000 shares of common stock to the
former stockholders of Pathagon Inc.
F-19
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
NOTE 8 - Stock options
The Company adopted its 2001 Stock Option Plan (the "Plan") on April 30, 2001.
The purchase price of stock options under the Plan is determined by the
Compensation Committee of the Board of Directors of the Company (the
"Committee"). The term is fixed by the Committee, but no incentive stock option
is exercisable after 5 years from the date of grant.
In June 2002, the Company granted options to an officer of the Company to
purchase 380,000 shares of common stock at an exercise price of $1.95 per share,
which equaled the stock price on the date of the grant. Of this amount, 50,000
options vested on June 28, 2002 and the remaining 330,000 options vest ratably
over a three-year period on each anniversary date. On March 31, 2003 the Company
entered into an Employment Agreement with such officer of the Company, pursuant
to which, among other things, the exercise price for all 380,000 options were
changed to $0.735 per share, which equaled the stock price on that date. In
addition, the Company issued an additional 120,000 options at an exercise price
of $0.735 per share which vested immediately. As a result of the re-pricing of
380,000 options, the Company will re-measure the intrinsic value of these
options at the end of each reporting period and will record a charge for
compensation expense to the extent the vested portions are in the money.
Compensation expense recognized as a result of this re-pricing amounted to
$372,467 for the year ended June 30, 2003.
On October 23, 2002, the Company granted options to purchase 300,000 shares of
common stock at an exercise price of $1.45 per share to the Commercial Director
(Europe) of the Company. Of these options, options to purchase 100,000 shares of
common stock vest and become exercisable on each of the first, second and third
anniversary of October 23, 2002, the grant date.
On October 23, 2002, the Company granted options to purchase 50,000 shares of
common stock at an exercise price of $1.45 per share to another employee of the
Company. Of these options, options to purchase 50,000 shares of common stock
vest and become exercisable on each of the first and second anniversary of
October 23, 2002, the grant date.
On December 31, 2002 the Company issued options to purchase 500,000 shares of
common stock at an exercise price equal to $1.45 per share (average of the high
and low bid price on the grant date), to its Chairman and Chief Executive
Officer, Dr. Christopher B. Wood. Of these options, subject to certain
circumstances, options to purchase 166,666 shares of common stock vest on each
of the first, second and third anniversary of the grant date.
On December 31, 2002 the Company issues options to purchase 200,000 shares of
common stock at an exercise price of $2.00 per share to a consultant to the
Company who performs European regulatory services for the Company. Of these
options, options to purchase 66,666 shares of common stock vest on each of the
first, second and third anniversary of the grant date. Compensation expense of
$24,333 was recorded as consulting fees for the year ended June 30, 2003.
On January 9, 2003 the Company issued to an employee of the Company, options to
purchase 20,000 shares of common stock at an exercise price of $1.42 per share,
which equaled the stock price on the date of grant. Of these options, subject to
certain circumstances, options to purchase 10,000 shares of common stock vest
and become exercisable on the first anniversary of the grant date and the
remaining options to purchase 10,000 shares of common stock vest and become
exercisable on the second anniversary of the grant date.
F-20
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
NOTE 8 - Stock options - continued
A summary of the Company's stock option activity for options issued to employees
and related information follows:
Weighted Avg.
No. of Shares Exercise Price
------------- --------------
Balance - July 1, 2001 2,200,000 $ 1.25
Granted during 2002 - -
Exercised during 2002 - -
Forfeiture during 2002 - -
-------------
Balance - June 30, 2002 2,200,000 1.25
Granted during 2003 1,370,000 1.19
Exercised during 2003 - -
Forfeiture during 2003 - -
------------------------------------
Balance - June 30, 2003 3,570,000 1.23
====================================
Stock Options Outstanding
--------------------------------------------------------------------------------
Weighted
Weighted Average Number of
Average Remaining Stock
Exercise Number of Contractual Options
Exercise Price Range price Options Life Exercisable
--------------------------------------------------------------------------------
$0.74 $ 0.74 500,000 9.13 170,000
$1.25 - $1.45 $ 1.29 3,070,000 8.89 2,210,000
------------- -------------
3,570,000 2,380,000
============= =============
F-21
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
NOTE 9 - Commitments and Contingencies
Leases
------
The Company leases 3,229 square feet of office space for its New York
headquarters under a non-cancellable operating lease expiring on September 30,
2005. Rent expense in 2003, excluding real estate taxes, insurance and repair
costs, was approximately $110,000. At June 30, 2003, total minimum rentals under
operating leases with initial or remaining non-cancellable lease terms of more
than one year were:
Year ended June 30,
2004 $193,317
2005 197,873
2006 63,439
2007 10,185
2008 ______
$464,814
========
The Company is a party to an additional month-to-month lease agreement for its
subsidiary, Bioenvision Ltd. in Edinburgh, Scotland.
Employment Agreements
---------------------
On September 1, 1999, we entered into an employment agreement with Christopher
B. Wood, M.D. under which he serves as our Chairman and Chief Executive Officer.
The initial term of Dr. Wood's employment agreement is two years with automatic
one-year extensions thereafter unless either party gives written notice to the
contrary. On December 31, 2002, we entered into a new employment agreement with
Dr. Wood, under which he continues to serve as our Chairman and Chief Executive
Officer. Under this contract, the term is one year, with automatic one-year
extensions thereafter unless either party provides written notice to the
contrary. Dr. Wood's new employment agreement provides for an initial base
salary of $225,000, a bonus as determined by the Board of Directors, health
insurance and other benefits currently or in the future provided to key
employees of the Company. If Dr. Wood's employment is terminated other than for
cause or if he resigns for good reason or if a change of control occurs, he will
receive a lump sum payment in an amount equal to his then current annual base
salary and any and all unvested options will vest and immediately become
exercisable.
On January 1, 2000, we entered into an employment agreement with Stuart Smith
under which he serves as our Senior Vice President. The initial term of Mr.
Smith's employment agreement is two years, with automatic one-year extensions
thereafter unless either party gives written notice to the contrary. Mr. Smith's
agreement provides for an initial base salary of $150,000, a bonus as determined
by the board of directors, life insurance benefits equal to his annual salary,
health insurance and other benefits currently or in the future provided to our
key employees. On September 30, 2002, Mr. Smith resigned from his position as
Senior Vice President of the Company; his employment agreement was terminated
and the Company agreed to issue shares of its common stock to Mr. Smith at the
then current fair market value in satisfaction of all outstanding obligations of
the Company to Mr. Smith pursuant to the employment agreement.
F-22
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
Note 9 - Commitments and Contingencies - continued
On March 31, 2003, we entered into an employment agreement with David P. Luci,
pursuant to which he serves as our Director of Finance, General Counsel and
Corporate Secretary. The initial term of Mr. Luci's employment agreement is
one-year, with automatic one-year extensions thereafter unless either party
provides written notice to the contrary. If Mr. Luci's employment is terminated
other than for cause or if he resigns for good reason or if a change of control
occurs, he will receive a lump sum payment in an amount equal to 1.5 multiplied
by the sum of (i) his then current annual base salary plus (ii) his then average
annual bonus for the preceding two years and any and all unvested options will
vest and immediately become exercisable.
Litigation
----------
On April 1, 2003, RLB Capital, Inc. filed a complaint against the Company in the
Supreme Court of the State of New York (Index No. 601058/03). The Complaint
alleges a breach of contract by the Company and demands judgment against the
Company for $112,500 and warrants to acquire 75,000 shares of the Company's
common stock. The Company submitted its Verified Answer on June 25, 2003 and, in
pertinent part, denied RLB's allegations and asserted counterclaims based on
negligence. The Company believes that the grounds for the complaint are
meritless and intends to defend this matter vigorously. If the Company is not
able to successfully defend this complaint, management does not believe that any
resulting judgment or settlement would have a material adverse effect on the
Company, its financial position or results of operations.
NOTE 10 - Subsequent Events
In August 2003, we entered into an amendment to the co-development agreement
with Stegram Pharmaceuticals plc ("Stegram"), pursuant to which, in pertinent
part, we succeeded to the U.K. marketing rights to modrenal.
In August 2003, SRI granted us an irrevocable, exclusive option to make, use and
sell products derived from the technology in Japan and Southeast Asia. We intend
to convert the option to a license upon sourcing an appropriate co-marketing
partner to develop these rights in such territory.
In September 2003, we entered into a letter agreement with ILEX Oncology, Inc.
pursuant to which we are working with ILEX to co-develop an oral formulation for
clofarabine; the rights and related costs to which we agreed to split equally
with ILEX.
F-23
Bioenvision, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, June 30,
2004 2003
----------- -----------
ASSETS (unaudited) (audited)
Current assets
Cash and cash equivalents $17,558,813 $7,929,686
Restricted cash 290,000 290,000
Deferred costs 178,027 22,727
Accounts receivable 2,640,263 25,000
Other assets 187,604 105,976
------- -------
Total current assets 20,854,708 8,373,389
Property and equipment, net 37,757 49,265
Intangible assets, net 14,801,470 15,779,399
Goodwill 3,902,705 3,902,705
Security deposits 79,111 79,111
Other long term assets 30,001 126,869
Deferred costs-long term 2,776,186 224,937
--------- -------
Total assets $42,481,937 $28,535,675
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $1,133,000 $411,392
Accrued expenses 493,369 730,722
Accrued dividends payable 1,597,118 1,009,146
Deferred revenue 434,181 113,636
------- -------
Total current liabilities 3,657,667 2,264,896
Deferred revenue-long term 6,166,152 1,124,685
Deferred tax liability 5,914,774 6,317,702
--------- ---------
Total liabilities 15,738,593 9,707,283
---------- ---------
Stockholders' equity
Preferred stock - $0.001 par value; 20,000,000 shares authorized; 4,698 5,917
4,698,333 and 5,916,966 shares issued and outstanding at March 31, 2004
and June 30, 2003, respectively (liquidation preference $14,094,999 and
$17,750,898 at March 31, 2004 and June 30, 2003, respectively)
Common stock - par value $0.001; 70,000,000 shares authorized;
23,017,950 and 17,122,739 shares issued and outstanding at March 31, 23,018 17,123
2004 and June 30, 2003, respectively
Additional paid-in capital 64,240,092 47,304,449
Accumulated deficit (37,676,811) (28,651,443)
Accumulated other comprehensive income 152,346 152,346
------- -------
Stockholders' equity 26,743,344 18,828,392
---------- ----------
Total liabilities and stockholders' equity $42,481,937 $28,535,675
========== ==========
The accompanying notes are an integral part of these financial statements.
F-24
Bioenvision, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Nine months ended
March 31,
---------------------
2004 2003
----------- -----------
(unaudited) (unaudited)
Licensing and royalty revenue $361,308 $463,935
Research and development contract revenue 1,396,722 -
--------- ----------
Total revenue 1,758,030 463,935
Costs and expenses
Research and development 2,545,128 1,162,108
Selling, general and administrative 7,079,367 2,743,160
(includes stock based compensation expense of
$2,526,943 and $256,056 for the three months
ended March 31, 2004 and 2003, respectively, and
$3,625,535 and $678,556 for the nine months
ended March 31, 2004 and 2003, respectively)
Depreciation and amortization 1,023,325 1,005,709
--------- ---------
Total costs and expenses 10,647,818 4,910,977
---------- ---------
Loss from operations (8,889,789) (4,447,042)
Interest income (expense)
Interest and finance charges - (325,000)
Interest income 49,465 117,054
------ -------
Net loss before income tax benefit (8,840,325) (4,654,988)
Income tax benefit 402,928 456,300
------- -------
Net loss (8,437,397) (4,198,688)
Cumulative preferred stock dividend (587,971) (658,972)
--------- ---------
Net loss available to common stockholders $(9,025,369) $(4,857,660)
=========== ===========
Basic and diluted net loss per share of common stock $(0.50) $(0.29)
====== ======
Weighted average shares used in computing 18,122,445 16,887,786
basic and diluted net loss per share ========== ==========
The accompanying notes are an integral part of these financial statements.
F-25
Bioenvision, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended
March 31,
---------------------------------
2004 2003
----------- -----------
(unaudited) (unaudited)
Cash flows from operating activities
Net loss $(8,437,397) $(4,198,688)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 1,023,325 1,005,710
Deferred tax benefit (402,928) (456,300)
Compensation costs - shares and warrants issued 1,009,290 678,556
to nonemployees
Compensation costs - re-pricing of options 2,597,796 -
Compensation costs-options issued to employees 18,449
Changes in assets and liabilities
Deferred costs (2,706,549) 184,091
Deferred revenue 5,362,012 (368,182)
Accounts payable 721,608 (109,623)
Other current assets (81,628) (45,529)
Other long term assets 96,868 4,247
Accounts receivable (2,615,263) (79,111)
Other accrued expenses and liabilities (237,353) (772,834)
--------- ---------
Net cash used in operating activities (3,651,771) (4,157,663)
----------- -----------
Cash flows from investing activities
Purchase of intangible assets (30,772) (161,183)
Capital expenditures (3,116) (59,405)
Restricted cash - (290,000)
-------- ---------
Net cash used in investing activities (33,888) (510,588)
-------- ---------
Cash flows from financing activities
Proceeds from issuance of common stock 12,157,240 -
Proceeds from exercise of options, warrants and other convertible
securities 1,157,546 -
--------- ----------
Net cash provided by financing activities 13,314,786 -
---------- ----------
Net increase (decrease) in cash and cash equivalents 9,629,127 (4,668,251)
Cash and cash equivalents, beginning of period 7,929,686 12,882,521
--------- ----------
Cash and cash equivalents, end of period $17,558,813 $8,214,270
========== =========
The accompanying notes are an integral part of these financial statements
F-26
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
(Unaudited)
NOTE A - Description of Business
Bioenvision, Inc. ("Bioenvision" or the "Company") is an emerging
biopharmaceutical company whose primary business focus is the development and
distribution of drugs to treat cancer. The Company has a broad range of products
and technologies under development, but its two lead drugs are Clofarabine and
Modrenal(R). Modrenal(R)is approved for marketing in the U.K. for advanced
post-menopausal breast cancer. The Company has filed an IND in the United
States to test Modrenal(R) in a Phase II clinical trial for the treatment of
androgen independent prostate cancer which clinical trial is expected to
commence in Q2 of calendar 2004. The Company's future plans within the U.S.
include development of Modrenal(R) in the U.S. for the treatment of advanced
post-menopausal breast cancer. Most of the Company's other drugs are now in
clinical trials in various stages of development including Clofarabine, a drug
which we believe to be effective for the treatment of pediatric and adult acute
leukemia, and potentially solid tumors and chronic leukemia.
NOTE B - Interim Financial Statements
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all the adjustments (consisting only of normal
recurring accruals) necessary to present fairly the consolidated financial
position as of March 31, 2004 and the consolidated results of operations for the
three months and nine months ended March 31, 2004 and 2003, and cash flows for
the nine months ended March 31, 2004 and 2003.
The condensed consolidated balance sheet at June 30, 2003 has been derived from
the audited financial statements at that date, but does not include all the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements. For further information,
refer to the audited consolidated financial statements and footnotes thereto
included in the Form 10-KSB filed by the Company for the year ended June 30,
2003.
The condensed consolidated results of operations for the three months and nine
months ended March 31, 2004 and 2003 are not necessarily indicative of the
results to be expected for any other interim period or for the full year.
NOTE C - Stock Based Compensation
At March 31, 2004, the Company has stock based compensation plans which are
described more fully in the Company's annual report on Form 10-KSB for the year
ended June 30, 2003. As permitted by SFAS No. 123, "Accounting for Stock Based
Compensation," the Company accounts for stock based compensation arrangements in
accordance with provisions of Accounting Principles Board ("APB") Opinion No. 25
"Accounting for Stock Issued to Employees." Compensation expense for stock
options issued to employees is based on the difference on the date of grant,
between the fair value of the Company's stock and the exercise price of the
option. Under APB 25, no stock based employee compensation cost is reflected in
reported net loss, when options granted to employees have an exercise price
equal to the market value of the underlying common stock at the date of grant.
For the three months and nine months ended March 31, 2004, the Company
recognized stock based employee compensation expense of $1,943,888 and
$2,597,796, respectively, as a result of the March 31, 2003 re-pricing of
380,000 options granted to an employee pursuant to the terms of his employment
contract. For each of the three months and nine months ended March 31, 2004, the
Company recorded compensation expense of $18,499, as a result of the 288,600
options granted to certain employees on January 20, 2004.
The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force
("EITF") No. 96-18, "Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling Goods or Services,"
as amended by EITF No. 00-27. Under EITF No. 96-18, where the fair value of the
equity instrument is more reliably measurable than the fair value of services
received, such services will be valued based on the fair value of the equity
instrument. The Company expects to continue applying the provisions of APB
Opinion No. 25 for equity issuances to employees.
F-27
The following table illustrates the effect on net loss and loss per share as if
the fair value based method had been applied to all outstanding and unvested
awards in each period.
Three months ended Nine months ended
March 31, March 31,
--------- ---------
2004 2003 2004 2003
---- ---- ---- ----
Net loss available to common stockholders, $(4,239,982) $(1,699,307) $(9,025,369) $(4,857,660)
as reported ----------- ----------- ----------- -----------
Add: Stock based employee compensation expense
included in reported net income, net of tax effects $ 18,499 - $ 18,499 -
Deduct: Total stock based employee compensation $ (159,528) $(152,042) $ (284,959) $(274,267)
expense determined under fair value based method --------- --------- --------- ---------
for all awards; net of related tax effects
Pro forma net loss $(4,381,011) $(1,851,349) $(9,291,829) $(5,131,927)
========== =========== =========== ===========
Loss per share
Basic and diluted - as reported $ (0.21) $ (0.10) $ (0.50) $ (0.29)
Basic and diluted - pro forma $ (0.22) $ (0.11) $ (0.51) $ (0.30)
The fair value of options at the date of grant was established using the
Black-Scholes model with the following assumptions:
Three months ended Nine months ended
March 31 March 31,
-------- ---------
2004 2003 2004 2003
---- ---- ---- ----
Expected life (years) 4 4 4 4
Risk free interest rate 3.00% 3.00% 3.00% 3.00%
Expected volatility 80.00% 80.00% 80.00% 80.00%
Expected dividend yield 0.00 0.00 0.00 0.00
NOTE D - Net Loss Per Share
Basic net loss per share is computed using the weighted average number of common
shares outstanding during the periods. Diluted net loss per share is computed
using the weighted average number of common shares and potentially dilutive
common shares outstanding during the periods. Options and warrants to purchase
13,145,020 and 6,054,544 shares of common stock have not been included in the
calculation of net loss per share for the nine months ended March 31, 2004 and
2003, respectively, as their effect would have been anti-dilutive.
NOTE E - License And Co-Development Agreements
Clofarabine
The Company has a license from Southern Research Institute ("SRI"), Birmingham,
Alabama, to develop and market purine nucleoside analogs which, based on
third-party studies conducted to date, may be effective in the treatment of
leukemia and lymphoma. The lead compound of these purine-based nucleosides is
known as Clofarabine. The Company is developing Clofarabine initially for the
treatment of pediatric and adult leukemias, lymphomas and solid tumors.
In August 2003, SRI granted the Company an irrevocable, exclusive option to
make, use and sell products derived from the technology in Japan and Southeast
Asia. The Company intends to convert the option to a license upon sourcing an
appropriate co-marketing partner to develop these rights in such territory.
F-28
To facilitate the development of Clofarabine, the Company entered into a
co-development agreement with ILEX Oncology, Inc. ("ILEX") in March 2001. Under
the terms of the co-development agreement, the Company granted ILEX an option to
market Clofarabine in the United States and Canada. ILEX is required to pay all
development costs in the United States and Canada, and 50% of approved
development costs worldwide outside the United States and Canada (excluding
Japan and Southeast Asia). The Company also granted Ilex an option to purchase
$1 million of Common Stock after completion of the pivotal Phase II clinical
trial, and ILEX has an additional option to purchase $2 million of Common Stock
after the filing of a new drug application in the United States for the use of
Clofarabine in the treatment of lymphocytic leukemia. The exercise price per
share for each option is determined by a formula based around the date of
exercise. Under the co-development agreement, ILEX also pays royalties to
Southern Research Institute based on certain milestones. Also, the Company is
obligated to pay milestones and royalties to Southern Research Institute in
respect to Clofarabine sales outside the United State and Canada. On September
12, 2003, ILEX paid the Company approximately $775,000 in respect of Research
and Development costs incurred by the Company for European drug development
through August 31, 2003. The Company recognized additional revenue of $622,000
from ILEX for Research and Development costs incurred by the Company during the
three months ended March 31, 2004.
The Company received a nonrefundable, upfront payment of $1.35 million when they
entered into the agreement with ILEX and is entitled to receive milestone
payments of $2.5 million upon completion of management designed pivotal Phase II
clinical trials of Clofarabine and $5.0 million after submission of a new drug
application with the FDA. The upfront payment was deferred and recognized as
revenues ratably, on a straight-line basis over the related service period,
through December 2002. The Company recognized revenues of $0 for the three and
nine months ended March 31, 2004 and $0 and approximately $368,000 for the three
and nine months ended March 31, 2003, in connection with the up-front payment
under the ILEX agreement.
Deferred costs represents royalty payments that became due and payable to SRI
upon the Company's execution of the co-development agreement with Ilex Oncology.
The Company also defers all royalty payments made to SRI and recognizes these
costs ratably, on a straight-line basis concurrent with revenue that is
recognized in connection with Ilex agreement.
Modrenal(R)
The Company holds an exclusive license, until the expiration of existing and new
patents related to Modrenal(R), to market Modrenal in major international
territories, and an agreement with a United Kingdom company to co-develop
Modrenal(R) for other therapeutic indications. Management believes that
Modrenal(R) currently is manufactured by third-party contractors in accordance
with good manufacturing practices. The Company has no plans to establish its own
manufacturing facility for Modrenal(R), but will continue to use third-party
contractors.
Anti-Estrogen Prostate. The Company has received Institutional Review Board
approval from the Massachusetts General Hospital for a Phase II study of
Modrenal(R) for the treatment of androgen independent prostate cancer. The study
will be conducted by The Dana Faber Cancer Institute and currently is intended
to commence in May 2004.
Operational Developments
On April 27, 2004, the Company entered into a Clinical Development Agreement
with Covance Inc., pursuant to which Covance has agreed to perform certain
clinical investigatory services for the development of Clofarabine in Europe
including, without limitation, performing CRO activities in connection with the
Company's ongoing Phase II clinical trial of Clofarabine for the treatment of
adults with Acute Myeloid Leukemia for which chemotherapy is not considered
suitable ("BIV 121"). The Company's management acknowledges that BIV 121 could
possibly be the basis for a regulatory submission in the adult AML indication;
although several factors beyond management's control may affect the development
of Clofarabine in this indication.
On March 31, 2004, ILEX Oncology, Inc., our U.S. co-development partner for the
development of Clofarabine, filed a New Drug Application ("NDA") with FDA for
approval of Clofarabine in the U.S. for the treatment of pediatric ALL and AML
(the "NDA Filing"). The Company has taken the NDA filing and currently is in the
process of converting the filing to a Common Technical Document (the "CTD") for
filing with the EMEA as the basis potentially for European approval of
Clofarabine for the treatment of pediatric ALL and AML. The Company expects to
file the CTD with the EMEA in the third quarter of calendar year 2004.
On December 30, 2003, the Company converted ILEX's option to a sublicense and
ILEX paid the Company $3.5
F-29
million constituting an acceleration of milestone payments required pursuant to
the co-development agreement. Further, ILEX agreed to pay an additional $2
million upon filing an NDA and a further $2 million six months thereafter.
Pursuant to the original co-development agreement, ILEX was obligated to pay the
Company $2.5 million upon completion of the pivotal phase II clinical trials; an
additional $500,000 on filing an NDA for acute leukemias; and an additional $4.5
million within twelve months thereafter. These non-refundable fees that were
received pursuant to license and other collaborative agreements where the
Company has continuing involvement are recorded as deferred revenue and
recognized over the estimated service period through March 2021. The related
costs paid to SRI were also deferred and are being amortized over the same
service period. ILEX filed the NDA with FDA in March 2004 and in April 2004,
ILEX paid the Company $2 million, representing the payment due to be paid upon
filing of the NDA. The Company expects to receive the final $2 million payment
from ILEX Oncology in Q3 of calendar year 2004.
In September 2003, the Company and ILEX entered into an amendment to the
co-development agreement, pursuant to which the Company collaborated with ILEX
to co-develop an oral formulation for Clofarabine; the rights and related costs
of which will be shared equally.
In August 2003, the Company entered into an amendment to the co-development
agreement with Stegram Pharmaceuticals plc ("Stegram"), pursuant to which, in
pertinent part, the Company succeeded to Stegram the United Kingdom marketing
rights to Modrenal.
In August 2003, SRI granted the Company an irrevocable, exclusive option to
make, use and sell products derived from Clofarabine in Japan and Southeast
Asia. The Company intends to convert the option to a license upon sourcing an
appropriate co-marketing partner to develop these rights in such territory.
In June 2003, the Company entered into a supply agreement with Ferro-Pfanstiehl
Laboratories ("Ferro"), pursuant to which Ferro has agreed to manufacture and
supply 100% of Bioenvision's global requirements for Clofarabine-API. Subject to
certain circumstances, this agreement will expire on the fifth anniversary date
of the first regulatory approval of Clofarabine drug product.
In June 2003, the Company entered into a development agreement with Ferro,
pursuant to which Ferro agreed to perform certain development activities to
scale up, develop, finalize, and supply CTM and GMP supplier qualifications of
the API-Clofarabine. Subject to certain circumstances, this agreement expires
upon the completion of the development program. The development agreement is
milestone based and payments are to be paid upon completion of each milestone.
If Ferro has not completed the development agreement by December 2007, the
development agreement will automatically terminate without further action by
either party. The Company paid and capitalized $50,000 related to development
costs.
In May 2003, the Company entered into a sub-license agreement with Dechra
Pharmaceuticals, plc ("Dechra"), pursuant to which Dechra has been granted a
sub-license for all of Bioenvision's rights and entitlements to market and
distribute Modrenal in the United States and Canada solely in connection with
animal health applications. Subject to certain circumstances, this agreement
expires upon expiration of the last patent related to Modrenal or the completion
of the last royalty set forth in the agreement. The Company received an upfront
non-refundable payment of $1.25 million upon execution of this agreement and may
receive up to an additional $3.75 million upon the achievement by Dechra of
certain milestones set forth in the agreement. The upfront payment received from
Dechra has been deferred and will be recognized as revenues on a straight-line
basis over the term of the license agreement through May 2014. The Company
recognized revenues of $29,000 and $87,000 for the three and nine months ended
March 31, 2004 in connection with this sublicense agreement with Dechra. As of
March 31, 2004, deferred revenues include approximately $1,153,000 related to
this agreement.
In May 2003, the Company entered into a master services agreement with
Penn-Pharmaceutical Services Limited ("Penn"), pursuant to which Penn has agreed
to label, package and distribute Clofarabine on behalf of and at the Company's
request. The services to be performed by Penn also include regulatory support
and the manufacture, quality control, packaging and distribution of proprietary
medicinal products including clinical trials supplies and samples. Subject to
certain circumstances, the term of this agreement is twelve months and renews
for subsequent twelve month periods unless either party tenders notice of
termination upon no less than three months prior written notice.
In April 2003, we entered into an exclusive license agreement with CLL-Pharma
("CLL"), pursuant to which CLL has agreed to perform certain development works
and studies to create a new formulation of Modrenal in the form of a soft gel
capsule. CLL intends to use its proprietary MIDDS.-patented technology to
perform this service on
F-30
behalf of the Company. This new formulation, once in hand, will allow the
Company to apply for necessary authorization, as required by applicable European
health authorities, to sell Modrenal throughout Europe. Through June 30, 2003,
the Company paid an advance of $175,000 related to development services to be
provided by CLL over an eighteen month period, which advance was recorded as a
prepaid development cost by the Company.
NOTE F - Equity Transactions
In June 2002, the Company granted options to an officer of the Company to
purchase 380,000 shares of common stock at an exercise price of $1.95 per share,
which equaled the stock price on the date of grant. Of this amount 50,000
options vested on June 28, 2002 and the remaining 330,000 options vest ratably
over a three-year period on each anniversary date. On March 31, 2003, the
Company entered into an Employment Agreement with such officer of the Company,
pursuant to which, among other things, the exercise price for all of the 380,000
options was changed to $0.735 per share, which equaled the stock price on that
date. In addition, the Company issued an additional 120,000 options at an
exercise price of $.735 per share which vest immediately. As a result of the
repricing of all of the 380,000 options, the Company will remeasure the
intrinsic value of these options at the end of each reporting period and will
record a charge for compensation expense to the extent the vested portion of the
options are in the money. For the three months and nine months ended March 31,
2004, the Company recognized stock based compensation expense of $1,943,888 and
$2,597,796, respectively.
During the three months ended March 31, 2003, the Company also issued 20,000
options to another employee to purchase 20,000 shares of common stock at an
exercise price of $1.42 per share. Of this amount, 10,000 options vest on
January 9, 2004 and the remaining 10,000 options will vest on January 9, 2005.
On April 2, 2003, the Company granted RRD International, a regulatory consultant
to the Company, a warrant to acquire 175,000 shares of the Company's common
stock at an exercise price of $2.00 per share, which warrant vests ratably upon
satisfaction of five milestones included in the warrant and includes
registration rights under certain circumstances. In connection therewith, for
the three months and nine month periods ended Match 31, 2004, the Company
recognized consulting expense of approximately $485,000 and $611,000,
respectively.
During the three months ended December 31, 2003, the Company issued options to
another employee to purchase 25,000 shares of common stock at an exercise price
of $3.53 per share. Of this amount, 12,500 options vest on November 11, 2004 and
the remaining 12,500 will vest on November 11, 2005.
During the three and nine months ended March 31, 2004, certain holders of
760,000 shares of the Company's preferred stock converted such shares into
1,520,000 shares of the Company's common stock. In addition, during the three
and nine months ended March 31, 2004, certain warrant holders of the Company
exercised their warrants to acquire 433,000 and 608,000 shares of the Company's
common stock, respectively. The Company received proceeds of approximately
$867,000 and $1,129,000 during the three and nine months ended March 31, 2004,
respectively from the exercise of these warrants.
During the three and nine month periods ended March 31, 2004, certain holders of
options to purchase an aggregate of 1,025,000 and 2,113,000 shares, respectively
of the Company's common stock were exercised pursuant to the cashless exercise
feature available to such option holders and the Company issued approximately
847,000 and 1,738,000 shares of its common stock in connection therewith.
On January 3, 2004, the Company issued 14,510 restricted shares of its common
stock to a consultant to the Company for certain executive placement services
rendered to the Company. The Company recorded compensation expense of
approximately $60,637 for the three months ended March 31, 2004 in connection
with such issuance.
On January 20, 2004, the Company granted 20,000 options to Dr. Michael Kauffman,
for serving as a member of the Board of Directors, at an exercise price of $4.55
per share which vest ratably on the first and second anniversaries of the grant
date.
On January 20, 2004, the Company recorded a compensation expense of $18,499 as a
result of the 288,600 options granted to certain employees.
On February 4, 2004, the Company issued 20,000 shares of its common stock to an
employee of the Company in connection with the exercise of options issued prior
to that date.
On March 22, 2004, the Company consummated a private placement transaction,
pursuant to which we raised $12.8 million and issued 2,044,514 shares of our
common stock and warrants to purchase an additional 408,903 shares of
F-31
our common stock at a conversion price of $7.50 per share. The Company recorded
proceeds of $12,151,240 net of all legal, professional and financing fees
incurred in connection with the offering. The Company consummated a second
closing for this financing on May 13, 2004 in order to comply with certain
contractual obligations of the Company to its holders of Series A Preferred
Stock which hold preemptive rights for equity offerings of the Company. The
Company raised an additional $3.5 million from the second closing and issued an
additional 558,384 shares of our common stock and warrants to purchase 111,677
shares of our common stock at a conversion price of $7.50 per share.
NOTE G - Related Party Transactions
In May 2002, we completed a private placement pursuant to which we issued an
aggregate of 5,916,666 shares of Series A convertible participating preferred
stock for $3.00 per share and warrants to purchase an aggregate of 5,916,666
shares of common stock and in March of 2004 we consummated a private placement
pursuant to which we raised $12.8 million with a second closing in May 2004 in
which we raised an additional $3.5 million (See "Note F-Equity Transactions"
above). An affiliate of SCO Capital Partners LLC, one of our stockholders,
served as financial advisor to the Company in connection with these financings
and earned a placement fee of approximately $1.2 million in connection with May
2002 private placement and a placement fee of $1.1 million and warrants to
purchase 260,291 shares of common stock for $6.25 per share for the March and
May 2004 financings. This affiliate of SCO Capital Partners LLC continues to
serve as a financial advisor to the Company.
NOTE H - New Accounting Pronouncements
In January 2003, the FASB issued Financial Interpretation No. 46, "Consolidation
of Variable Interest Entities" ("FIN 46"), which addresses consolidation by
business enterprises of variable interest entities (VIEs). The accounting
provisions and disclosure requirements of FIN 46 are effective immediately for
VIEs created after January 31, 2003, and are effective for the Company's fiscal
period ending March 31, 2004, for VIEs created prior to February 1, 2003. In
December 2003, the FASB published a revision to FIN 46 ("FIN 46R") to clarify
some of the provisions of the interpretation and to defer the effective date of
implementation for certain entities. Under the guidance of FIN 46R, public
companies that have interests in VIE's that are commonly referred to as special
purpose entities are required to apply the provisions of FIN 46R for periods
ending after December 15, 2003. A public company that does not have any
interests in special purpose entities but does have a variable interest in a VIE
created before February 1, 2003, must apply the provisions of FIN 46R by the end
of the first interim or annual reporting period ending after March 14, 2004.
During the quarter ended March 31, 2004 the Company adopted the provisions of
FIN 46R. Adoption of FIN46R did not have a material effect on the Company's
financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity" ("SFAS 150").
The objective of SFAS 150 is to establish standards for how an issuer classifies
and measures certain financial instruments with characteristics of both
liabilities and equity. SFAS 150 is effective for financial instruments entered
into or modified after May 31, 2003 and for existing financial instruments after
July 1, 2003. Adoption of SFAS 150 did not have a material impact on the results
of operations or financial position of the Company.
In May 2003, the Emerging Issues Task Force ("EITF") reached a consensus on EITF
Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables" ("EITF
00-21"). EITF 00-21 provides guidance on how to determine when an arrangement
that involves multiple revenue-generating activities or deliverables should be
divided into separate units of accounting for revenue recognition purposes, and
if this division is required, how the arrangement consideration should be
allocated among the separate units of accounting. The guidance in the consensus
is effective for revenue arrangements entered into in quarters beginning after
June 15, 2003. The adoption of EITF 00-21 did not impact the Company's
consolidated financial position or results of operations, but could affect the
timing or pattern of revenue recognition for future collaborative research
and/or license agreements.
NOTE I - Litigation
On April 1, 2003, RLB Capital, Inc. filed a complaint against the Company in the
Supreme Court of the State of New York (Index No. 601058/03). The Complaint
alleged a breach of contract by the Company and demanded judgment against the
Company for $112,500 and warrants to acquire 75,000 shares of the Company's
common stock. The Company submitted its Verified Answer on June 25, 2003 and, in
pertinent part, denied RLB's allegations and asserted counterclaims based on
negligence. In September 2003, the Company filed a motion for summary judgment
and RLB filed its response on October 27, 2003. In December 2003, the Supreme
Court granted the motion for summary judgment and the complaint was dismissed.
In March 2004, the complaint and two counterclaims asserted by the Company were
dismissed with prejudice.
F-32
On December 19, 2003, the Company filed a complaint against Dr. Deidre Tessman
and Tessman Technology Ltd. (the "Tessman Defendants") in the Supreme Court of
the State of New York, County of New York (Index No. 03-603984). An amended
complaint alleges, among other things, breach of contract and negligence by
Tessman and Tessman Technology and demands judgment against Tessman and Tessman
Technology in an amount to be determined by the Court. The Tessman Defendants
removed the case to federal court, then remanded it to state court and served an
answer with several purported counterclaims. The Company denies the allegations
in the counterclaims and intends to pursue its claims against the Tessman
Defendants vigorously.
F-33
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The indemnification of officers and directors of the Registrant is
governed by Section 145 of the General Corporation Law of the State of Delaware
(the "DGCL") and the Certificate of Incorporation, as amended, and By-Laws of
the Registrant. Subsection (a) of DGCL Section 145 empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by the person in connection with
such action, suit or proceeding if the person acted in good faith and in the
manner the person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the person's conduct was
unlawful.
Subsection (b) of DGCL Section 145 empowers a corporation to indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that the
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by the person in a connection with the defense or settlement
of such action or suit if the person acted in good faith and in the manner the
person reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
DGCL Section 145 further provides that to the extent that to a present
or former director or officer is successful, on the merits or otherwise, in the
defense of any action, suit or proceeding referred to in subsections (a) and (b)
of Section 145, or in defense of any claim, issue or matter therein, such person
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith. In all cases in
which indemnification is permitted under subsection (a) and (b) of Section 145
(unless ordered by a court), it shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
present or former director, officer, employee or agent is proper in the
circumstances because the applicable standard of conduct has been met by the
party to be indemnified. Such determination must be made, with respect to a
person who is a director or officer at the time of such determination, (1) by a
majority vote of the directors who are no parties to such action, suit or
proceeding, even though less than a quorum, or (2) by a committee of such
directors designated by majority vote of such directors, even though less than a
quorum, or (3) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion, or (4) by the stockholders.
The statute authorizes the corporation to pay expenses incurred by an officer or
director in advance of the final disposition of a proceeding upon receipt of an
undertaking by or on behalf of the person to whom the advance will be made, to
repay the advances if it shall ultimately be determined that he was not entitled
to indemnification. DGCL Section 145 also provides that indemnification and
advancement of expenses permitted thereunder are not to be exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any By-law, agreement, vote of stockholders or
disinterested directors, or otherwise. DGCL Section 145 also authorizes the
corporation to purchase and maintain liability insurance on behalf of its
directors, officers, employees and agents regardless of whether the corporation
would have the statutory power to indemnify such persons against the liabilities
insures.
Article Seventh of the Certificate of Incorporation of the Registrant,
as amended (the "Certificate"), provides that no director of the Registrant
shall be personally liable to the Registrant or its stockholders for monetary
damages for breach of fiduciary duty as a director except for liability (i) for
any breach of the director's duty of loyalty to the Registrant or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the DGCL (involving certain unlawful dividends or stock purchases or
redemptions), or (iv) for any transaction from which the director derived an
improper personal benefit.
Pursuant to Section 145(g) of the DGCL, the Registrant's By-Laws, as
amended, authorize the Registrant to obtain insurance to protect officers and
directors from certain liabilities, including liabilities against which the
Registration cannot indemnify its officers and directors.
In derivative actions, Bioenvision may only protect from liability its
officers, directors, employees and agents against expenses actually and
reasonably incurred in connection with the defense or settlement of a suit, and
only if they acted in good faith and in a manner they reasonably believed to be
in, or not opposed to, the best interests of the corporation. Indemnification is
not permitted in the event that the director, officer, employee or agent is
actually adjudged liable to Bioenvision unless, and only to the extent that, the
court in which the action was brought so determines.
Bioenvision's Certificate of Incorporation permits it to protect from
liability its directors except in the event of: (1) any breach of the director's
duty of loyalty to Bioenvision or its stockholders; (2) any act or failure to
act that is not in good faith or involves intentional misconduct or a knowing
violation of the law; (3) liability arising under Section 174 of the Delaware
General Corporation Law, relating to unlawful stock purchases, redemptions, or
payment of dividends; or (4) any transaction in which the director received an
improper personal benefit.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following sets forth the estimated expenses payable in connection
with the preparation and filing of this Registration:
*Printing and Engraving Expenses............................... 15,000
*Accounting Fees and Expenses.................................. 18,000
*Legal Fees and Expenses....................................... 100,000
*Blue Sky Fees and Expenses.................................... 2,000
*Transfer Agent's and Registrar's Fees and Expenses............ 1,000
*Miscellaneous................................................. 14,000
------
*Total................................................ $150,000
====== ========
* Estimated.
RECENT SALES OF UNREGISTERED SECURITIES
In March and May 2004, we issued an aggregate of 2,602,898 shares of our
common stock and warrants to purchase 780,871 shares of common stock to 35
seventeen accredited investors, as defined under Regulation D of the Securities
Act. The issuance of these shares and warrants was exempt from registration
under Regulation D under the Securities Act or Section 4(2) of the Securities
Act.
In June 2003, in connection with that certain employment agreement,
dated January 1, 2000, by and between the Company and Mr. Stuart Smith (the
"Smith Employment Agreement"), we issued 19,728 shares of our common stock at
fair market value to Mr. Smith in settlement of any and all obligations owing to
Mr. Smith under the Smith Employment Agreement. The issuance of these shares was
exempt from registration under Regulation D under the Securities Act or Section
4(2) of the Securities Act.
In May 2003, in connection with that certain consulting agreement, dated
November 19, 2001 (the "Sterling Consulting Agreement"), we issued 15,225 shares
of our common stock at fair market value to Mr. Sterling in settlement of all
outstanding obligations under the Sterling Consulting Agreement. The issuance of
these shares was exempt from registration under Regulation D under the
Securities Act or Section 4(2) of the Securities Act.
In February 2003, in connection with that certain consulting agreement,
dated March 1, 2002, by and between the Company and Mr. Edward W. Kelly (the
"Kelly Consulting Agreement"), we issued 200,000 shares of our common stock at
fair market value to Mr. Kelly in settlement of all of our outstanding
obligations under the Kelly Consulting Agreement. The issuance of these shares
was exempt from registration under Regulation D under the Securities Act or
Section 4(2) of the Securities Act.
In January 2003, in connection with our employment of our office manager
at the principal executive office, we issued options to purchase 20,000 shares
of our common stock at an exercise price of $1.42 per share which approximated
the fair market value of the common stock on the date of the grant. Of such
options, subject to certain terms and conditions, options to purchase 10,000
shares of our common stock vested immediately and options to purchase 10,000
shares of our common stock vest on the one-year anniversary of January 9, 2003,
the grant date.
On December 31, 2002 the Company issued options to purchase 500,000
shares of common stock at an exercise price equal to $1.45 per share, which
approximated the fair market value of the common stock on the date of the grant,
to its Chairman and Chief Executive Officer, Dr. Christopher B. Wood. Of these
options, subject to certain circumstances, options to purchase 166,666 shares of
common stock vest on each of the first, second and third anniversary of the
grant date.
On December 31, 2002 the Company issued options to purchase 200,000
shares of common stock at an exercise price of $2.00 per share, which
approximated the fair market value of the common stock on the date of the grant,
to a consultant to the Company who performs European regulatory services for the
Company. Of these options, options to purchase 66,666 shares of common stock
vest on each of the first, second and third anniversary of the grant date.
Compensation expense of $24,333 was recorded as consulting fees for the year
ended June 30, 2003.
In October 2002, in connection with our employment of Ian Abercrombie as
our Sales Manager (Europe), we issued options to purchase 50,000 shares of our
common stock at an exercise price of $1.45 per share, which approximated the
fair market value of the common stock on the date of the grant. Of these
options, subject to certain terms and conditions, options to purchase 25,000
shares of common stock vest on each of the first and second anniversaries of
October 23, 2002, the grant date.
In October 2002, in connection with our employment of Hugh Griffith as
our Commercial Director (Europe), we issued options to purchase 300,000 shares
of our common stock at an exercise price of $1.45 per share, which approximated
the fair market value of the common stock on the date of the grant. Of these
options, subject to certain terms and conditions, options to purchase 100,000
shares of common stock vest on each of the first, second and third anniversaries
of October 23, 2002, the grant date.
In July 2002, in connection with our employment of David P. Luci as our
Director of Finance and General Counsel, we issued options to purchase 380,000
shares of our common stock at an exercise price of $1.95 per share, which
approximated the fair market value of the common stock on the date of the grant.
In connection with our entering into an employment agreement with Mr. Luci,
dated March 31, 2003, we cancelled these options and issued options to purchase
500,000 shares of common stock, which are exercisable at $0.735 per share, which
approximated the fair market value of the common stock on the date of the grant.
Of these options, subject to certain terms and conditions, options to purchase
170,000 shares of common stock vested on March 31, 2003 (the grant date), and
options to purchase 110,000 shares of common stock vest on each of the first,
second and third anniversaries of March 31, 2003.
In May 2002, Bioenvision issued an aggregate of 5,916,666 shares of
Series A convertible participating preferred stock for $3.00 per share and
warrants to purchase an aggregate of 5,916,666 shares of common stock to
seventeen accredited investors, as defined under Regulation D of the Securities
Act. The issuance of these shares and warrants was exempt from registration
under Regulation D under the Securities Act or Section 4(2) of the Securities
Act.
On February 1, 2002, Bioenvision issued 7,000,000 shares of common stock
to the former stockholders of Pathagon in connection with the consummation of
the Pathagon transaction. The issuance of these shares was exempt from
registration under Regulation D under the Securities Act or Section 4(2) of the
Securities Act.
On November 16, 2001, we entered into an engagement letter with SCO
Capital, pursuant to which SCO Capital would act as our financial advisor. In
connection with the engagement letter, we issued a warrant to purchase 100,000
shares of common stock at an exercise price of $1.25 per share, subject to
certain anti-dilution adjustments. In connection with securing a credit facility
with SCO Capital, we issued warrants to purchase 1,500,000 shares of our common
stock at a strike price of $1.25 per share, subject to certain anti-dilution
adjustments. The warrants expire five years from the date of issuance. The
issuance of these shares and warrants were exempt from registration under
Regulation D under the Securities Act or Section 4(2) of the Securities Act.
In October 2001, we issued 134,035 shares of common stock to three
officers as payment for salaries accrued to September 30, 2001, each of which
were accredited investors, as defined under the Securities Act of 1933. The
issuance of these shares was exempt from registration under Regulation D under
the Securities Act or Section 4(2) of the Securities Act.
In August 2001 in connection with outstanding deferred salaries, we
issued 208,333 shares of common stock at the rate of $1.25 per share as follows:
Christopher Wood 98,684 shares; Thomas Nelson, 27,412 shares; and Stuart Smith,
82,237 shares. The issuance of these shares was exempt from registration under
Regulation D under the Securities Act or Section 4(2) of the Securities Act.
In addition, in August 2001, we granted 150,000 options to purchase
shares of our common stock at an exercise price of $1.25 per share. The options
were issued to two consultants in exchange for certain services rendered. The
options expire in August 2004 and are immediately vested. Those issuances of
options were exempt from registration under Regulation S promulgated under the
Securities Act or Section 4(2) of the Securities Act. In August 2001, we
cancelled these options and replaced them with 150,000 shares.
EXHIBITS
Exhibit
Number Description
------- -----------
2.1 Acquisition Agreement between Registrant and Bioenvision, Inc. dated
December 21, 1998 for the acquisition of 7,013,897 shares of
Registrant's Common Stock by the stockholders of Bioenvision, Inc.
(1)
2.2 Amended and Restated Agreement and Plan of Merger, dated as of
February 1, 2002, by and among Bioenvision, Inc., Bioenvision
Acquisition Corp. and Pathagon, Inc. (5)
3.1 Certificate of Incorporation of Registrant. (2)
3.1(a) Amendment to Certificate of Incorporation filed January 29, 1999. (3)
3.1(b) Certificate of Correction to the Certificate of Incorporation, filed
March 15, 2002 (6)
3.1(c) Certificate of Amendment to the Certificate of Incorporation, filed
April 30, 2002 (6)
3.2 Amended and Restated By-Laws of the Registrant. (13)
3.2(a) Amendment to Bylaws, effective April 30, 2002 (6)
4.1 Certificate of Designation (6)
4.2 Form of Warrant (6)
4.3 Registration Rights Agreement, dated April 2, 2003, by and between
Bioenvision, Inc. and RRD International, LLC (14)
4.4 Warrant, dated April 2, 2003, made by Bioenvision, Inc. in favor of
RRD International, LLC (14)
5.1* Opinion of Paul, Hastings, Janofsky & Walker, LLP
10.1 Pharmaceutical Development Agreement, dated as of June 10, 2003, by
and between Bioenvision, Inc. and Ferro Pfanstiehl Laboratories,
Inc. (15)
10.2 Co-Development Agreement between Bioheal, Ltd. and Christopher Wood
dated May 19, 1998. (3)
10.3 Master Services Agreement, dated May 14, 2003, by and between
PennDevelopment Pharmaceutical Services Limited and Bioenvision,
Inc. (15)
10.4 Co-Development Agreement between Stegram Pharmaceuticals, Ltd. And
Bioenvision, Inc. dated July 15, 1998. (3)
10.5 Co-Development Agreement between Southern Research Institute and
Eurobiotech Group, Inc. dated August 31, 1998. (3)
10.5(a) Agreement to Grant License from Southern Research
Institute to Eurobiotech Group, Inc. dated
September 1, 1998. (3)
10.6 License and Sub-License Agreement, dated as of May 13, 2003, by and
between Bioenvision, Inc. and Dechra Pharmaceuticals, plc (15)
10.7 Employment Agreement between Bioenvision, Inc. and Christopher B.
Wood, M.D., dated December 31, 2002 (3)
10.8 Employment Agreement between Bioenvision, Inc. and David P. Luci,
dated March 31, 2003. (14)
10.9 Securities Purchase Agreement with Bioaccelerate Inc dated March 24,
2000. (4)
10.10 Engagement Letter Agreement, dated as of November 16, 2001, by and
between Bioenvision, Inc. and SCO Securities LLC. (7)
10.11 Security Agreement, dated as of November 16, 2001, by Bioenvision,
Inc. in favor of SCO Capital Partners LLC. (7)
10.12 Commitment Letter, dated November 16, 2001, by and between SCO
Capital Partners LLC and Bioenvision, Inc. (7)
10.13 Senior Secured Grid Note, dated November 16, 2001, by Bioenvision,
Inc. in favor of SCO Capital Partners LLC. (7)
10.14 Registration Rights Agreement, dated as of February 1, 2002, by and
among Bioenvision, Inc., the former stockholders of Pathagon, Inc.
party thereto, Christopher Wood, Bioaccelerate Limited, Jano
Holdings Limited and Lifescience Ventures Limited. (8)
10.15 Stockholders Lock-Up Agreement, dated as of February 1, 2002, by and
among Bioenvision, Inc., the former stockholders of Pathagon, Inc.
party thereto, Christopher Wood, Bioaccelerate Limited, Jano
Holdings Limited and Lifescience Ventures Limited. (8)
10.16 Form of Securities Purchase Agreement by and among Bioenvision, Inc.
and certain purchasers, dated as of May 7, 2002. (6)
10.17 Form of Registration Rights Agreement by and among Bioenvision, Inc.
and certain purchasers, dated as of May 7, 2002. (6)
10.18 Exclusive License Agreement by and between Baxter Healthcare
Corporation, acting through its Edwards Critical-Care division, and
Implemed, dated as of May 6, 1997. (12)
10.19 License Agreement by and between Oklahoma Medical Research
Foundation and bridge Therapeutic Products, Inc., dated as of
January 1, 1998. (12)
10.20 Amendment No. 1 to License Agreement by and among Oklahoma Medical
Research Foundation, Bioenvision, Inc. and Pathagon, Inc., dated May
7, 2002. (12)
10.21 Inter-Institutional Agreement between Sloan-Kettering Institute for
Cancer Research and Southern Research Institute, dated as of August
31, 1998. (12)
10.22 License Agreement between University College London and Bioenvision,
Inc., dated March 1, 1999. (12)
10.23 Research Agreement between Stegram Pharmaceuticals Ltd., Queen Mary
and Westfield College and Bioenvision, Inc., dated June 8, 1999 (12)
10.24 Research and License Agreement between Bioenvision, Inc., Velindre
NHS Trust and University College Cardiff Consultants, dated as of
January 9, 2001. (12)
10.25 Co-Development Agreement, between Bioenvision, Inc. and ILEX
Oncology, Inc., dated March 9, 2001. (12)
10.26 Amended and Restated Agreement and Plan of Merger, dated as of
February 1, 2002, among Bioenvision, Inc., Bioenvision Acquisition
Corp. and Pathagon Inc. (5)
10.27 Master Services Agreement, dated as of April 2, 2003, by and between
Bioenvision, Inc. and RRD International, LLC(14)
16.1 Letter from Graf Repetti & Co., LLP to the Securities and Exchange
Commission, dated September 30, 1999. (9)
16.2 Letter from Ernst & Young LLP to the Securities and Exchange
Commission, dated July 6, 2001. (10)
16.3 Letter from Ernst & Young LLP to the Securities and Exchange
Commission, dated August 16, 2001. (11)
21.1 Subsidiaries of the registrant (4)
23.1 Consent of Grant Thornton LLP
23.2* Consent of Paul, Hastings, Janofsky & Walker LLP (included in
Exhibit 5.1)
24.1 Power of Attorney (appears on signature page)
* To be filed by amendment
-----------------------
(1) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K filed with the SEC on January 12, 1999.
(2) Incorporated by reference and filed as an Exhibit to Registrant's
Registration Statement on Form 10-12g filed with the SEC on September 3,
1998.
(3) Incorporated by reference and filed as an Exhibit to Registrant's Form
10-KSB/A filed with the SEC on October 18, 1999.
(4) Incorporated by reference and filed as an Exhibit to Registrant's Form
10-KSB filed with the SEC on November 13, 2000.
(5) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K filed with the SEC on April 16, 2002.
(6) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K, filed with the SEC on May 28, 2002.
(7) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K, filed with the SEC on January 8, 2002.
(8) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K, filed with the SEC on February 21, 2002.
(9) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K, filed with the SEC on October 1, 1999.
(10) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K/A, filed with the SEC on July 26, 2001.
(11) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K, filed with the SEC on December 6, 2001.
(12) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K, filed with the SEC on June 24, 2002.
(13) Incorporated by reference and filed as an Exhibit to Registrant's
Quarterly Report on Form 10-QSB for the three-month period ended December
31, 2002.
(14) Incorporated by reference and filed as an Exhibit to Registrant's
Quarterly Report on Form 10-QSB for the three-month period ended March 31,
2003.
(15) Incorporated by reference and filed as an Exhibit to Registrant's Form
10-KSB filed with the SEC on September 29, 2003.
UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933, as amended.
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in
the form of prospectus filed with the Securities and
Exchange Commission pursuant to Rule 424(b), if, in the
aggregate, the changes in volume and price represent not
more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of this offering.
(4) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(5) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling the registrant pursuant to the foregoing provisions, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against such public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expanses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense if any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the 24th day of May,
2004.
BIOENVISION, INC.
By /s/ Christopher B. Wood
--------------------------
Christopher B. Wood, Chairman of the
Board and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears below
constitutes and appoints Christopher B. Wood as his/her true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution
for him/her and in his/her name, place and stead, in any and all capacities, to
sign any and all amendments and post-effective amendments to this registration
statement, and make such changes and additions to this registration statement
for the same offering that may be filed under Rule 462(b), and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto the attorney-in-fact and agent
full power and authority to do and perform each and every act and thing
requisite and necessary to be done and about the premises, as fully to all
intents and purposes as he/she might or could do in person, thereby ratifying
and confirming all that the attorney-in-fact and agent, or his/her substitutes,
may lawfully do or cause to be done by virtue thereof and the registrant hereby
confers like authority on its behalf.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Christopher B. Wood, M.D. Chairman and Chief Executive May 24, 2004
----------------------------- Officer and Director
Christopher B. Wood, M.D. (Principal Executive Officer)
/s/ David P. Luci Director of Finance, General May 24, 2004
----------------- Counsel and Corporate Secretary
David P. Luci (Principal Financial and
Accounting Officer)
/s/ Thomas S. Nelson, C.A. Director May 24, 2004
--------------------------
Thomas S. Nelson, C.A.
/s/ Michael Kauffman Director May 24, 2004
--------------------
Michael Kauffman
/s/ Jeffrey B. Davis Director May 24, 2004
--------------------
Jeffrey B. Davis
/s/ Andrew N. Schiff Director May 24, 2004
--------------------
Andrew N. Schiff
/s/ Steven A. Elms Director May 24, 2004
------------------
Steven A. Elms
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
2.1 Acquisition Agreement between Registrant and Bioenvision, Inc. dated
December 21, 1998 for the acquisition of 7,013,897 shares of
Registrant's Common Stock by the stockholders of Bioenvision, Inc.
(1)
2.2 Amended and Restated Agreement and Plan of Merger, dated as of
February 1, 2002, by and among Bioenvision, Inc., Bioenvision
Acquisition Corp. and Pathagon, Inc. (5)
3.1 Certificate of Incorporation of Registrant. (2)
3.1(a) Amendment to Certificate of Incorporation filed January 29, 1999. (3)
3.1(b) Certificate of Correction to the Certificate of Incorporation, filed
March 15, 2002 (6)
3.1(c) Certificate of Amendment to the Certificate of Incorporation, filed
April 30, 2002 (6)
3.2 Amended and Restated By-Laws of the Registrant. (13)
3.2(a) Amendment to Bylaws, effective April 30, 2002 (6)
4.1 Certificate of Designation (6)
4.2 Form of Warrant (6)
4.3 Registration Rights Agreement, dated April 2, 2003, by and between
Bioenvision, Inc. and RRD International, LLC (14)
4.4 Warrant, dated April 2, 2003, made by Bioenvision, Inc. in favor of
RRD International, LLC (14)
5.1* Opinion of Paul, Hastings, Janofsky & Walker, LLP
10.1 Pharmaceutical Development Agreement, dated as of June 10, 2003, by
and between Bioenvision, Inc. and Ferro Pfanstiehl Laboratories,
Inc. (15)
10.2 Co-Development Agreement between Bioheal, Ltd. and Christopher Wood
dated May 19, 1998. (3)
10.3 Master Services Agreement, dated May 14, 2003, by and between
PennDevelopment Pharmaceutical Services Limited and Bioenvision,
Inc. (15)
10.4 Co-Development Agreement between Stegram Pharmaceuticals, Ltd. And
Bioenvision, Inc. dated July 15, 1998. (3)
10.5 Co-Development Agreement between Southern Research Institute and
Eurobiotech Group, Inc. dated August 31, 1998. (3)
10.5(a) Agreement to Grant License from Southern Research
Institute to Eurobiotech Group, Inc. dated
September 1, 1998. (3)
10.6 License and Sub-License Agreement, dated as of May 13, 2003, by and
between Bioenvision, Inc. and Dechra Pharmaceuticals, plc (15)
10.7 Employment Agreement between Bioenvision, Inc. and Christopher B.
Wood, M.D., dated December 31, 2002 (3)
10.8 Employment Agreement between Bioenvision, Inc. and David P. Luci,
dated March 31, 2003 (14)
10.9 Securities Purchase Agreement with Bioaccelerate Inc dated March 24,
2000. (4)
10.10 Engagement Letter Agreement, dated as of November 16, 2001, by and
between Bioenvision, Inc. and SCO Securities LLC. (7)
10.11 Security Agreement, dated as of November 16, 2001, by Bioenvision,
Inc. in favor of SCO Capital Partners LLC. (7)
10.12 Commitment Letter, dated November 16, 2001, by and between SCO
Capital Partners LLC and Bioenvision, Inc. (7)
10.13 Senior Secured Grid Note, dated November 16, 2001, by Bioenvision,
Inc. in favor of SCO Capital Partners LLC. (7)
10.14 Registration Rights Agreement, dated as of February 1, 2002, by and
among Bioenvision, Inc., the former stockholders of Pathagon, Inc.
party thereto, Christopher Wood, Bioaccelerate Limited, Jano
Holdings Limited and Lifescience Ventures Limited. (8)
10.15 Stockholders Lock-Up Agreement, dated as of February 1, 2002, by and
among Bioenvision, Inc., the former stockholders of Pathagon, Inc.
party thereto, Christopher Wood, Bioaccelerate Limited, Jano
Holdings Limited and Lifescience Ventures Limited. (8)
10.16 Form of Securities Purchase Agreement by and among Bioenvision, Inc.
and certain purchasers, dated as of May 7, 2002. (6)
10.17 Form of Registration Rights Agreement by and among Bioenvision, Inc.
and certain purchasers, dated as of May 7, 2002. (6)
10.18 Exclusive License Agreement by and between Baxter Healthcare
Corporation, acting through its Edwards Critical-Care division, and
Implemed, dated as of May 6, 1997. (12)
10.19 License Agreement by and between Oklahoma Medical Research
Foundation and bridge Therapeutic Products, Inc., dated as of
January 1, 1998. (12)
10.20 Amendment No. 1 to License Agreement by and among Oklahoma Medical
Research Foundation, Bioenvision, Inc. and Pathagon, Inc., dated May
7, 2002. (12)
10.21 Inter-Institutional Agreement between Sloan-Kettering Institute for
Cancer Research and Southern Research Institute, dated as of August
31, 1998. (12)
10.22 License Agreement between University College London and Bioenvision,
Inc., dated March 1, 1999. (12)
10.23 Research Agreement between Stegram Pharmaceuticals Ltd., Queen Mary
and Westfield College and Bioenvision, Inc., dated June 8, 1999 (12)
10.24 Research and License Agreement between Bioenvision, Inc., Velindre
NHS Trust and University College Cardiff Consultants, dated as of
January 9, 2001. (12)
10.25 Co-Development Agreement, between Bioenvision, Inc. and ILEX
Oncology, Inc., dated March 9, 2001. (12)
10.26 Amended and Restated Agreement and Plan of Merger, dated as of
February 1, 2002, among Bioenvision, Inc., Bioenvision Acquisition
Corp. and Pathagon Inc. (5)
10.27 Master Services Agreement, dated as of April 2, 2003, by and between
Bioenvision, Inc. and RRD International, LLC(14)
16.1 Letter from Graf Repetti & Co., LLP to the Securities and Exchange
Commission, dated September 30, 1999. (9)
16.2 Letter from Ernst & Young LLP to the Securities and Exchange
Commission, dated July 6, 2001. (10)
16.3 Letter from Ernst & Young LLP to the Securities and Exchange
Commission, dated August 16, 2001. (11)
21.1 Subsidiaries of the registrant (4)
23.1 Consent of Grant Thornton LLP
23.2* Consent of Paul, Hastings, Janofsky & Walker LLP (included in
Exhibit 5.1)
24.1 Power of Attorney (appears on signature page)
* To be filed by amendment
--------------------------
(1) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K filed with the SEC on January 12, 1999.
(2) Incorporated by reference and filed as an Exhibit to Registrant's
Registration Statement on Form 10-12g filed with the SEC on September 3,
1998.
(3) Incorporated by reference and filed as an Exhibit to Registrant's Form
10-KSB/A filed with the SEC on October 18, 1999.
(4) Incorporated by reference and filed as an Exhibit to Registrant's Form
10-KSB filed with the SEC on November 13, 2000.
(5) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K filed with the SEC on April 16, 2002.
(6) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K, filed with the SEC on May 28, 2002.
(7) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K, filed with the SEC on January 8, 2002.
(8) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K, filed with the SEC on February 21, 2002.
(9) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K, filed with the SEC on October 1, 1999.
(10) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K/A, filed with the SEC on July 26, 2001.
(11) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K, filed with the SEC on December 6, 2001.
(12) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K, filed with the SEC on June 24, 2002.
(13) Incorporated by reference and filed as an Exhibit to Registrant's
Quarterly Report on Form 10-QSB for the three-month period ended December
31, 2002.
(14) Incorporated by reference and filed as an Exhibit to Registrant's
Quarterly Report on Form 10-QSB for the three-month period ended March 31,
2003.
(15) Incorporated by reference and filed as an Exhibit to Registrant's Form
10-KSB filed with the SEC on September 29, 2003.