FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
Commission File # 0-24875
BIOENVISION, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 13-4025857
-------- ----------
State or other jurisdiction IRS
of incorporation or organization Employer ID No.
345 Park Avenue, 41st Floor, New York, NY 10154
-----------------------------------------------
(Address of principal executive offices)
(Issuer's Telephone Number) (212) 750-6700
------------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past twelve months (or such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes ______ No __X___
As of June 27 , 2005, there were 40,558,948 shares of the issuer's common stock,
par value $.001 per share (the "Common Stock") outstanding.
Transitional Small Business Disclosure Format (Check One): YES [ ] No [X]
C O N T E N T S
Page
----
Condensed Consolidated Balance Sheets (Unaudited) -
As of March 31, 2005 and June 30, 2004- as restated 1
Condensed Consolidated Statements of Operations (Unaudited) -
For the period ended March 31, 2005 and June 2004- as restated 2
Condensed Consolidated Statements of Stockholders Equity (Unaudited) -
For the period ended March 31, 2005 and June 2004- as restated 3
Condensed Consolidated Statements of Cash Flows (Unaudited) -
For the period ended March 31, 2005 and June 2004- as restated 4
Notes to Condensed Consolidated Financial Statements (Unaudited) - as restated 5
Item 2. Management's Discussion and Analysis of Financial Condition or Plan of Operation 14
Item 3. Controls and Procedures 19
Part II - Other Information 22
Bioenvision, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
March 31, June 30,
2005 2004
-------------- --------------
ASSETS (Restated - Note I)
Current assets
Cash and cash equivalents $70,334,939 $18,875,675
Restricted cash 290,000 290,000
Deferred costs 231,171 241,824
Accounts receivable 2,204,662 2,627,773
Inventory 433,335 -
Other current assets 582,415 253,311
------- -------
Total current assets 74,076,522 22,288,583
Property and equipment, net 262,207 47,857
Intangible assets, net 13,799,903 14,563,660
Goodwill 1,540,162 1,540,162
Security deposits 211,796 79,111
Deferred costs 3,483,419 3,651,471
--------- ---------
Total assets $93,374,009 $42,170,844
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $3,014,427 $1,495,866
Accrued expenses 1,712,585 1,322,584
Accrued dividends payable 55,479 90,141
Deferred revenue 498,607 551,828
------- ---------
Total current liabilities 5,281,098 3,460,419
Deferred revenue 7,562,251 7,909,598
--------- ---------
Total liabilities 12,843,349 11,370,017
Commitments and contingencies - -
Stockholders' equity
Convertible Preferred stock - $0.001 par value; 20,000,000 shares 2,250 3,342
authorized; 2,250,000 and 3,341,666 shares issued and outstanding
at March 31, 2005 and June 30, 2004 (liquidation preference
$6,750,000 and $10,024,998, respectively)
Common stock - par value $0.001; 70,000,000 shares authorized; 40,449 28,316
40,448,948 and 28,316,163 shares issued and outstanding at March
31, 2005 and June 30, 2004, respectively
Additional paid-in capital 128,684,678 68,517,702
Deferred compensation (158,280) (223,990)
Accumulated deficit (48,155,869) (37,664,141)
Accumulated other comprehensive income 117,432 139,598
------- -------
Stockholders' equity 80,530,660 30,800,827
---------- ----------
Total liabilities and stockholders' equity $93,374,009 $42,170,844
========== ==========
The accompanying notes are an integral part of these financial statements.
Bioenvision, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended Nine months ended
March 31, March 31,
------------------------ ----------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
(Restated - (Restated -
Note I) Note I)
Revenue
Licensing and royalty revenue $430,411 $76,452 $1,012,068 $212,988
Product sales 149,364 - 364,495 -
Research and development contract revenue 819,194 770,042 2,283,657 1,545,042
------- ------- --------- ---------
Total revenue 1,398,969 846,494 3,660,220 1,758,030
Costs and expenses
Cost of products sold 99,061 - 229,417 -
Research and development 2,136,849 994,307 5,986,496 2,545,128
Selling, general and administrative 2,074,430 3,721,937 6,885,382 7,079,367
(includes stock based compensation income
(expense) of $713,116 and $(2,526,943) for the
three months ended March 31, 2005 and 2004,
respectively, and $(687,290) and $(3,625,535) for
the nine months ended March 31, 2005 and 2004,
respectively)
Depreciation and amortization 346,504 343,456 1,028,197 1,023,325
--------- --------- ---------- ----------
Total costs and expenses 4,656,844 5,059,700 14,129,492 10,647,820
--------- --------- ---------- ----------
Loss from operations (3,257,875) (4,213,206) (10,469,272) (8,889,790)
Interest income 185,465 14,576 297,479 49,465
------- ------ ------- ------
Net loss before income tax benefit (3,072,410) (4,198,630) (10,171,793) (8,840,325)
Income tax benefit - 506,087 - 1,065,575
----------- ----------- ------------ -----------
Net loss (3,072,410) (3,692,543) (10,171,793) (7,774,750)
Cumulative preferred stock dividend (83,219) (175,704) (319,935) (587,971)
------- -------- -------- --------
Net loss available to common stockholders $(3,155,629) $(3,868,247) $(10,491,728) $(8,362,721)
=========== =========== ============ ===========
Basic and diluted net loss per share of common stock $(0.08) $(0.19) $(0.33) $(0.46)
====== ====== ====== ======
Weighted average shares used in computing 37,602,163 19,912,396 31,907,864 18,122,445
basic and diluted net loss per share =========== =========== ============ ===========
The accompanying notes are an integral part of these financial statements.
-2-
Bioenvision, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited)
Accumu-
lated
Other
Addi- Compre- Total
Convertible tional hensive Stock-
Preferred Stock Common Stock Paid In Deferred Accumulated Income holders'
Shares $ Shares $ Capital Compensation Deficit (Loss) Equity
------ - ------ - ------- ------------ ------- ------ ------
Balance at July 1, 2003
(Restated - Note I) 5,916,966 $5,917 17,122,739 $17,123 $47,304,449 $ - $(26,156,098) $ 152,346 $ 21,323,737
Net loss for the period
(Restated - Note I) (10,651,267) (10,651,267)
Cumulative preferred
stock dividend for the
period (856,776) (856,776)
Currency translation
adjustment (12,748) (12,748)
Deferred compensation (223,990) (223,990)
Shares issued in
connection with private
placement 2,602,898 2,603 16,265,495 16,268,098
Costs related to March
private placement
financing (1,301,035) (1,301,035)
Preferred stock
converted to common
stock (2,575,300) (2,575) 5,150,000 5,150 (2,575) -
Expense related to
repricing of options 2,381,066 2,381,066
Cashless exercise of
options to shares 2,122,682 2,122 (2,122) -
Warrants issued in
connection with services - 671,601 671,601
Shares issued to
consultants for services 14,510 15 305,972 305,987
Shares issued to employee 20,000 20 28,380 28,400
Options issued in
connection with services 93,987 93,987
Options issued to
employees 262,601 262,601
Shares issued from
warrant conversions 1,283,334 1,283 2,509,883 2,511,166
--------- ------ ---------- ------- ----------- ---------- ------------ --------- ------------
Balance at June 30,
2004 (Restated - Note I) 3,341,666 $3,342 28,316,163 $28,316 $68,517,702 $(223,990) $(37,664,141) $ 139,598 $ 30,800,827
Net loss for the period (10,171,793) (10,171,793)
Cumulative preferred
stock dividend for the
period (319,935) (319,935)
Currency translation
adjustment (22,166) (22,166)
Deferred compensation 65,710 65,710
Warrants issued in
connection with services 509,686 509,686
Options issued in
connection with services 46,369 46,369
Preferred stock converted
to common stock (1,091,666) (1,092) 2,183,332 2,183 (1,092) -
Shares issued in
connection with public
offering net of related
expenses 7,500,000 7,500 55,642,500 55,650,000
Shares issued from
warrant conversion 1,598,411 1,598 3,277,365 3,278,963
Cash exercise of options
to shares 575,833 576 626,898 627,474
Cashless exercise of
options to shares
(non-employees) 212,709 213 (213) -
Shares issued in
connection with services 62,500 63 496,188 496,250
Expenses (income) related
to repricing of options (430,725) (430,725)
--------- ------ ---------- ------- ------------ ---------- ------------ --------- ------------
Balance at
March 31, 2005 2,250,000 $2,250 40,448,948 $40,449 $128,684,678 $(158,280) $(48,155,869) $ 117,432 $ 80,530,660
========= ====== ========== ======= ============ ========== ============ ========= ============
The accompanying notes are an integral part of this financial statement.
-3-
Bioenvision, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine months ended
March 31,
-------------------------------------
2005 2004
-------------- --------------
Restated - Note 1
Cash flows from operating activities
Net loss $(10,171,793) $(7,774,750)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 1,028,197 1,023,325
Deferred tax benefit - (1,065,575)
Stock based compensation 687,290 3,625,535
Changes in net deferred revenue and expenses (221,863) 2,655,463
Changes in assets and liabilities
Accounts payable 1,496,396 721,607
Inventory (433,335) -
Other current assets (329,104) (81,628)
Security deposits (132,686) 96,868
Accounts receivable 423,111 (2,615,263)
Accrued expenses 390,003 (237,353)
------- ---------
Net cash used in operating activities (7,263,784) (3,651,771)
Cash flows from investing activities
Purchase of intangible assets (241,998) (30,772)
Capital expenditures (236,793) (3,116)
---------- -----------
Net cash used in investing activities (478,791) (33,888)
Cash flows from financing activities
Proceeds from issuance of common stock, net of related expenses 55,650,000 12,157,240
Proceeds from exercise of options, warrants and other convertible
securities 3,906,436 1,157,546
Dividends paid (354,597) -
---------- ---------
Net cash provided by financing activities 59,201,839 13,314,786
Net increase in cash and cash equivalents 51,459,264 9,629,127
Cash and cash equivalents, beginning of period 18,875,675 7,929,686
---------- ---------
Cash and cash equivalents, end of period $70,334,939 $17,558,813
========== ==========
The accompanying notes are an integral part of these financial statements.
-4-
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
(Unaudited)
NOTE A - Description of Business and Significant Accounting Policies
Description of Business
Bioenvision, Inc. is a product-focused biopharmaceutical company with two
approved cancer therapeutics. On December 29, 2004, the FDA approved our lead
cancer product, clofarabine, for the treatment of pediatric acute lymphoblastic
leukemia, or ALL, in patients who have received two or more prior regimens.
Clofarabine has received Orphan Drug designation in the U.S. and the European
Union. Genzyme Corporation, the Company's co-development partner, currently
holds marketing rights in the U.S. and Canada for clofarabine for certain cancer
indications and controls U.S. development of clofarabine in these indications.
Genzyme is selling clofarabine under the brand name Clolar in the U.S. In
Europe, the Company has filed for approval of clofarabine in pediatric ALL and
pediatric acute myelogenous leukemia, or AML, with the European Medicines
Evaluation Agency, or EMEA.
The Company is currently selling its second product, Modrenal(R), in the United
Kingdom. Modrenal(R) is approved in the U.K. for the treatment of
post-menopausal advanced breast cancer following relapse to initial hormone
therapy, and the Company has initiated the filing process for mutual recognition
in the E.U. on a country-by-country basis.
In addition to clofarabine and Modrenal(R), the Company is developing Velostan,
initially for the treatment of bladder cancer, and Virostat, initially for the
treatment of Hepatitis C.
Significant Accounting Policies
In addition to the accounting policies reported in Note 1 to the consolidated
financial statements -- "Organization and significant accounting policies" in
the Company's annual report on Form 10-KSB for the year ended June 30, 2004, we
deem the following recent accounting policies to be important in understanding
our operating results and financial condition.
Revenue Recognition
In accordance with SEC Staff Accounting Bulletin No. 104, 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.
The Company currently sells its products to wholesale distributors and directly
to hospitals, clinics, and retail pharmacies. Revenue from product sales is
recognized when the risk of loss is passed to the customer, the sales price is
fixed and determinable, and collectibility is reasonably assured.
The Company follows the guidance of Emerging Issues Task Force ("EITF") 99-19,
"Reporting Revenue Gross as a Principal versus Net as an Agent" in the
presentation of revenues and direct costs of revenues. This guidance requires
the Company to assess whether it acts as a principal in the transaction or as an
agent acting on behalf of others. The Company records revenue transactions gross
in its statements of operations if it is deemed the principal in the
transaction, which includes being the primary obligor and having the risks and
rewards of ownership.
In May 2003, the EITF reached a consensus on EITF Issue No. 00-21, "Revenue
Arrangements with Multiple
-5-
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
because the Company had already followed a revenue recognition model consistent
with EITF 00-21.
Credit Risk
Our accounts receivable are primarily due from wholesale distributors and our
co-development partners. Based on our evaluation of the collectibility of these
accounts receivable, we believe the exposure to credit risk is minimal and, as
such, we feel that no allowance for doubtful accounts is necessary at March 31,
2005 and June 30, 2004.
Inventory
Inventories are stated at the lower of cost or market, cost being determined
under the first-in, first-out method. The Company periodically reviews
inventories and items considered outdated or obsolete are reduced to their
estimated net realizable value. Inventories consisted of $125,211 of raw
material, $218,160 of work-in-progress, and $89,964 of finished goods at March
31, 2005.
Accounting for Stock-Based Compensation
At March 31, 2005, 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, 2004. As permitted by Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock Based Compensation," and amended by SFAS
148, 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 Opinion No. 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.
The following table summarizes the pro forma effect of stock-based compensation
as if the fair value method of accounting for stock options had been applied in
measuring compensation cost. No tax benefits were attributed to the stock-based
employee compensation expense during the three and nine months ended March 31,
2005 and 2004 because there is no incremental tax effect related to the
additional expense incurred.
Three months ended Nine months ended
March 31, March 31,
--------- ---------
2005 2004 2005 2004
---- ---- ---- ----
(As restated) (As restated)
Net loss available to common stockholders, $ (3,155,629) $ (3,868,247) $ (10,491,728) $ (8,362,721)
as reported
Add: Stock-based employee compensation expense
(income) included in reported net loss (628,508) 1,962,337 (365,016) 2,616,245
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards (1,268,146) (194,060) (1,859,343) (407,438)
---------- -------- ---------- --------
Pro forma net loss $ (5,052,283) $ (2,099,970) $ (12,716,087) $ (6,153,914)
Loss per share
Basic and diluted - as reported $ (0.08) $ (0.19) $ (0.33) $ (0.46)
Basic and diluted - pro forma $ (0.13) $ (0.11) $ (0.40) $ (0.34)
The weighted-average assumptions used for the three and nine months ended March
31, 2005 were: risk-free interest rate of 3.40% and 3.36%, respectively;
expected dividend yield of 0.0%, expected life of 3.95 and 3.88 years,
-6-
respectively; and expected volatility of 80% for both periods. The
weighted-average assumptions used for the three and nine months ended March 31,
2004 were: risk-free interest rate of 2.19% and 2.21%, respectively; expected
dividend yield of 0.0%, expected life of 3.5 years and expected volatility of
80% for both periods.
During 2005, the Company corrected an error on the pro-forma stock based
compensation disclosures required under SFAS 123 determined under fair value
based method in the table above. The Company failed to add back to net loss the
stock based compensation recorded by the Company in connection with the
repricing of an officer's options and deduct the fair value of the award
calculated under SFAS 123. This has decreased such amounts previously reported
in the proforma net loss for the three month and nine month periods ended March
31, 2004 by $1,909,000 and $2,475,000, respectively.
In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123R, "Share Based Payment", requiring all share-based payments to
employees, including grants of employee stock options, to be recognized as
compensation expense in the consolidated financial statements based upon their
fair values. As amended by the SEC on April 14, 2005, this standard is effective
for the quarter beginning July 1, 2005 and includes two transition methods. Upon
adoption, we will be required to use either the modified retrospective
transition method or the modified prospective transition method. Under the
modified retrospective transition method, the previously reported amounts are
restated for all periods presented to reflect the SFAS 123 amounts in the income
statement. Under the modified prospective transition method, awards that are
granted, modified or settled after the date of adoption should be measured and
accounted for in accordance with SFAS 123R. Unvested equity-classified awards
that were granted prior to the effective date should continue to be accounted
for in accordance with SFAS 123 except that amounts must be recognized in the
income statement. We are currently evaluating the impact of this standard and
its transitional alternatives.
The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS No. 123 and 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.
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
11,572,415 and 13,145,020 shares of common stock have not been included in the
calculation of net loss per share for the three months and nine months ended
March 31, 2005 and 2004, respectively, as their effect would have been
anti-dilutive.
Comprehensive Loss
Total comprehensive loss for the three months ended March 31, 2005 and 2004 was
$ (3,186,208) and $(3,868,247), respectively. Total comprehensive loss for the
nine months ended March 31, 2005 and 2004 was $(10,513,894) and $(8,362,721).
Recent Accounting Pronouncements
In December 2004, the FASB issued SFAS 153 "Exchange of Non-monetary assets".
This statement was a result of a joint effort by the FASB and the IASB to
improve financial reporting by eliminating certain narrow differences between
their existing accounting standards. One such difference was the exception from
fair value measurement in APB Opinion No. 29, "Accounting for Non-Monetary
Transactions", for non-monetary exchanges of similar productive assets. SFAS 153
replaces this exception with a general exception from fair value measurement for
exchanges of non-monetary assets that do not have commercial substance. A
non-monetary exchange has commercial substance if the future cash flows of the
entity are expected to change significantly as a result of the exchange. This
statement is effective for non-monetary assets exchanges occurring in fiscal
periods beginning after June 15, 2005.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs". SFAS 151
amends Accounting Research Bulletin ("ARB") No. 43, Chapter 4. This statement
clarifies the accounting for abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage). SFAS 151 is the result of a
broader effort by the FASB and the IASB to improve financial reporting by
eliminating certain narrow differences between their existing accounting
standards. This statement is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005.
-7-
The adoption of SFAS 151 is not expected to have a material impact on the
results of operations or financial position of the company.
NOTE B - Interim Financial Statements
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all the adjustments consisting of normal accrued
adjustments necessary to present fairly the consolidated financial position of
the Company as of March 31, 2005, the consolidated results of operations for the
three months and nine months ended March 31, 2005 and 2004, the Condensed
Consolidated Statements of Stockholders Equity for the nine months ended March
31, 2005, and cash flows for the nine months ended March 31, 2005 and 2004.
Certain reclassifications of balances previously reported have been made to
conform to the current presentation.
The condensed consolidated balance sheet at June 30, 2004 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,
2004.
The condensed consolidated results of operations for the three months and nine
months ended March 31, 2005 and 2004 are not necessarily indicative of the
results to be expected for any other interim period or for the full year.
NOTE C - 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, lymphoma and certain solid tumor cancers. The lead compound of these
purine-based nucleosides is known as clofarabine. Under the terms of the
agreement with SRI, the Company was 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 obtain patent and other proprietary rights to products developed by the
Company and by SRI from the technology. Initially, the Company is developing
clofarabine for the treatment of leukemia and lymphoma and studying its
potential role in treatment of 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.
To facilitate the development of clofarabine, in March 2001, the Company entered
into a co-development agreement with ILEX Oncology, Inc. ("ILEX"), our
sub-licensor until it was acquired by Genzyme Corporation ("Genzyme") on
December 21, 2004, for the development of clofarabine in cancer indications.
Under the terms of the co-development agreement, Genzyme 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), in each case, for the development of clofarabine in cancer
indications. Genzyme is responsible for conducting all clinical trials and the
filing and prosecution of applications with applicable regulatory authorities in
the United States and Canada for certain cancer indications. The Company retains
the right to handle those matters in all territories outside the United States
and Canada (excluding Japan and Southeast Asia) and retains the right to handle
these matters in the U.S. and Canada in all non-cancer indications. 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, Genzyme will have certain rights if it
performs its development obligations in accordance with that agreement. The
Company would be required to pay Genzyme a royalty on sales outside the U.S.,
Canada, Japan and Southeast Asia. In turn, Genzyme, which would have U.S. and
Canadian distribution rights in cancer indications, would pay the Company a
royalty on sales in the U.S. and Canada. Under the terms of the co-development
agreement, Genzyme also pays royalties to Southern Research Institute based on
certain milestones. The Company also is obligated to pay certain royalties to
Southern Research Institute with respect to clofarabine.
The Company received a nonrefundable upfront payment of $1.35 million when it
entered into the co-development agreement with Genzyme and received an
additional $3.5 million in December 2003 when it converted Genzyme's option to
market clofarabine in the U.S. into a sublicense. Upon Genzyme's filing the New
Drug Application for clofarabine with FDA, the Company received an additional
(i) $2 million in April 2004 and (ii) $2 million in September
-8-
2004. The Company deferred the upfront payment and recognized revenues ratably,
on a straight-line basis over the related service period, through December 2002.
The Company has deferred the milestone payments received to date and recognizes
revenues ratably, on a straight line basis over the related service period,
through March 2021. For the three months ended March 31, 2005 and 2004, the
Company recognized revenues of approximately $110,000, and $22,000,
respectively, in connection with the milestone payments received to date. For
the nine months ended March 31, 2005 and 2004, the Company recognized revenues
of approximately $329,000, and $51,000, respectively, in connection with the
milestone payments received to date.
Deferred costs include royalty payments that became due and payable to SRI upon
the Company's execution of the co-development agreement with Genzyme. The
Company 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 research and development costs including approximately (i)
$55,000 and $11,000 for the three months ended March 31, 2005 and 2004,
respectively, and (ii) $165,000 and $26,000 for the nine months ended March 31,
2005 and 2004, respectively related to such charges.
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 ("GMP"). The Company has no plans to establish
its own manufacturing facility for Modrenal(R), but will continue to use
third-party contractors.
The Company received a nonrefundable upfront payment of $1.25 million when it
entered into the License and Sublicense Agreement with Dechra Pharmaceuticals in
May 2003. The Company deferred the upfront payment and recognizes revenues
ratably, on a straight-line basis over the related service period, currently
through September 2022. The Company recognized revenues of approximately $15,000
and $29,000 in connection with the upfront payment from Dechra for the three
months ended March 31, 2005 and 2004, respectively. The Company recognized
revenues of approximately $72,000 and $87,000 in connection with the upfront
payment from Dechra for the nine months ended March 31, 2005 and 2004,
respectively.
Deferred costs include royalty payments that became due and payable to Stegram
Pharmaceuticals Ltd. upon the Company's execution of the License and Sub-License
Agreement with Dechra in May 2003. The Company defers all royalty payments made
to Stegram and recognizes these costs ratably, on a straight-line basis
concurrent with revenue that is recognized in connection with the Dechra
agreement. Research and Development costs related to this agreement include
approximately $3,000 and $6,000 for the three months ended March 31, 2005 and
2004, respectively. Research and Development costs related to this agreement
include approximately $14,000 and $18,000 for the nine months ended March 31,
2005 and 2004, respectively.
Operational Developments
The Company submitted a Marketing Authorization Application, or MAA, the
European equivalent of a U.S. new drug application, or NDA, with the EMEA in
July 2004 for European approval of clofarabine in relapsed or refractory
pediatric acute leukemia.
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 certain of the Company's requirements for clofarabine-active
pharmaceutical ingredient ("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, as
amended and restated on December 31, 2004, pursuant to which Ferro agreed to
perform certain development activities to scale up, develop, finalize, and
supply Clinical Trials Monitor and GMP supplier qualifications of the API.
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.
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 the Company's rights and
entitlements to market and distribute Modrenal(R) in the United States and
Canada solely in connection with animal health applications. Subject to certain
circumstances, this agreement expires
-9-
upon expiration of the last patent related to Modrenal(R) or the completion of
the last royalty set forth in the agreement. Cumulatively, through March 31,
2005, we have recognized revenue and costs related to this agreement of
approximately $198,000 and $40,000 respectively. 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 our behalf 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.
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(R). CLL intends to use its
proprietary MIDDS.-patented technology (Micellar Improved Drug Delivery
Solution) 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(R) throughout Europe. Through March 31, 2005, the Company paid an
advance of $175,000 related to development services provided by CLL over an
eighteen month period, which advance was initially recorded as a prepaid
development cost by the Company.
NOTE D- Intangible Assets
3/31/2005 6/30/2004
--------- ---------
Patents & Trademarks $ 17,999,099 $ 17,757,101
Accumulated Amortization (4,199,196) (3,193,441)
------------------------------
$ 13,799,903 $ 14,563,660
==============================
Amortization of patents and trademarks amounted to $1,006,000 and $1,009,000 for
the nine months ended March 31, 2005 and 2004, respectively. Intangible assets
are recorded at cost and amortized over periods generally ranging from 10-20
years. Amortization for each of the next five fiscal years is expected to amount
to approximately $1,343,000 annually.
NOTE E - 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 fair value 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
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 $.735 per share which vested immediately. As a result of the repricing of all
of the 380,000 options, the Company remeasured the intrinsic value of these
options at the end of each reporting period based on changes in the stock price.
For the three months ended March 31, 2005 and 2004 the Company recognized stock
based employee compensation income (expense) of approximately $650,000 and
$(1,944,000), respectively, as a result of the March 31, 2003 re-pricing. For
the nine months ended March 31, 2005 and 2004 the Company recognized stock based
employee compensation income (expense) of approximately $431,000 and
$(2,598,000), respectively.
For the three months ended March 31, 2005 and 2004, the Company recorded
compensation expense of approximately $22,000 and $18,000, respectively, as a
result of options granted to certain employees. For the nine months ended March
31, 2005 and 2004, the Company recorded compensation expense of approximately
$66,000 and $18,000, respectively, as a result of options granted to certain
employees.
On January 20, 2004, the Company granted 25,000 options to a board member 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. The Company recognized approximately $12,000 and $9,000 as a consulting
expense for the three months ended March 31, 2005 and 2004 relating to said
options. The Company recognized approximately $35,000 and $9,000 as a
-10-
consulting expense for the nine months ended March 31, 2005 and 2004 relating to
said options.
On January 6, 2005, the Company granted 7,500 options to a board member for
serving as a member of the Board of Directors, at an exercise price of $8.17 per
share which 1,875 vest immediately on the grant date and the remaining 5,625
vest ratably on the first, second and third anniversaries of the grant date. The
Company recognized approximately $11,000 as a consulting expense for the three
and nine months ended March 31, 2005.
On June 22, 2004, the Company entered into a consulting agreement pursuant to
which the consultant will provide certain investor relations services on behalf
of the Company. In connection therewith, the Company issued a warrant to said
consultant pursuant to which he has the right to purchase 50,000 shares of the
Company's common stock at a price of $8.25 per share upon the completion of
certain milestones, as set forth in such agreement. The Company recognized
approximately $243,000 as a consulting expense for the nine months ended March
31, 2005.
On August 4, 2004, the Company issued a warrant to a consultant pursuant to
which said consultant has the right to purchase 40,000 shares of the Company's
common stock at a price of $7.22 per share upon satisfaction of certain
milestones included in the warrant. The Company recognized approximately $44,000
as consulting income and approximately $125,000 as consulting expense for the
nine months ended March 31, 2005, relating to said warrants.
On August 9, 2004, the Company issued two warrants to a consultant pursuant to
which said consultant has the right to purchase 45,000 shares of the Company's
common stock at a price of $6.10 per share. The Company recognized approximately
$57,000 as consulting expense for the three months ended March 31, 2005 and
approximately $142,000 as a consulting expense for the nine months ended March
31, 2005 relating to said warrants.
For the three and nine months ended March 31, 2005, the Company granted 651,000
and 774,000 options to certain employees at exercise prices ranging from $5.44
to $8.87 per share, respectively. No expense was recognized for the three and
nine months ended March 31, 2005 in connection with said grants as each option
was granted at fair market value.
On December 3, 2004, we issued 62,500 shares of common stock to a consultant for
services rendered. In connection with such issuance we recognized approximately
$497,000 as compensation expense for the three and nine months ended March 31,
2005.
During the three months ended March 31, 2005, certain warrant holders of the
Company exercised their warrants to acquire 20,442 shares of the Company's
common stock. The Company received proceeds of approximately $24,000 during the
three months ended March 31, 2005 from the exercise of such warrants. During the
nine months ended March 31, 2005, certain warrant holders of the Company
exercised their warrants to acquire 1,598,411 shares of the Company's common
stock. The Company received proceeds of approximately $3,279,000 during the nine
months ended March 31, 2005 from the exercise of such warrants.
During the three month period ended March 31, 2005, certain holders of options
to purchase an aggregate of 437,715 shares of the Company's common stock were
exercised. The Company received proceeds of approximately $259,000 during the
three months ended March 31, 2005 from the exercise of such options. During the
nine month period ended March 31, 2005, certain holders of options to purchase
an aggregate of 788,542 shares of the Company's common stock were exercised. The
Company received proceeds of approximately $627,000 during the nine months ended
March 31, 2005 from the exercise of such options.
On February 8, 2005, we completed a secondary public offering in which we sold
we sold 7,500,000 common shares at $8.00 per share, with net proceeds to the
Company of approximately $55.6 million, after deducting underwriting discounts
and commissions and estimated offering expenses.
NOTE F-Quarterly Tax Accounting Policy
Income taxes have been provided for using the liability method in accordance
with SFAS No. 109, "Accounting for Income Taxes." The provision for income taxes
reflects management's estimate of the effective tax rate expected to be
applicable for the full fiscal year. This estimate is re-evaluated by management
each quarter based on the Company's estimated tax expense for the year. The
Company also pays capital stock tax to certain state and local jurisdictions.
The Company evaluates the amount due on a quarterly basis.
NOTE G - Related Party Transactions
-11-
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. 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 260,290 shares of common stock for
$6.25 per share for the March and May 2004 financings.
NOTE H - Litigation
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.
NOTE I - Restatement
In May of 2005, the Company identified an error with respect to the accounting
for income taxes in connection with the Pathagon acquisition completed on
February 1, 2002. The Company had originally concluded that the realization of
the deferred tax asset related to the net operating losses and other deductible
temporary differences existing at the acquisition date, and generated after the
acquisition date, did not meet the "more likely than not" criteria and, as a
result, a valuation allowance was established on the deferred tax assets of the
Company. The Company's restated accounting treatment determined that the
deferred tax liability recorded in connection with the Pathagon acquisition
creates taxable income as the taxable temporary differences reverse.
Consequently, the ability to realize the deferred tax assets is "more likely
than not" and a valuation allowance is not required against the deferred tax
assets, to the extent the deferred tax liability offsets the deferred tax
assets. This restated accounting treatment resulted in the recognition of our
deferred tax assets to the extent of our deferred tax liabilities. The deferred
tax asset, in excess of the deferred tax liability, is not "more likely than
not" to be realized, and therefore, a full valuation allowance has been
established against the net deferred tax asset.
The Company restated its previously reported financial statements and all
interim periods as of and for the years ended June 30, 2004 and 2003, to record
additional benefit relating to the recognition of deferred tax assets as
indicated in the first paragraph of this note. In years ended June 30, 2004,
June 30, 2003, and June 30, 2002, the Company previously recorded the reduction
to the deferred tax liability and a corresponding tax benefit of $537,000,
$537,000 and $253,000, respectively. In the restated financial statements for
years ended June 30, 2004 and June 30, 2003, the Company recorded deferred tax
assets, with a corresponding additional deferred tax benefit of $923,000 and
$1,580,000, respectively, offsetting the deferred tax liability resulting from
the Pathagon acquisition. Additionally, as of the acquisition date on February
1, 2002, a deferred tax asset was recorded for $2,363,000 with a corresponding
reduction to goodwill. This represented the deferred tax assets that existed at
the date of acquisition and for which the previously recorded valuation
allowance was eliminated.
As a result of the above, the Company previously restated its consolidated
financial statements as of June 30, 2004 in its Form 10-KSB/A. The following is
a summary of the effects of the income tax accounting corrections on the
Company's consolidated financial statements for the three and nine months ended
March 31, 2004, and for the three months ended September 30, 2004 and December
31, 2004.
For the three and six months ended September 30, 2004 and December 31, 2004, the
Company had recorded a deferred tax liability for $5,647,000 and $5,505,000,
respectively. Due to the correction of an error, the Company has now reported no
net deferred tax asset or deferred tax liability for the three, six and nine
months ended September 30, 2004, December 31, 2004 and March 31, 2005.
Three months ended March 31, 2004 Nine months ended March 31, 2004
As Reported As Restated As Reported As Restated
------------------------------------------------------------------------------------------------------------------------------------
Consolidated Statements of Operations:
Income tax benefit $ 134,351 $ 506,087 $ 402,928 $ 1,065,575
-12-
Net loss (4,064,277) (3,692,543) (8,437,397) (7,774,750)
Net loss available to common (4,239,982) (3,868,247) (9,025,369) (8,362,721)
stockholders
Basic and diluted net loss per share $ (0.21) $ (0.19) $ (0.50) $ (0.46)
of common stock
The restatement has no effect on total cash flows from operating, investing, or
financing activities as shown in the Consolidated Statement of Cash Flows.
However, the restatement did affect the individual components of net loss and
deferred tax benefit within the net cash from operating activities.
---------------------------------------------------------------------------------------------------------
2005 First Quarter First Quarter Second Quarter Second Quarter
(as reported) (as restated) (as reported) (as restated)
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Goodwill 3,902,705 1,540,162 3,902,705 1,540,162
---------------------------------------------------------------------------------------------------------
Total assets 41,337,877 38,975,334 41,564,030 39,201,487
---------------------------------------------------------------------------------------------------------
Deferred tax liability 5,646,573 - 5,505,486 -
---------------------------------------------------------------------------------------------------------
Total liabilities 16,471,168 10,824,595 16,209,427 10,703,941
---------------------------------------------------------------------------------------------------------
Accumulated deficit (44,169,063) (40,885,033) (48,143,183) (45,000,239)
---------------------------------------------------------------------------------------------------------
Shareholder's equity 24,866,709 28,150,739 25,354,603 28,497,546
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Revenue 1,085,328 1,085,328 1,175,923 1,175,923
---------------------------------------------------------------------------------------------------------
Loss before income tax (3,094,551) (3,094,551) (4,004,831) (4,004,831)
benefit
---------------------------------------------------------------------------------------------------------
Income tax benefit 134,226 - 141,087 -
---------------------------------------------------------------------------------------------------------
Net loss (2,960,325) (3,094,551) (3,863,744) (4,004,831)
---------------------------------------------------------------------------------------------------------
Net loss available to common (3,086,666) (3,220,892) (3,974,119) (4,115,206)
shareholders
---------------------------------------------------------------------------------------------------------
Net loss available to common $(0.11) $(0.11) $(0.13) $(0.14)
shareholders per basic and
dilutive share
---------------------------------------------------------------------------------------------------------
The quarterly net loss per common share amounts are rounded to the nearest cent.
Annual net loss per common share may vary depending on the effect of such
rounding.
Additionally, the Company restated the pro-forma stock based compensation
disclosures required under SFAS 123 determined under fair value based method due
to the correction of an error noted during February 2005. Refer to Note 1 for
further discussion.
-13-
BIOENVISION, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATION
Except for historical information contained herein, this quarterly report on
Form 10-QSB contains forward-looking statements within the meaning of the
Section 21E of the Securities and Exchange Act of 1934, as amended, which
involve certain risks and uncertainties. Forward-looking statements are included
with respect to, among other things, the Company's current business plan an
"Management's Discussion and Analysis of Results of Operations." These
forward-looking statements are identified by their use of such terms and phrases
as "intends," "intend," "intended," "goal," "estimate," "estimates," "expects,"
"expect," "expected," "project," "projected," "projections," "plans,"
"anticipates," "anticipated," "should," "designed to," "foreseeable future,"
"believe," "believes" and "scheduled" and similar expressions. The Company's
actual results or outcomes may differ materially from those anticipated. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date the statement was made. The Company undertakes
no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
The following discussion and analysis of significant factors affecting the
Company's operating results, liquidity and capital resources and should be read
in conjunction with the accompanying financial statements and related notes.
Overview and Company Status
We are a product-focused biopharmaceutical company with two approved cancer
therapeutics. On December 29, 2004, the FDA approved our lead cancer product,
clofarabine, for the treatment of pediatric acute lymphoblastic leukemia, or
ALL, in patients who have received two or more prior regimens. We believe
clofarabine is the first new medicine initially approved in the United States
for children with leukemia in more than a decade. Clofarabine has received
Orphan Drug designation in the U.S. and the European Union. Genzyme Corporation,
our co-development partner, currently holds marketing rights in the U.S. and
Canada for clofarabine for certain cancer indications and controls U.S.
development of clofarabine in these indications. Genzyme is selling clofarabine
under the brand name Clolar in the U.S. In Europe, we have filed for approval of
clofarabine in pediatric ALL and acute myelogenous leukemia, or AML, with the
European Medicines Evaluation Agency, or EMEA. The Company anticipates an
opinion from the EMEA in Q3 calendar 2005.
We are selling our second product, Modrenal(R), in the United Kingdom, through
our sales force of eight sales specialists. Modrenal(R) is approved in the U.K.
for the treatment of post-menopausal advanced breast cancer following relapse to
initial hormone therapy, and we have initiated the filing process for mutual
recognition in the E.U. on a country-by-country basis.
If we receive additional European approvals for our products, we intend to
expand our sales force by adding up to six to 10 sales specialists in each of
five other key regions within the E.U. which include the countries of France,
Germany, Italy, Spain, Portugal, Netherlands, Austria, Belgium, Denmark and
Sweden.
Over the next 12 months, we intend to continue our internal growth strategy to
provide the necessary regulatory, sales and marketing capabilities which will be
required to pursue the expanded development programs for clofarabine and
Modrenal(R) described above.
We have made significant progress in developing our product portfolio over the
past twelve months, and have multiple products in clinical trials. We have
incurred losses during this emerging stage. Our management believes that we have
the opportunity to become a leading oncology-focused pharmaceutical company in
the next four years if we successfully bring clofarabine to market and if mutual
recognition is granted for Modrenal(R) in the largest European commercial
markets.
We anticipate that revenues derived from our two lead drugs, clofarabine and
Modrenal(r) will permit us to further develop the other products currently in
our product pipeline. In addition to clofarabine and Modrenal(r), we are
performing initial development work on Velostan, initially for the treatment of
bladder cancer, and Virostat for the treatment of Hepatitis C. The work to date
on these compounds has been limited because of the need to concentrate on
clofarabine and Modrenal(r) but management believe these compounds have
potential value. With Velostan the Company has been developing a process for the
separation of optical isomers of the compound, and with Virostat the Company has
commenced a phase II clinical trial in patients with hepatitis C viral
infection. We have had discussions with potential product co-development
partners from time to time, and plan to continue to explore the possibilities
for co-development and sub-licensing in order to implement our development
plans. In addition, we believe that some of our products may have applications
in treating non-cancer conditions in humans and in animals. Those conditions are
outside our core business focus and we do not presently intend to devote a
substantial portion of our resources to addressing those conditions. In May
2003, we entered into a License and Sub-License Agreement with Dechra
Pharmaceuticals, plc ("Dechra"), pursuant to which we sub-licensed the marketing
and development rights to Vetoryl(r) trilostane, solely with respect to animal
health applications, in the United States and Canada, to Dechra. We received
$1.25 million in cash, together with future milestone and royalty payments which
are contingent upon the occurrence of certain events. We intend to continue to
try and capitalize on these types of opportunities as they arise. The Company
also owns rights to OLIGON(r) technology and we have had discussions with
potential product licensing partners from time to time, and plan to continue to
explore the possibilities for co-development and sub-licensing in order to
implement our development plans.
-14-
You should consider the likelihood of our future success to be highly
speculative in light of our limited operating history, as well as the limited
resources, problems, expenses, risks and complications frequently encountered by
similarly situated companies. To address these risks, we must, among other
things:
o satisfy our future capital requirements for the implementation of our
business plan;
o commercialize our existing products;
o complete development of products presently in our pipeline and obtain
necessary regulatory approvals for use;
o implement and successfully execute our business and marketing strategy to
commercialize products;
o establish and maintain our client base;
o continue to develop new products and upgrade our existing products;
o continue to establish and maintain relationships with manufacturers for our
products;
o respond to industry and competitive developments; and
o attract, retain, and motivate qualified personnel.
We may not be successful in addressing these risks. If we were unable to do so,
our business prospects, financial condition and results of operations would be
materially adversely affected. The likelihood of our success must be considered
in light of the development cycles of new pharmaceutical products and
technologies and the competitive and regulatory environment in which we operate.
Results of Operations
The Company recorded revenues for the three months ended March 31, 2005 and 2004
of approximately $1,399,000 and $846,000, respectively, representing an increase
of approximately $553,000. This amount was primarily due to an increase in
license and royalty revenue due to increased milestone payments and royalties
received from certain of our co-development partners, in the amount of $354,000.
For the nine months ended March 31, 2005 and 2004, the Company recorded revenues
of $3,660,000 and $1,758,000, representing an increase of approximately
$1,902,000. This increase primarily was due to an increase in license and
royalty revenue from milestone payments and royalties received from certain of
our co-development partners in the amount of approximately $799,000 and an
increase in research and development contract revenue due to increased sales in
the Named Patient Program and increased clofarabine research and development
expenses for which we receive 50% reimbursement from our co-development partner,
in the amount of approximately $739,000.
The cost of products sold for the three and nine months ended March 31, 2005
were approximately $99,000 and $229,000, respectively. The cost of products sold
reflects the direct costs associated with our sales of Modrenal(R).
Research and development costs for the three months ended March 31, 2005 and
2004 were approximately $2,137,000 and $994,000, respectively, representing an
increase of approximately $1,143,000. Research and development costs for the
nine months ended March 31, 2005 and 2004 were approximately $5,986,000 and
$2,545,000, respectively, representing an increase of approximately $3,441,000.
-15-
Our research and development costs include costs associated with six projects,
five of which the Company currently devotes time and resource. Clofarabine
research and development costs for the three months ended March 31, 2005 and
2004 were approximately $1,668,000 and $962,000, respectively, representing an
increase of approximately $706,000. Clofarabine research and development costs
for the nine months ended March 31, 2005 and 2004 were approximately $4,661,000
and $1,612,000, respectively, representing an increase of approximately
$3,049,000. The increase primarily reflects costs which are associated with our
increased development activities and clinical trials of clofarabine being
conducted in Europe.
Modrenal(R) research and development costs for the three months ended March 31,
2005 and 2004 were approximately $447,000 and $(13,000), respectively,
representing an increase of $460,000. Modrenal(R) research and development costs
for the nine months ended March 31, 2005 and 2004 were approximately $1,267,000
and $744,000, respectively, representing an increase of $523,000. The increase
primarily reflects costs associated with ongoing clinical trials.
Velostan research and development costs for the three months ended March 31,
2005 and 2004 were approximately $15,000 and $39,000, respectively, representing
a decrease of $24,000. Velostan research and development costs for the nine
months ended March 31, 2005 and 2004 were approximately $32,000 and $152,000,
respectively, representing a decrease of $120,000. The decrease primarily
reflects the Company's primary focus on clofarabine and Modrenal(R) during these
periods.
Virostat research and development costs for the three months ended March 31,
2005 and 2004 were approximately $7,000 and $0, respectively, representing an
increase of $7,000. Virostat research and development costs for the nine months
ended March 31, 2005 and 2004 were approximately $13,000 and $31,000,
respectively, representing a decrease of $18,000. The decrease primarily
reflects the Company's primary focus on clofarabine and Modrenal(R) during these
periods.
OLIGON research and development costs for the three months ended March 31, 2005
and 2004 were approximately $0 and $6,000, respectively, representing a decrease
of $6,000. OLIGON research and development costs for the nine months ended March
31, 2005 and 2004 were approximately $13,000 and $6,000, respectively,
representing an increase of $7,000. The increase primarily reflects
pre-development costs incurred in connection with continuing co-partnering
discussions.
There were no research and development costs associated with Gene Therapy for
the three and nine months ended March 31, 2005 and 2004 due to the Company's
focus on clofarabine and Modrenal(R) during these periods.
The clinical trials and development strategy for the clofarabine and Modrenal(R)
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. Total costs to date for each of our
projects is as follows: (i) clofarabine research and development costs have been
approximately $10,279,000; (ii) Modrenal(R) research and development costs have
been approximately $5,664,000; (iii) Velostan research and development costs
have been approximately $333,000; (iv) Virostat research and development costs
have been approximately $71,000; (v) OLIGON research and development costs have
been approximately $23,000; and (vi) Gene Therapy research and development costs
have been approximately $451,000.
Selling, general and administrative expenses for the three months ended March
31, 2005 and 2004 were approximately $2,074,000 and $3,722,000, respectively,
representing a decrease of $1,648,000. Of this amount $2,594,000 is related to a
decrease in costs associated with the variable accounting treatment of options
issued to an officer of the Company, substantially offset by an increase in
payroll due to the significant increase in headcount in both the New York and
Edinburgh offices of $387,000, an increase in sales and marketing costs of
$308,000 related to the Company's deployment of a sales and marketing force in
the UK in early 2005,and an increase in royalty expense of $205,000. Selling,
general and administrative expenses for the nine months ended March 31, 2005 and
2004 were approximately $6,885,000 and $7,079,000, respectively, representing a
decrease of $194,000. Of this amount $3,028,000 is related to a decrease in
costs associated with the variable accounting treatment of options issued to an
officer of the Company, substantially offset by an increase in payroll due to
the significant increase in headcount in both the New York and Edinburgh offices
of $873,000, an increase in consulting fees due to the Company's expansion of
regulatory and investor relations initiatives in the amount of $1,192,000, an
increase in sales and marketing costs of $322,000 related to the Company's
deployment of a sales and marketing force in the UK and an increase in royalty
expense of $205,000.
Depreciation and amortization expense for the three months ended March 31, 2005
and 2004 were approximately
-16-
$347,000 and $343,000, respectively, representing an increase of $4,000.
Depreciation and amortization expense for the nine months ended March 31, 2005
and 2004 were $1,028,000 and $1,023,000, respectively, representing an increase
of $5,000. This increase primarily reflects the increase in our net asset base.
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.
On March 31, 2005, we had cash and cash equivalents of approximately $70,335,000
and working capital of $68,795,000. Management believes the Company has
sufficient cash and cash equivalents and working capital to continue currently
planned operations over the next 12 months. Although we do not currently plan to
acquire or obtain licenses for new technologies, 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.
On February 8, 2005, we completed a secondary public offering in which we sold
7,500,000 common shares at $8.00 per share, with net proceeds to the Company of
approximately $55.6 million, after deducting underwriting discounts and
commissions and estimated offering expenses. We intend to use the net proceeds
for further development of our lead products, for sales and marketing expenses
related to the commercial launch of our lead products, for working capital and
other general corporate purposes.
On March 22, 2004, we 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 our common stock at a
conversion price of $7.50 per share. We recorded proceeds of $11,792,801 net of
all legal, professional and financing fees incurred in connection with the
offering. We consummated a second closing for this financing on May 13, 2004 in
order to comply with certain contractual obligations to our holders of Series A
Convertible Preferred Stock which hold preemptive rights for equity offerings.
We raised an additional $3.2 million (net of all legal, professional and
financial services incurred) 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.
On May 7, 2002 we authorized the issuance and sale of up to 5,920,000 shares of
Series A Convertible Preferred Stock. The Series A Convertible Preferred Stock
may be converted into 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.
Holders of Series A Convertible Preferred Stock also received, in respect of
each share of Series A Convertible Preferred Stock purchased in a private
placement which took place in May 2002, one warrant to purchase one share of our
common stock at an initial exercise price of $2.00 subject to adjustment. We
sold an aggregate of 5,916,666 shares of Series A Convertible Preferred Stock in
the May 2002 private placement for $3.00 per share and warrants to purchase an
aggregate of 5,916,666 shares of common stock, resulting in aggregate gross
proceeds of approximately $17,750,000. A portion of the proceeds were used to
repay in full the Jano Holdings and SCO Capital obligations upon which such
facilities were terminated as well as to repay fees amounting to $1,610,000
related to the transaction.
The Company received a nonrefundable upfront payment of $1.35 million when it
entered into the co-development agreement with Genzyme and received an
additional $3.5 million in December 2003 when it converted Genzyme's option to
market clofarabine in the U.S. into a sublicense. Upon Genzyme's filing the New
Drug Application for clofarabine with FDA, the Company received an additional
(i) $2 million in April 2004 and (ii) $2 million in September 2004. The Company
deferred the upfront payment and recognized revenues ratably, on a straight-line
basis over the related service period, through December 2002. The Company has
deferred the milestone payments received to date and recognizes revenues
ratably, on a straight line basis over the related royalty period, through March
2021. For the three months ended March 31, 2005 and 2004, the Company recognized
revenues of approximately $110,000 and $22,000, respectively, in connection with
the milestone payments received to date. For the nine months ended March 31,
2005 and 2004, the Company recognized revenues of approximately $329,000, and
$51,000, respectively, in connection with the milestone payments received to
date.
Deferred costs include royalty payments that became due and payable to SRI upon
the Company's execution of the co-development agreement with Genzyme. The
Company 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 research and development costs including approximately (i)
$55,000 and $11,000 for the three months ended March 31, 2005 and 2004,
respectively, and (ii) $165,000 and $26,000 for the nine months ended March 31,
2005 and 2004, respectively related to such charges.
-17-
The Company received a nonrefundable upfront payment of $1.25 million when it
entered into the License and Sublicense Agreement with Dechra Pharmaceuticals
("Dechra") in May 2003. The Company deferred the upfront payment and recognizes
revenues ratably, on a straight-line basis over the related royalty period,
currently through September 2022. The Company recognized revenues of
approximately $15,000 and $29,000 in connection with the upfront payment from
Dechra for the three months ended March 31, 2005 and 2004, respectively. The
Company recognized revenues of approximately $72,000 and $87,000 in connection
with the upfront payment from Dechra for the nine months ended March 31, 2005
and 2004, respectively.
Deferred costs include royalty payments that became due and payable to Stegram
Pharmaceuticals Ltd. upon the Company's execution of the License and Sub-License
Agreement with Dechra in May 2003. The Company defers all royalty payments made
to Stegram and recognizes these costs ratably, on a straight-line basis
concurrent with revenue that is recognized in connection with the Dechra
agreement. Research and Development costs related to this agreement include
approximately $3,000 and $6,000 for the three months ended March 31, 2005 and
2004, respectively. Research and Development costs related to this agreement
include approximately $14,000 and $18,000 for the nine months ended March 31,
2005 and 2004, respectively.
The Company has the following commitments as of March 31, 2005:
Payments Due in
------------------------------------------------------------------------------------------------------
Total 2005 2006 2007 Thereafter
------------------------------------------------------------------------------------------------------
Employee Contracts 893,369 274,770 618,599
------------------------------------------------------------------------------------------------------
Occupancy Lease and Automobiles 1,899,102 184,134 598,027 326,401 790,540
------------------------------------------------------------------------------------------------------
Total 2,792,471 458,904 1,216,626 326,401 790,540
------------------------------------------------------------------------------------------------------
In October, 2004, the Company executed a Sublease Agreement pursuant to which we
sublease 5,549 square feet of commercial space at 345 Park Avenue, 41st Floor,
New York, NY 10154, which is the location of the Company's principal executive
offices. Subject to the terms and conditions of the Sublease Agreement, the
lease expires on December 31, 2009.
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123R, "Share Based Payment", requiring all share-based payments to
employees, including grants of employee stock options, to be recognized as
compensation expense in the consolidated financial statements based upon their
fair values. As amended by the SEC on April 14, 2005, this standard is effective
for the quarter beginning July 1, 2005 and includes two transition methods. Upon
adoption, we will be required to use either the modified retrospective
transition method or the modified prospective transition method. Under the
modified retrospective transition method, the previously reported amounts are
restated for all periods presented to reflect the SFAS 123 amounts in the income
statement. Under the modified prospective transition method, awards that are
granted, modified or settled after the date of adoption should be measured and
accounted for in accordance with SFAS 123R. Unvested equity-classified awards
that were granted prior to the effective date should continue to be accounted
for in accordance with SFAS 123 except that amounts must be recognized in the
income statement. We are currently evaluating the impact of this standard and
its transitional alternatives.
In December 2004, the FASB issued SFAS 153 "Exchange of Non-monetary assets".
This statement was a result of a joint effort by the FASB and the International
Accounting Standards Board ("IASB") to improve financial reporting by
eliminating certain narrow differences between their existing accounting
standards. One such difference was the exception from fair value measurement in
APB Opinion No. 29, "Accounting for Non-Monetary Transactions", for non-monetary
exchanges of similar productive assets. SFAS 153 replaces this exception with a
general exception from fair value measurement for exchanges of non-monetary
assets that do not have commercial substance. A non-monetary exchange has
commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. This statement is effective
for non-monetary assets exchanges occurring in fiscal periods beginning after
June 15, 2005.
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs". SFAS 151
amends Accounting Research Bulletin ("ARB") No. 43, Chapter 4. This statement
clarifies the accounting for abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage). SFAS 151 is the result of a
broader effort by the FASB and the IASB to improve financial reporting by
eliminating certain narrow differences between their existing accounting
standards. This statement is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005.
-18-
The adoption of SFAS 151 is not expected to have a material impact on the
results of operations or financial position of the company.
Subsequent Events
On April 4, 2005, Bioenvision, Inc. notified Grant Thornton LLP ("GT") of GT's
dismissal in connection with its decision to engage new auditors as its
independent registered public accounting firm. On that date, Bioenvision
appointed Deloitte & Touche LLP ("D&T") as its new independent registered public
accounting firm for the fiscal year ending June 30, 2005. The decision to engage
D&T was made by the Audit Committee of Bioenvision's Board of Directors on April
4, 2005. The appointment was effective as of such date.
On May 23, 2005, management and the audit committee of the Company concluded
that financial statements included in its annual report on Form 10-KSB for the
fiscal year ended June 30, 2004, should not be relied upon because of a
requirement to correct the Company's tax accounting related to the acquisition
of Pathagon, Inc. in February 2002 which was identified during the review
process of the financial statements to be included in the Company's quarterly
report on Form 10-QSB for the quarter ended March 31, 2005. Accordingly, the
Company restated its financial statements included in its annual report on Form
10-KSB for the year ended June 30, 2004 (the "10-KSB/A"). The Company's 10-KSB/A
was filed on June 29, 2005.
On May 24, 2005, the Company received a notice from the Nasdaq staff indicating
that the Company is not in compliance with Nasdaq's requirements for the
continued listing due to its failure to timely file its Form 10-QSB for the
period ended March 31, 2005, as required under Marketplace Rule 4310(c)(14) and
that therefore its common stock is subject to delisting from The Nasdaq Stock
Market. The notice does not by itself result in immediate delisting of the
common stock, although Nasdaq stated that unless the Company requests a hearing
on Nasdaq's delisting notice, the Company's securities will be delisted from The
Nasdaq Stock Market at the opening of business on June 2, 2005. The Company made
a timely request for a hearing with the Nasdaq Listing Qualifications Panel to
review the Nasdaq staff's determination which will stay the delisting pending
the hearing and a determination by the Nasdaq Listing Qualifications Panel. The
oral hearing is currently scheduled for June 30, 2005.
ITEM 3. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our principal executive officer and principal financial officer have evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended) as of the end of the period covered by this
quarterly report on Form 10-QSB. Based on this evaluation, except as set forth
below, our principal executive officer and principal financial officer concluded
that these disclosure controls and procedures are effective and designed to
ensure that the information required to be disclosed in our reports filed or
submitted under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the requisite time periods.
In connection with its review of the Company's consolidated financial statements
for and as of the three month period ended March 31, 2004, Grant Thornton LLP
("Grant Thornton"), the Company's independent registered public accounting firm
at that time, advised the Audit Committee and management of certain significant
internal control deficiencies that they considered to be, in the aggregate, a
material weakness, including, inadequate staffing and supervision leading to the
untimely identification and resolution of certain accounting matters; failure to
perform timely reviews, substantiation and evaluation of certain general ledger
account balances; lack of procedures or expertise needed to prepare all required
disclosures; and evidence that employees lack the qualifications and training to
fulfill their assigned functions. Grant Thornton indicated that they considered
these deficiencies to be a material weakness as that term is defined under
standards established by the American Institute of Certified Public Accountants.
A material
-19-
weakness is a significant deficiency in one or more of the internal control
components that alone or in the aggregate precludes our internal control from
reducing to an appropriately low level the risk that material misstatements in
our financial statements will not be prevented or detected on a timely basis.
The Company considered these matters in connection with the quarter end closing
of accounts and preparation of related quarterly financial statements at and as
of March 31, 2004 and determined that no prior period financial statements were
materially affected by such matters.
In response to the observations made by Grant Thornton, the Company proceeded
more expeditiously with its existing plan to enhance the Company's internal
controls and procedures, which it believes addressed each of the matters raised
by Grant Thornton.
Changes in Internal Controls
In May 2005, the Company appointed a Director of Financial Reporting who is
involved with assisting the Controller with the administration of all accounting
functions including Sarbanes-Oxley compliance, preparation of all monthly,
quarterly and annual financial statements and further enhancements of the
Company's internal controls. Our Director of Financial Reporting most recently
served as a Supervising Senior Associate in the audit department of KPMG (New
York office), an internationally recognized public accounting firm. In addition,
in May 2005 the Company also added an Assistant Accountant to its UK office to
assist with certain basic accounting and bookkeeping responsibilities. Our
Assistant Accountant most recently served as an Intercompany Accountant with
Quintiles, an international pharmaceutical company.
Unless otherwise disclosed, we made no other change in our internal control over
financial reporting during the quarter that materially affected or is reasonably
likely to materially affect our internal control over financial reporting.
(a) Restatement.
In connection with the preparation and filing of this quarterly report on Form
10-QSB for the three-month period ended March 31, 2005, our internal corporate
staff identified errors with respect to our tax accounting treatment associated
with the acquisition of Pathagon, Inc. which was consummated in February 2002.
Our initial accounting concluded that the realization of our deferred tax assets
related to the net operating losses and other deductible temporary differences
existing at the acquisition date, and generated after the acquisition date, did
not meet the "more likely than not" criteria and, as a result, a valuation
allowance was established on the deferred tax assets of the Company. The Company
subsequently determined that the deferred tax liability recorded in connection
with the Pathagon acquisition creates taxable income as the taxable temporary
differences reverse and, therefore, a portion of the valuation allowance
previously established on our deferred tax assets was not required.
Management reported its findings to the Audit Committee of the Board of
Directors. After initial discussions with the Audit Committee, management
reviewed these matters in further detail, and after completing its analysis on
May 15, 2005, recommended to the Audit Committee that previously reported
financial results be restated to reflect correction of these errors. The Audit
Committee agreed with this recommendation. Pursuant to the recommendation of the
Audit Committee, the Board of Directors determined at its meeting on May 15,
2005, that previously reported results be restated to correct the income tax
treatment associated with the Pathagon acquisition.
(b) Evaluation of Disclosure Controls and Procedures
In connection with the restatement, under the direction of our Chief Executive
Officer and Chief Financial Officer, we reevaluated our disclosure controls and
procedures. We identified the following material weakness in our internal
control over financial reporting with respect to accounting for income taxes
associated with a purchase business combination:
o a failure to ensure the correct application of SFAS 109 in respect to
purchase business combinations and failure to correct that error
subsequently resulting from the lack of personnel knowledge in the
accounting for income taxes.
Solely as a result of this material weakness, we concluded that our disclosure
controls and procedures were not effective as of March 31, 2005.
(c) Remediation of Material Weakness in Internal Control
-20-
As of the date of this filing (June 29, 2005), we have taken the following
measures to remediate the material weakness in our internal control over
financial reporting with respect to accounting for income taxes that existed as
of March 31, 2005. The remedial actions include:
o improving training, education and accounting reviews designed to ensure
that all relevant personnel involved in income tax transactions
understand and apply accounting in compliance with SFAS 109;
o hiring additional internal resources, including a Director of Financial
Reporting, to perform internal control activities previously completed
by outside consultants; and
o engaging an outside tax consult to supplement our internal tax staff
and enhance our internal controls over income tax accounting.
Additionally, we have tested our internal financial controls with respect to the
corrected processes for evaluating and accounting for the deferred tax assets
and liabilities in the preparation of its financial statements affected by the
restatement to ensure compliance with SFAS 109.
-21-
BIOENVISION, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
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.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
ITEM 3. Defaults upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other information
None.
ITEM 6. Exhibits and Reports on Form 8-K
A) Exhibits
31.1 Certification of Christopher B. Wood, Chief Executive Officer, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of David P. Luci, Chief Financial Officer, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Christopher B. Wood , Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
32.2 Certification of David P. Luci, Chief Financial Officer, pursuant to
18 U.S.C. Section 1350, as adopted pursuant Section 906 of the
Sarbanes-Oxley Act of 2002.
(B) Reports on Form 8-K:
During the fiscal quarter ended March 31, 2005, the Company filed the following
Current Report on Form 8-K:
Current Report on Form 8-K, dated February 2, 2005 as filed with the
Commission on February 3, 2005, reporting under Item 1.01 Entry into a Material
Definitive Agreement, in connection with the Company entering into an
underwriting agreement with J.P. Morgan Securities and UBS Securities as
representatives of several underwriters listed on Schedule I thereto.
Current Report on Form 8-K, dated February 8, 2005 as filed with the
Commission on February 8, 2005, reporting under Item 7.01 Regulation FD
Disclosure, in connection with the Company's press release announcing the
closing of its previously announced underwritten public offering of common
stock.
-22-
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: June 29, 2005 By: /s/ Christopher B. Wood M.D.
----------------------------
Christopher B. Wood M.D.
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: June 29, 2005 By: /s/ David P. Luci
----------------
David P. Luci
Chief Financial Officer and General Counsel
(Principal Financial and Accounting Officer)
EXHIBIT INDEX
Exhibit No.
31.1 Certification of Christopher B. Wood, Chief Executive Officer, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of David P. Luci, Chief Financial Officer, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Christopher B. Wood , Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of David P. Luci, Chief Financial Officer, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.