U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
X Annual report under Section 13 or 15(d) of the Securities
----- Exchange Act of 1934. For the fiscal year ended June 30,
2003.
OR
Transition report under Section 13 or 15(d) of the
----- Securities Exchange Act of 1934 for the transition period from
________________ to ________________.
Commission File Number: 0-18299
BIOENVISION, INC.
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(Name of Small Business Issuer in Its Charter)
Delaware 13-4025857
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(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
509 Madison Avenue
Suite 404
New York, New York 10022
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (212) 750-6700
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class:
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Common Stock, $0.001 par value
Securities Registered Pursuant to Section 12(g) of the Act: None
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 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year were $504,857.
The aggregate market value of the voting stock held by non-affiliates computed
by reference to the last price at which the stock was sold, as of September 10,
2003, was $60,962,087. The number of shares of common stock outstanding as of
September 10, 2003 was 17,417,739.
PART I
The information set forth in this Report on Form 10-KSB including,
without limitation, that contained in Item 6, Management's Discussion and
Analysis and Plan of Operation, contains "forward looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Actual results may
differ materially from those projected in the forward-looking statements as a
result of certain risks and uncertainties set forth in this report. Although
management believes that the assumptions made and expectations reflected in the
forward-looking statements are reasonable, there is no assurance that the
underlying assumptions will, in fact, prove to be correct or that actual future
results will not be different from the expectations expressed in this report.
Item 1. 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 resistant technology)
o Novel mode of action on estrogen receptors
o Increases estrogen binding to ER(beta) resulting in decreased cancer cell
proliferation
o 35% overall clinical benefit rate in multi-center clinical trial
meta-analysis of 714 patients with advanced progressive post-menopausal
breast cancer
o 55% clinical benefit rate in patients who have become resistant to tamoxifen
therapy
o Possible synergistic combination therapy with tamoxifen
o Phase II clinical trial commencing in prostate cancer Q4 of calendar 2003
o Possible role in ovarian cancer
Clofarabine (purine nucleoside technology)
o Second generation, purine nucleoside analogue incorporating the favourable
properties of both fludarabine and cladribine
o Mechanism of action includes inhibition of DNA polymerase a and
ribonucleotide reductase, leading to the depletion of intracellular
deoxynucleotide triphosphate pools, disruption of mitochondrial function and
apoptosis
o Broader cellular and clinical activity than most currently available
nucleoside analogs, based on pre-clinical and clinical trials to date
o Good oral bio-availability
o Broad pre-clinical and clinical activity against acute and chronic leukemias
aswell as solid tumours has been observed
o In a Phase I trial in paediatric patients with refractory or relapsed acute
leukemias an overall response rate of 32% was observed.
Anti-Cancer Product Portfolio
-----------------------------
Our anti-cancer product portfolio is as follows:
Product/Condition Pre-clinical Phase I Phase II Phase III At Market
------------------------------------------------------------------------------------------------------------------------------------
Modrenal(R)/Breast Cancer At Market
Abetafen/Prostate Cancer Phase II
Modrenal(R)/Analog Pre-clinical
Clofarabine/Leukemia Phase II
Clofarabine/Lymphoma Phase II
Clofarabine/Solid Tumors Phase I
Gene Albumin Phase I
TPO Gene Phase I
Gossypol/Prostate Cancer Phase I
-1-
Gossypol/Bladder Cancer Phase I
Summary 1 5 3 0 1
======= = = = = =
Non-Cancer Product Portfolio
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Our non-cancer product portfolio is as follows:
Product/Condition Pre-clinical Phase I Phase II Phase III At Market
------------------------------------------------------------------------------------------------------------------------------------
Oligon(R)IV catheters (ST) At Market
Methylene Blue At Market
Veteryl(R)/Cushing's Disease At Market
Modrefen /Alzheimer's Disease Pre-clinical
Clofarabine/ Transplantation Pre-clinical
Gene Therapy Vaccine/Various R&D
Summary 2 0 0 0 3
======= = = = = =
Animal Health Product Portfolio
-------------------------------
Our animal health product portfolio is as follows:
Product/Condition Pre-clinical Phase I Phase II Phase III At Market
------------------------------------------------------------------------------------------------------------------------------------
Modrestane(R)/ Cushing's Disease At Market
Modrestane(R)/Alopecia X Phase II
Clofarabine/Cancer Pre-Clinical
Cytostatic Agents /Cancer Pre-clinical
Summary 2 0 1 0 1
======= = = = = =
The animal healthcare market is a multi-billion dollar market (as
demonstrated by publicly reported sales of large pharmaceutical companies) and
we intend to continue to exploit the value of our products in the veterinary
field. This business segment is not a part of our core business and will be
managed separately from our core human pharmaceuticals business. Pursuant to a
Sub-License Agreement, dated May 13, 2003, Bioenvision sub-licensed the
marketing and development rights to modrestane, solely with respect to animal
health applications, in the United States and Canada, to Dechra Pharmaceuticals,
PLC for $1.25 million in cash and future milestone and royalty payments which
are contingent upon the occurrence of certain events. See Item 6. "Management's
Discussion and Analysis or Plan of Operation - Liquidity and Capital Resources"
below.
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. 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
2
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. Management
believes that the "fast track" designation may also result in our more
expeditiously gaining marketing approval for clofarabine for the treatment of
refractory or relapsed ALL.
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 obtain patent and other
proprietary rights to products developed by us and by Southern Research
Institute from the technology. 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. 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).
3
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, 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
We have commercial rights to a 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, and 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).
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. Its anti-tumor activity has been well
documented and the drug has been shown to produce tumor response rates 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.
4
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. 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 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 extensive clinical trails to date 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, and more effective than these agents 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.
5
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 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.
Edwards Lifesciences has released OLIGON(R) catheters on a limited
basis to Centers of Excellence in select European countries with very positive
results. In addition, since there are no changes required in user procedures the
anti-infective devices have been well accepted by the medical community.
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. Methylene
blue is currently used commercially in Europe to inactivate pathogens found in
blood transfusion products, with excellent safety and effectiveness.
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.
6
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. We have
established a separate division to market this product. The animal healthcare
market is a multi-billion dollar market (as demonstrated by sales of large
pharmaceutical companies and we intend to exploit the value of our products in
the veterinary field. This business segment is not a part of our core business
and will be managed separately from our core human pharmaceuticals business.
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.
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.
7
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 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. This is a large market and, based on
the current world sales of the major hormonal treatments - SERM's and aromatase
inhibitors - we expect trilostane is targeted at a market which currently
experiences sales in excess of $1.8 billion annually worldwide.
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
8
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
The biopharmaceutical industry has evolved significantly since its
commercial inception in the 1970s and is currently approaching a period of
sustained growth. We believe that this industry growth, together with the
maturing state of the existing biotechnology sector, will strengthen the large
pharmaceutical companies and result in the emergence of a new generation of
biopharmaceutical companies. To be successful, this new breed of
biopharmaceutical company 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 be at the forefront of 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 World Health Organization estimated in 2000 that globally, there
were 3.5 million deaths and 5.3 million new cases of cancer annually. As would
be expected, the prevalent US cancer population at 3.2 million dwarfs those of
other major markets. In addition, cancer causes a major drain on health-care
resources. The Imperial Cancer Research Fund estimates that one out of every
three people worldwide will contract some form of cancer at some point in their
life. The World Health Organization estimates that globally over seven million
people will lose their lives to cancer this year alone.
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.
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.
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;
9
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 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.
10
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 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.
11
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 uracil Antimetabolite 460 440 420e -4.5
Pharmacia Pharmorubicin/Ellence cpirubein Cytotoxic Antibiotics 206 199 261 31.2
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
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/ doxorubicin Cytotoxic Antibiotics 66 82 100 22.0
Pierre Fabre Navelbine vinorelbine Vae 76 82 90e 9.8
Wyeth Novantrone mitoxantrone Cytotoxic Antibiotics 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 Antibiotics 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) ($m) (%)
------------- ----------------------- ----------------------- ------------------------ ------ ------- ------- --------
TAP Lupron Leuprorelin LHRH agonsists 775 798 833 4.4
AstraZeneca Zoladex Goserelin LHRH agonsists 686 734 728 -0.8
AstraZeneca Nolvadex Tamoxifen Anti-estrogens 573 576 630 9.4
AstraZeneca Casodex Bicalulamide Anti-estrogens 340 433 569 31.4
Takeda Leuplin leuprorelin LHRH agonsists 485 515 530e 2.9
Barr Tamoxifen Tamoxifen Anti-estrogens 297 322 501 55.6
Pharmacia Depo-Provera Medroxy Progestagens 252 272 283 4.0
AstraZeneca Arimidex Anastrozole Aromatase Inhibitors 140 156 191 22.4
Abbott Lupron leuprorelin LHRH agonsists 140 153 163 6.5
BMS Megace megestrol Progestagens 114 180 150e -16.7
Novartis Femara letrozole Aromatase Inhibitors 57 74 125 68.9
Ipsen Deccapepryl triptorelin LHRH agonsists 100 105 110e 4.8
Aventis Nilandron nilutamide Anti-androgens 72 87 93e 6.9
Schering AG Androcur cyproterone Anti-androgens 91 95 92 -3.0
Aventis Suprecur/ buserelin LHRH agonsists 83 84 85e 1.7
Suprefact
SP Eulexin flutamide Anti-androgens 155 128 83 -35.2
12
Growth
1999 2000 2001 2000-01
Company Brand Generic Class ($m) ($m) ($m) (%)
------------- ----------------------- ----------------------- ------------------------ ------ ------- ------- --------
Pharmacia Aromasin exemestane Aromatase Inhibitors n/a 36 65e 80.6
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 Inhibitors 47 45 43e -4.4
Nihun Kayaku Fareston toremifene Anti-estrogens 44 43 40e -6.1
Novartis Afema tadrozole Aromatase Inhibitors 22 25 23e -8.0
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.
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 June 30, 2003, we had seven full-time and three part-time
employees. Of these, three are in management, three are in sales/marketing, one
is 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.
13
Factors that May Affect Our Business
There are a number of important factors that could cause our actual
results to differ materially from those that are indicated by forward-looking
statements. Those factors include, without limitation, those listed below and
elsewhere herein.
We have a limited operating history, which makes it difficult to evaluate our
business and to predict our future operating results.
Since our inception, 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 6,746,326 for the year ended June 30, 2003. At June 30, 2003, we had a
deficit accumulated of $28,651,443. 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.
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.
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 to manufacture sufficient quantities of materials for
use in clinical trials;
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.
14
ILEX has primary responsibility for clinical and regulatory work in
the United States and Canada under 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. If ILEX does
not complete clinical trials and regulatory work expeditiously, or if it fails
to do so at all or otherwise fails to meet its obligations under the
co-development agreement, we could lose valuable time in developing Clofarabine
for commercialization. Furthermore, we intend to make use of clinical data from
trials ILEX is conducting to prepare and support our regulatory applications in
Europe and elsewhere. We can not provide assurance that ILEX will not fail to
meet its obligations under the co-development agreement. 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 may fail to address risks we face as a developing business which could
adversely affect the implementation of our business plan.
We are prone to all of the risks inherent to the establishment of
any new business venture. 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 maintain and increase our product portfolio;
o implement and successfully execute our business and marketing
strategy;
o continue to develop new products and upgrade our existing
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 are unable to do so,
our business prospects, financial condition and results of operations would be
materially adversely affected.
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. The
development of new pharmaceutical products is highly uncertain and subject to a
number of significant risks. 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.
To date, our resources have been substantially dedicated to the
acquisition, research and development of products and technologies. 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,
15
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.
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.
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
16
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, 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
17
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.
We rely on licensing or purchasing products and technologies to grow our product
portfolio, and may not be effective in licensing or acquiring new products which
would adversely affect our ability to grow our business and become profitable.
We have adopted a license and acquisition strategy to build our
product portfolio. Unless and until we develop and introduce a sufficient number
of our own products, we must rely upon the availability for licensing or
purchasing of products or technologies of other pharmaceutical or biotechnology
companies. Our success in executing this strategy depends on our continued
ability to identify and acquire new pharmaceutical products targeted at niche
markets within selected strategic therapeutic market segments. Other companies,
including those with substantially greater financial, marketing and other
resources than us, compete with us for the right to license or acquire these
products. We may not be successful in identifying potential product licensing or
acquisition opportunities. If any of these opportunities are identified, we may
not be able to obtain these licenses or complete these acquisitions on
acceptable terms. We may not be able to successfully integrate any licensed or
acquired products or technologies into our product portfolio. Our failure to
obtain licenses for, or complete acquisitions of, products or technologies
within a selected strategic therapeutic market segment or to promote and market
commercially successful products or technologies within an existing strategic
therapeutic market segment could have a material adverse effect on our ability
to grow our business and become profitable. Once we have obtained rights to a
product or technology and committed to payment terms, we may not be able to
generate sales sufficient to create a profit or otherwise avoid a loss. Any
inability to generate sufficient sales or any subsequent reduction of sales
could have a material adverse effect on our revenue and cash flows.
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.
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.
18
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. 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.
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. 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
19
capabilities or to enter into marketing and distribution arrangements with third
parties could have a material adverse effect on our revenue and cash flows.
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. Patents may not be issued from
these applications and issued patents may not give us adequate protection.
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.
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.
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.
If we lose key management or other personnel our business will suffer.
We are highly dependent on the principal members of our scientific
and management staff. We also rely on consultants and advisors, including our
scientific advisors, to assist us in formulating our research and development
strategy. Our success also depends upon retaining key management and technical
personnel, as well as our ability to continue to attract and retain additional
highly-qualified personnel. We face intense competition for personnel from other
companies, government entities and other organizations. We may not be successful
in retaining our current personnel. We may not be successful in hiring or
retaining qualified personnel in the future. If we lose the services of any of
our scientific and management staff or key technical personnel, or if we fail to
continue to attract qualified personnel, our ability to acquire, develop or sell
products would be adversely affected.
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 will 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 and we could lose our
20
opportunity to gain significant market share. Any inability to manage growth
effectively may harm our ability to institute our business plan.
Because we have international operations, we will be subject to risks of
conducting business in foreign countries.
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 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 cannot predict our future capital needs and we may not be able to secure
additional financing which could affect our ability to operate as a going
concern.
In May 2002, we completed a $17,750,000 offering through the sale of
shares of Series A preferred stock and common stock purchase warrants. The
common stock purchase warrants are exercisable within five years of the issuance
date. 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.
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 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
June 30, 2003, we had stockholders' equity of approximately $18,828,392 and net
working capital of approximately $6,108,493.
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.
In the United States, for instance, we expect that there will
continue to be a number of federal and state proposals to implement government
control of pricing and profitability of prescription pharmaceuticals. Government
imposed controls could decrease the price we receive for products by preventing
the recovery of development costs and an appropriate profit margin. Any of these
cost controls could have a material adverse effect on our ability to make a
profit. Furthermore, federal and state regulations govern or influence the
reimbursement to health care providers in connection with medical treatment of
certain patients. If any actions are taken by federal and/or state governments,
they could adversely affect the prospects for sales of our products.
21
Actions taken by federal and/or state governments with regard to health care
reform could have a material adverse effect on our business and our prospects.
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. This could cause
the acceptance and/or use of our products 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. 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. 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.
We may be liable for the use of hazardous materials.
Our research and development activities may involve the use of
hazardous materials, chemicals and/or various radioactive compounds by our
collaborative partners. The risk of accidental contamination or injury from
these materials cannot be completely eliminated. In the event of an accident, we
could be held liable for any damages that result and any liability could exceed
our resources. Our future collaborative partners may incur substantial costs to
comply with environmental regulations, which costs may be passed on to us.
We may encounter significant financial and operating risks if we grow our
business through acquisitions.
As part of our growth strategy, we may seek to acquire or invest in
complementary or competitive businesses, products or technologies. The process
of integrating acquired assets into our operations may result in unforeseen
operating difficulties and expenditures and may absorb significant management
attention that would otherwise be available for the ongoing development of our
business. We may allocate a significant portion of our available working capital
to finance all or a portion of the purchase price relating to possible
acquisitions although we have no immediate plans to do so. Any future
acquisition or investment opportunity may require us to obtain additional
financing to complete the transaction. The anticipated benefits of any
acquisitions may not be realized. In addition, future acquisitions by us could
result in potentially dilutive issuances of equity securities, the incurrence of
debt and contingent liabilities and amortization expenses related to goodwill
and other intangible assets,
22
any of which could materially adversely affect our operating results and
financial position. Acquisitions also involve other risks, including entering
markets in which we have no or limited prior experience.
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 especially volatile. Thus, the market price of our common stock is likely
to be subject to wide fluctuations. If our revenues do not grow or grow more
slowly than we anticipate, 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. In the past,
companies that have experienced volatility in the market price of their stock
have been the subject of securities class action litigation. If we were to
become the subject of securities class action litigation, it could result in
substantial costs and a diversion of management's attention and resources.
Certain events could result in a dilution of your ownership of our common stock.
As of June 30, 2003, we had 17,122,739 shares of common stock
outstanding, 5,916,666 shares of Series A preferred stock outstanding which are
currently convertible into 11,833,332 shares of common stock and 15,749,543
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 $2.00 per
share. We have also reserved for issuance an aggregate of 7,473,082 shares of
common stock for a stock option plan for our employees. These securities also
provide for 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 provisions of 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.
We are subject to the anti-takeover provisions of Section 203 of the
Delaware corporate statute, which regulates corporate acquisitions. 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 substantially in
response to actual or rumored takeover attempts. These provisions may also
prevent changes in our management.
Where You Can Find More Information
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. This information is available at the SEC's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports,
proxy and information statements, and other information about Bioenvision and
other issuers that file electronically with the SEC at http://wwww.sec.gov.
Item 2. 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
23
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.
Item 3. 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 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.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
The following represents the range of reported high and low bid
quotations for our common stock on a quarterly basis since July 1, 2000 as
reported on the OTC Bulletin Board. Throughout this period and up to 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, 2001
First Quarter $4.25 $2.50
Second Quarter $4.00 $1.50
Third Quarter $2.625 $0.875
Fourth Quarter $2.45 $0.82
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
On September 11, 2003, we had 534 stockholders of record.
24
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. 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.
Recent Sales of Unregistered Securities
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 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 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 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. 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 (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.
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. 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. 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. In
connection with our entering into an employment agreement with Mr. Luci, dated
March 31, 2003, we cancelled
25
these options and issued options to purchase 500,000 shares of common stock,
which are exercisable at $0.735 per share. 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. 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
officers as payment for salaries accrued to September 30, 2001. 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.
In May 2001, certain officers agreed to convert $910,681 in
outstanding deferred salaries into 705,954 shares of our common stock. 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 April 2001, Bioenvision issued 5,104,544 options at an exercise
price of $1.25 per share. The initial term of the options are that each option
can be exercised after April 30, 2001 for a period of three years until April
30, 2004, but were extended to five years.
Of these options, management was issued the following options:
Christopher B. Wood 1,500,000 options
Stuart Smith 500,000 options
Thomas Scott Nelson 200,000 options
The issuance of these options was exempt from registration under Regulation D
under the Securities Act or Section 4(2) of the Securities Act.
In April 2001, we issued 500,000 options to Phoenix Ventures to
purchase shares of our common stock at an exercise price of $1.25 per share. The
options were issued in connection with a credit facility made available to us by
Glen Investments Limited, a Jersey (Channel Islands) corporation wholly-owned by
Kevin R. Leech, a U.K. citizen and one of our stockholders, which facility was
terminated in August 2001. The options expire in April 2004 and are immediately
vested. Those issuances of options were exempt from registration under
Regulation S under the Securities Act or Section 4(2) of the Securities Act.
26
In March 2001, we entered into the Co-Development Agreement with
ILEX, pursuant to which ILEX has a 30-day option to purchase $1 million of our
common stock upon completion by ILEX of the pivotal Phase II clinical trial of
Clofarabine, and an additional 30-day option to purchase $2 million of our
common stock after the filing by ILEX 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 based upon the average market price
of our common stock at the time of exercise.
In December 2000, the Company issued 272,500 shares of common stock
to outside consultants. The Company recognized consultant's expense on its
financial statements equal to $272,500 based on the fair value of the Company's
stock trading at $1.00 per share at the time the shares were issued.
In November 2000, Bioenvision issued 272,500 shares of common stock
at approximately $1.00 per share to various consultants for work performed for
and our behalf. The shares were issued to Andrew Turner (112,500), David Chester
(112,500), and Shane Sutton (47,500). The issuance of these shares was exempt
from registration under Regulation S under the Securities Act or Section 4(2) of
the Securities Act.
Item 6. Management's Discussion and Analysis or Plan of Operation
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 audited consolidated financial statements and notes included
under Item 7 in this annual report on Form 10-KSB, which consolidated financial
statements are presented beginning at page F-1, 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, 2002 included under Item 7 in this annual report on Form
10-KSB, which are presented beginning at page F-1.
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
27
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.
Overview
We are 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).
Clofarabine
-----------
Based on third party studies conducted to date, we believe that
Clofarabine is effective in the treatment of leukemia and lymphoma. To expedite
the commercialization Clofarabine, we have entered into a co-development
agreement with ILEX Oncology, Inc. ("ILEX") under which Phase II clinical trials
of Clofarabine are currently being conducted. 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. Management believes that the "fast track" designation may
also result in our more expeditiously gaining marketing approval for clofarabine
for the treatment of refractory or relapsed ALL.
Further, Southern Research Institute, which granted us the exclusive
worldwide license, excluding Japan and Southeast Asia, to make, use and sell
products derived from the clofarabine 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 us and by Southern Research Institute from the technology,
recently granted us an irrevocable, exclusive option to make, use and sell
products derived from the clofarabine 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 Japan and Southeast Asia.
In January 2002, the European orphan drug application for use of
Clofarabine to treat acute leukemia in adults was approved. The drug has also
been granted orphan drug status in the United States.
Extensive preclinical and mechanistic studies have provided much of
the rationale for the rapidly advancing Clofarabine clinical development
program. Published data and information presented at recent scientific meetings
suggest that Clofarabine has broader anti-cancer activity, and may be more
potent than other currently marketed purine analogues such as Fludara(R)
(fludarabine) and Leustatin(R) (cladribine).
Preliminary results from ongoing clinical studies indicate that
Clofarabine may be an effective treatment for acute leukemias in adult and
pediatric patients that have become resistant, or refractory, to prior
treatment. According to researchers at the MD 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 adult and pediatric acute
leukemias are currently ongoing in the U.S. and are planned to commence in
Europe later this 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 4 weeks. In this context, a response,
or partial response, has largely the same meaning, except that the bone marrow
may still contain more than 5% but less than 25% blast cells (leukemic cells).
28
Modrenal(R)
-----------
We launched Modrenal(R), in May 2003 in the United Kingdom, where we
obtained regulatory approval for its use in the treatment of post-menopausal
breast cancer. In August 2003, pursuant to an amendment to our co-development
agreement with Stegram Pharmaceuticals plc ("Stegram"), we obtained the right to
market Modrenal(R) in the United Kingdom and have succeeded to Stegram's
existing revenue streams from UK sales.
Our management believes that Modrenal(R) works by a unique action as
compared with other commercially available drugs to treat post-menopausal breast
cancer. We believe that Modrenal(R) alters the way in which the female hormone,
estrogen, binds to the hormone receptor on the cell in a previously unrecognized
fashion. In particular, it changes the manner in which the hormone acts on a
newly identified second estrogen receptor, ER beta (ER(beta)). Modrenal(R) is
the first drug to be commercially available in a new class of agents that
specifically target ER(beta). We intend to seek regulatory approval for
Modrenal(R) in the United States as salvage therapy for hormone-sensitive breast
cancer. This would target patients that have hormone-sensitive cancers and have
become resistant, or refractory, to prior hormone treatments, such as
Tamoxifen(R) or aromatase inhibitors. We believe that the potential market for
Modrenal(R), based upon 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 extensive clinical trails to date with Modrenal(R)
illustrate 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 SERM's and aromatase inhibitors, and more effective than
these agents 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 should result
in cost benefits for physicians, patients and health-care systems.
Company Status
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 five years if we successfully bring our two
lead drugs to market. We anticipate that revenues derived from the two lead
drugs will permit us to further develop the twelve other products and potential
products currently in our development portfolio. We currently plan to have as
many as twelve products at market by the end of 2006. We have commenced
marketing one of our lead products, Modrenal(R), and we intend to continue
developing our existing platform technologies with a primary business focus on
drugs to treat cancer, 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.
As a result of the acquisition of Pathagon Inc. in February 2002, we have
several anti-infective technologies. These include the OLIGON(R) technology, an
advanced biomaterial that has been approved for certain indications by the FDA
in the U.S., and is being sold by a product co-development partner, and the use
of thiazine dyes, such as methylene blue, which are used for in vitro and in
vivos inactivation of pathogens (viruses, bacteria and fungus) in biological
fluids. It is not the Company's strategy to sell devices or to expand into the
anit-infective market per se, but the technology obtained in the Pathagon
acquisition has specific application for support of the cancer patient and
oncology treatment. 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 Sub-License Agreement with Dechra Pharmaceuticals,
plc ("Dechra"), pursuant to which Bioenvision sub-licensed the marketing and
development rights to modrestane, 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 exploit these types of opportunities as they arise. .
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;
29
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 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
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. The decrease represents a
decrease in royalty payments under certain development contracts.
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. The increase primarily reflects increased costs associated with our
hiring key personnel and staff, lease expenses for the newly opened New York,
New York and Edinburgh, Scotland offices both of which we opened during the
year, obtaining appropriate D&O and other insurance coverage, and increases in
related travel expense to successfully manage our drug development activities.
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. 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. The increase reflects
current year amortization of certain capitalized expenses associated with the
consummation of our May 2002 private placement financing, the acquisition of
Pathagon, Inc. in February 2002 and the our bridge loan financing which was
consummated in November 2001. Administrative expenses are comprised mainly of
investment banking, legal, accounting and other professional fees and expenses.
30
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.
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.
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. In August 2001, we obtained a $1 million unsecured
line of credit facility from Jano Holdings Limited, bearing interest at 8% per
annum. In November 2001, we entered into a senior, Secured Credit Facility with
SCO Capital Partners LLC. The credit facility was established for up to
$1,000,000 in short term financing, in four trances of $250,000, subject to
satisfaction of certain conditions, secured by the pledge of certain of our
assets, and was established to bear interest on drawings at a rate of 6% per
annum. In addition, our officers agreed to defer salaries, and our former
outside counsel agreed to defer certain fees, until we obtained sufficient
long-term funding. Deferred salaries and fees amounted to approximately $52,000
through June 30, 2002. In May 2001, our officers agreed to accept 705,954 shares
of our common stock in settlement of $910,681 of the outstanding accrued
salaries through June 30, 2001. The shares were issued during the quarter ended
March 31, 2002. On October 17, 2001, our officers agreed to accept 134,035
shares in settlement of $154,140 of additional outstanding accrued salaries to
September 30, 2001. On October 17, 2001, the board of directors approved a plan
to repay certain trade debt with shares of our common stock, and a total of
146,499 shares of common stock were issued for the repayment of $168,473.
We received an initial payment from ILEX of $1,350,000 which became
non-refundable in March 2001 upon execution of the agreement with ILEX to
co-develop Clofarabine. That sum will be recognized as income for accounting
purposes on a straight line basis over the period from March 2001, when the
payment was received, through December 31, 2002, at which time ILEX was
originally scheduled to complete Phase II trials of Clofarabine and make another
payment to us.
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.
On May 7, 2002 we authorized the issuance and sale of up to
5,920,000 shares of Series A Preferred Stock. The Series A 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 preferred stock also received, in respect of each share of
Series A 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.
Through May 16, 2002 we have sold an aggregate of 5,916,666 shares
of Series A convertible participating 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.
On June 30, 2003, we have cash and cash equivalents of $8,200,000
and working capital of $6,108,000 which management believes will be sufficient
to continue currently planned operations over the next 12 months. Although we do
not currently intend to raise any additional funds for the next 12 months, we
can not 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 acquire, obtain licenses for, and 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 12 month period, but
31
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.
We anticipate that we may continue to incur significant operating
losses for the foreseeable future. There can be no assurance as to whether or
where we will generate material revenues or achieve profitable operations.
The Company has the following commitments as of June 30, 2003:
Payments Due in
--------------------------------------------------------------------------------------------------------
Total 2004 2005 2006
--------------------------------------------------------------------------------------------------------
Employee Contracts 266,400 266,400 - -
--------------------------------------------------------------------------------------------------------
Occupancy Lease 369,500 161,600 166,100 41,000
--------------------------------------------------------------------------------------------------------
Total 635,900 418,500 156,000 39,000
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
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 3,299 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, Ltd.
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 use a major portion of the proceeds of the
May 2002 private placement 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.
Key Personnel, Consultants and Infrastructure
On July 22, 2002, David P. Luci commenced employment with the
Company and serves as Director of Finance, General Counsel and Corporate
Secretary of the Company, pursuant to terms which are memorialized in an
Employment Agreement, dated March 31, 2003. See Part III, Item 9 "Directors,
Executive Officers, Promoters and Control Persons; Compliance with Section 16(a)
of the Exchange Act - Employment Agreements" below.
32
On September 3, 2002, the Company and ILEX constituted the
management team (the "Management Team") for the development of Clofarabine in
the U.S., Canada and Europe. The Management Team meets regularly to plan and
coordinate clofarabine drug development on an ongoing basis. The Management Team
currently consists of Dr. Wood and Mr. Luci from the Company and Jeffrey
Buchalter, President and Chief Executive Officer of Ilex.
On September 17, 2002, the Company announced its establishment of
principal executive offices at 509 Madison Avenue, Suite 404, New York, New York
10022.
On September 24, 2002, Mr. Thomas Scott Nelson resigned his position
as Chief Financial Officer of the Company. Mr. Luci has taken responsibility as
the Company's principal accounting officer. Mr. Nelson continues his role as
director of the Company.
On September 30, 2002, Stuart Smith resigned from his position as
Senior Vice President of the Company; his employment agreement was terminated.
The Company issued 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 October 6, 2002, Mr. Hugh Griffith commenced employment with
Bioenvision Ltd., a wholly owned subsidiary of the Company. Mr. Griffith serves
as Commercial Director (Europe) and is responsible for Bioenvision's marketing
campaign for modrenal, which is approved in the United Kingdom for the treatment
of advanced post-menopausal breast cancer, and for Bioenvision's sales and
marketing initiatives for all other approved products throughout Europe which,
initially, includes methylene blue and OLIGON.
On November 1, 2002, the Company entered into an agreement with
Queen Mary Westfield College, University of London ("Queen Mary"), pursuant to
which, in pertinent part, Queen Mary has agreed to perform certain research and
development activities in connection with the development of modrenal(TM). The
term of the agreement is five years, subject to certain rights of the parties to
terminate prior thereto.
On December 1, 2002, the Company appointed Mr. Ian Abercrombie to
serve as Sales Manager (Europe). Messrs. Abercrombie and Griffith, together, are
creating a worldwide marketing strategy for the Company's products and marketing
Modrenal (TM) in the United Kingdom. Further, Messrs. Abercrombie and Griffith
are designing plans to expand the Company's marketing strategy throughout the
European Community and to commence pre-registration marketing activities with
Clofarabine worldwide, except for North America.
On December 31, 2002, the Company entered into a one-year employment
agreement with Dr. Christopher B. Wood who serves as Chairman and Chief
Executive Officer of the Company. See Part III, Item 9 "Directors, Executive
Officers, Promoters and Control Persons; Compliance with Section 16(a) of the
Exchange Act - Employment Agreements" below.
On December 31, 2002, the Company entered into a consulting
agreement with Dr. Deidre Tessman to serve as a regulatory consultant to the
Company in connection with the European development of Clofarabine.
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 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.
In April 2003, we entered into an exclusive license agreement with
CLL Pharma ("CLL"), pursuant to which CLL has agreed to develop a new
formulation of modrenal using proprietary patented technology of CLL. The term
of the agreement is for a period of 24 months following the first delivery of
reformulated drug product.
In May 2003, we entered into a Sub-License Agreement with Dechra
Pharmaceuticals, plc ("Dechra"), pursuant to which Bioenvision sub-licensed the
marketing and development rights to modrestane, solely with respect to animal
health applications, in the United States and Canada, to Dechra. We received
$1.25 million in
33
cash, together with future milestone and royalty payments which are contingent
upon the occurrence of certain events.
In May 2003, we entered into a Master Services Agreement with Penn
Pharmaceutical Services Limited ("Penn"), pursuant to which Penn will assist the
Company with labeling, packaging and distribution of Clofarabine and certain
other services including regulatory and quality control, in each case, as
requested by the Company on an ongoing basis. The term of the agreement is 12
months subject to automatic 12 month extensions unless earlier terminated by
either party.
In June 2003, we entered into a supply agreement and a development
agreement, in each case, with Ferro Phanstiehl Laboratories, ("Ferro"), pursuant
to which Ferro will manufacture and exclusively supply to us our global supply
of Clofarabine and perform a scale-up of this compound for commercial use. The
term of the supply agreement is five-years from the first product regulatory
approval for Clofarabine, subject to certain early termination rights.
Scientific Advisory Board / Modrenal Launch
In December 2002, the Company's scientific advisory board convened
at the Meeting of the American Society of Hematologists in Philadelphia, PA and
reviewed the clinical trial results to date and planned future clinical trials
for clofarabine.
In May 2003, the Company's scientific advisory board met to review
and discuss the design and strategy for the forthcoming clinical trials for
modrenal, globally, for patients with breast cancer.
In May 2003, the Company launched the marketing of modrenal in the
United Kingdom for breast cancer at the Royal College of Surgeons in London,
England.
Recent 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
34
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."
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 statements
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.
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, we received notice that our application to list our
shares of common stock had been approved by the American Stock Exchange under
the symbol "BIV". Our shares of common stock commenced trading on the American
Stock Exchange on September 8, 2003.
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.
Item 7. 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.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
35
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
Our executive officers, directors and other significant employees
and their ages and positions are as follows:
Name of Individual Age Position with Bioenvision and Subsidiaries
------------------ --- ------------------------------------------
Christopher B. Wood, M.D. 57 Chairman of the Board and Chief Executive Officer
David P. Luci, C.P.A., J.D. 36 Director of Finance, General Counsel and Corporate Secretary
(1)
Hugh Griffith 35 Commercial Director (Europe) (2)
Jeffrey B. Davis 40 Director (3)
Thomas Scott Nelson, C.A. 64 Director (4)
Steven A. Elms 39 Director (4)
Andrew Schiff, M.D. 38 Director (3) (4)
-----------------------------
(1) Mr. Luci has been employed with the Company since July 22, 2002.
(2) Mr. Griffith has been employed with Bioenvision, Ltd, a wholly-owned
subsidiary of the Company, since October 6, 2002.
(3) Member of the Compensation Committee since September 5, 2002.
(4) Member of the Audit Committee since September 5, 2002.
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. 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. He has more than 15 years
experience in the European biotechnology sector. He has taken two biotechnology
companies from start-up through commercialization, one of which, Medeva Plc.,
traded on the London Stock Exchange and the New York Stock Exchange, and is now
wholly owned by Celltech Group PLC. 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.
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.
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
36
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 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.
Under the terms of its investment agreement, as amended in April
2001, Bioaccelerate Ltd. has the right to nominate one member to our board of
directors. Bioaccelerate Ltd. has not made any such nomination at this time.
Under the terms of the merger agreement with certain former
directors of Pathagon, such former directors have the right to nominate another
individual to our board of directors. These former directors of Pathagon have
not made any such nomination at this time.
The directors serve until the next annual meeting of stockholders
and until their respective successors are elected and qualified. Officers serve
at the discretion of the board of directors.
Committees of the Board of Directors
The Board of Directors currently has two committees; the Audit
Committee and the Compensation Committee. The Board of Directors re-constituted
membership of the Audit Committee and Compensation Committee to include
non-management directors on such committees.
The Audit Committee is comprised of Messrs. Elms, Schiff and Nelson;
with Mr. Elms serving as Chairman of the Audit Committee. The Audit Committee
recommends the independent accountants appointed by the Board of Directors to
audit our the financial statements, which includes an inspection of our books
and accounts, and reviews with such accountants the scope of their audit and
their report thereon, including any questions and recommendations that may arise
relating to such audit and report or our internal accounting and auditing system
procedures. The Audit Committee reports to the Board of Directors.
The Compensation Committee is comprised of Messrs. Davis and Schiff;
with Mr. Davis serving as Chairman of the Compensation Committee. The function
of the Compensation Committee is to review and approve the compensation of
executive officers and establish targets and incentive awards under our
incentive compensation plans. The Compensation Committee reports to the Board of
Directors.
Scientific Advisory Committee
In addition to the foregoing committees of the board of directors,
the Company has a Scientific Advisory Committee. The Scientific Advisory
Committee is comprised of Professor Emillio Montserrat, Nagy Habib, M.D., Ph.D.,
Michael Keating, M.D., Professor Cecilia Saccone, B.Sr., Professor Wafik
El-Deiry, M.D., Ph.D., Professor Anthony Davies, Ph.D., D.Sr. and Professor
Daniel Jaeck, M.D. The members of the Scientific Advisory
37
Committee are each leaders in various disciplines relating to our scientific
interests. These individuals were appointed by and report to the Board of
Directors and provide critical review and advice pertaining to our product
research and development, and business development activities and strategies at
the request of management or the Board of Directors. Members of the Scientific
Advisory Committee are compensated on a case-by-case basis based on their
commitment of time and other factors and are reimbursed for out-of-pocket
expenses incurred in serving on the Scientific Advisory Committee. Compensation
through stock options or stock purchases may be provided. To our knowledge, none
of our Scientific Advisory Committee members have any conflict of interest
between his or her obligations to us and his or her obligations to others.
Chief Medical Consultant
George Margetts, M.D. has served as our Chief Medical Consultant
since December 1998. Since 1990, he has been Managing Director of Stegram
Pharmaceutical Ltd. From 1984 to 1990, Dr. Margetts served as Executive Vice
President Research/Managing Director of Sterling Winthrop Group and as its
Medical Director between 1971 and 1989. Dr. Margetts holds B. Pharm. and M.Sc.
degrees from the University of London and M.R.C.S., L.R.C.P., M.D. and B.S.
degrees from University College Hospital Medical School, London.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires Bioenvision's directors
and executive officers, and persons who own more than 10% of the outstanding
equity securities of Bioenvision, to file initial reports of beneficial
ownership and reports of changes in beneficial ownership of equity securities
with the SEC and any national securities exchange on which equity securities are
listed. These persons are required by SEC regulations to furnish Bioenvision
with copies of all Section 16(a) forms they file.
Based upon filings made with the SEC and Bioenvision's records,
Bioenvision believes that certain of its directors, executive officers or
holders of more than 10% of the outstanding shares of common stock have not
filed on a timely basis the reports required by Section 16(a) of the Exchange
Act during, or with respect to, the year ended June 30, 2003.
Item 10. 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
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:
38
Summary Compensation Table
Annual compensation Long term compensation
------------------------------ --------------------------------------------------------------
Awards Payouts
Other
Annual Restricted Securities
Comp- Stock underlying LTIP All other
Name & Salary ensation Awards options/SARs payouts compensation
Principal ------ -------- ------ ------------ ------- ------------
Position Year $ Bonus $ $ $ $ $
-------- ---- -----
Christopher B. Wood (1) 2003 225,000 -
2002 225,000 -
2001 180,000 -
David P. Luci (2) 2003 205,200 57,000(3)
2002 - -
2001 - -
Hugh Griffith (4) 2003 180,000 20,000
2002 - -
2001 - -
Stuart Smith (5) 2002 150,000 -
2001 150,000 -
2000 150,000 -
--------------------------
(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.
(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 22, 2003, 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 22, 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.
Stock Options
Our board of directors adopted our 2001 Stock Option Plan effective
on April 30, 2001. The purpose of the option plan is to increase the employees',
advisors', consultants' and non-employee directors' proprietary interest in us
and to align more closely their interests with the interests of our
stockholders. The purpose of the option plan is also to enable us to attract and
retain the services of experienced and highly qualified employees and
non-employee directors.
We reserved an aggregate of 5,104,544 shares of common stock for
issuance pursuant to options granted under the 2001 Stock Option Plan. As of
September 28, 2001 options to purchase an aggregate of 5,104,544 shares of our
common stock have been granted under the 2001 Stock Option Plan. The board of
directors or a
39
committee of the board of directors (the Compensation Committee) will administer
the Plan including, without limitation, the selection of the persons who will be
granted options under the Plan, the type of options to be granted, the number of
shares subject to each option and the option price.
Options granted under the option plan may either be options
qualifying as incentive stock options under Section 422 of the Internal Revenue
Code of 1986, as amended, or options that do not so qualify (or are not intended
to so qualify). Officers, directors and key employees of and consultants to us
and our subsidiaries will be eligible to receive non-qualified options under the
plan. Only our officers, directors and employees who are employed by us or by
any of our subsidiaries as "common law employees" are eligible to receive
incentive options. In addition, the option plan also allows for the inclusion of
a "reload option" provision, which permits an eligible person to pay the
exercise price of the option, and any withholding taxes that may be due on the
exercise, with shares of common stock owned by the eligible person and to
receive a new option to purchase shares of common stock equal in number to the
tendered shares. Any incentive option granted under the option plan must provide
for an exercise price of not less than 100% of the fair market value of the
underlying shares on the date of such grant, but the exercise price of any
incentive option granted to an eligible employee owning more than 10% of the
total combined voting power of all classes of our common stock or the common
stock of any of our subsidiary companies must be at least 110% of such fair
market value as determined on the date of the grant.
The term of each option and the manner in which it may be exercised
is determined by the board of directors or a committee, provided that no
incentive stock option may be exercisable more than three years after the date
of its grant. The exercise price of non-qualified options shall be determined by
the board of directors or a committee.
The per share purchase price of shares subject to options granted
under the option plan may be adjusted in the event of certain changes in our
capitalization, but any such adjustment shall not change the total purchase
price payable upon the exercise in full of options granted under the option
plan.
Incentive stock options are non-assignable and non-transferable,
except by will or by the laws of descent and distribution and, during the
lifetime of the optionee, may be exercised only by such optionee. Non-qualified
options may be assignable to the optionee's spouse or children. If an optionee's
employment is terminated for cause or without the approval of a committee of the
board of directors (other than due to his death or disability), or if an
optionee is not our employee but is a member of our board of directors and his
service as a director is terminated for cause, the option granted will be
immediately forfeited. If the optionee's employment is terminated for any other
reason, option(s) granted to him may be exercised to the extent provided in the
agreement pursuant to which the option(s) were granted; provided, however, that
incentive stock options must be exercised no later than three months after the
optionee's termination of employment (other than due to death) and, if the
optionee is permanently and totally disabled within the meaning of Section
22(c)(3) of the Code, the incentive stock options granted to him lapse to the
extent unexercised on the earlier of the expiration date of the option or one
year following the date of the disability.
The board of directors or a committee may amend, suspend or
terminate the option plan at any time, except that no amendment will be made
which:
o increases the total number of shares subject to the
plan or changes the minimum purchase price therefor (except in
either case in the event of adjustments due to changes in our
capitalization);
o without the consent of the optionee, affects
outstanding options or any exercise right thereunder;
o extends the term of any option beyond ten years; or
o extends the termination date of the option plan.
Unless the option plan is earlier suspended or terminated by the
board of directors, the option plan will terminate on the third anniversary of
the option plan's adoption by the board of directors. This termination of the
option plan will not affect the validity of any options previously granted under
the option plan.
40
The following table sets forth information concerning option/SAR
grants in our fiscal year ended June 30, 2002 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, 2002 whose total annual salary and bonus exceeded
$100,000 for these periods, and (c) up to two additional individuals, if any,
for whom disclosure would have been provided pursuant to (b) except that the
individual(s) were not serving as our executive officers at the end of our
fiscal year ended June 30, 2002:
----------------------------------------------------------------------------------------------------------------------
Option/SAR Grants in Last Fiscal Year
----------------------------------------------------------------------------------------------------------------------
[Individual Grants]
----------------------------------------------------------------------------------------------------------------------
Name Number of securities
underlying Percent of total Exercise or base price Expiration Date
options/SARs options/SARs granted ($/Share)
granted to employees in fiscal
(#) year
----------------------------------------------------------------------------------------------------------------------
All Executive 0 n/a n/a n/a
Officers
----------------------------------------------------------------------------------------------------------------------
There were no options/SARs exercised in our fiscal year ended June
30, 2003 by the named executive officers.
Employment Agreements
We have has 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.
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
41
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.
42
Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
The following table sets forth certain information regarding the
beneficial ownership of common stock, as of September 15, 2003, 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 CURRENT
OWNERSHIP OF PERCENTAGE
NAME STOCK OF CLASS (1)
Perseus-Soros Biopharmaceutical
Fund, LP (2)
888 Seventh Avenue, 29th Floor
New York, New York 10106.................... 9,000,000 34.07%
OrbiMed Advisors Inc. (3)
767 Third Avenue, 30th Floor
New York, New York 10017.................... 3,000,000 14.69%
Merlin Biomed Private Equity Fund LP (4)
230 Park Avenue, Suite 928
New York, New York 10169.................... 1,000,002 5.43%
DWS Investment GmbH (5)
Gruneburgweg M3-M5
60323 Frankfurt
Germany..................................... 1,299,999 6.95%
SCO Capital Partners LLC (6)
1285 Avenue of the Americas, 35th Floor
New York, New York 10019.................... 7,409,946 37.60%
Kevin Leech (7)
The Old Chapel
Sacre Couer
Rouge Boullion
St Helier
Jersey, Channel Islands..................... 1,900,000 10.60%
Lifescience Ventures Limited (8)
Suite F8
International Commercial Centre
Gibraltar................................... 887,500 5.10%
Estate of David Chester (9)................. 887,500 5.10%
Bioaccelerate, Inc. (10)
PO Box 3175
Road Town
43
BENEFICIAL CURRENT
OWNERSHIP OF PERCENTAGE
NAME STOCK OF CLASS (1)
Tortolla
British Virgin Islands...................... 2,181,816 11.56%
Christopher B. Wood, M.D. (11)
c/o Bioenvision, Inc.
509 Madison Avenue, Suite 404
New York, New York 10022.................... 4,457,342 22.96%
Stuart Smith (12)
c/o Bioenvision, Inc.
509 Madison Avenue, Suite 404
New York, New York 10022.................... 700,000 3.90%
David P. Luci (13)
c/o Bioenvision, Inc.
509 Madison Avenue, Suite 404
New York, New York 10022.................... 170,000 *
Hugh Griffith
c/o Bioenvision, Inc.
509 Madison Avenue, Suite 404
New York, New York 10022 0 *
Thomas Scott Nelson (14)
c/o Bioenvision, Inc.
509 Madison Avenue, Suite 404
New York, New York 10022.................... 287,523 1.63%
Jeffrey B. Davis (15)
1285 Avenue of the Americas, 35th Floor
New York, New York 10019................... 749,243 4.24%
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 *
All Executive Officers and Directors as a group
(six persons) (16).......................... 6,364,108 30.99%
----------------
* Represents holdings of less than one percent (1%).
(1) Based on a total of 17,417,739 shares of common stock outstanding as of
September 15, 2002.
(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. 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
44
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 and a
warrant to purchase 669,964 shares of common stock exercisable at $2.00 per
share for five years from May 16, 2002, both 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 and a warrant to purchase 13,945 shares of common stock exercisable at
$2.00 per share for five years from May 16, 2002, both 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 and a warrant to purchase 316,091 shares of common stock
exercisable at $2.00 per share for five years from May 16, 2002, both 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 3,000,000 shares of common stock.
(4) 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 and a
warrant to purchase 333,334 shares of common stock exercisable at $2.00 per
share for five years from May 8, 2002. 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 the 1,000,002 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.
(5) 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 and a
warrant to purchase 433,333 shares of common stock exercisable at $2.00 per
share for five years from May 14, 2002.
(6) Includes a warrant to purchase 1,200,000 shares of common stock exercisable
at $1.25 per share for five years from November 16, 2001; a warrant to
purchase 688,333 shares of common stock exercisable at $1.50 per share for
five years from May 8, 2002; a warrant to purchase 100,000 shares of common
stock exercisable at $1.25 per share Financial Group LLC for five years from
November 16, 2001 held by SCO; a warrant to purchase 70,000 shares of common
stock exercisable at $1.50 per share for five years from May 8, 2002 held by
SCO Financial Group LLC; a warrant to purchase 150,000 shares of common
stock exercisable at $1.25 per share for five years from November 16, 2001
held by the Sophie C. Rouhandeh Trust; and a warrant to purchase 150,000
shares of common stock exercisable at $1.25 per share for five years from
November 16, 2001 held by the Chloe H. Rouhandeh Trust. Steven H. Rouhandeh,
in his capacity as President of SCO Capital Partners LLC, has investment
power and voting power with respect to these shares, but disclaims any
beneficial ownership thereof.
(7) 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.
(8) Lifescience Ventures is a Gibraltar limited company owned of record by a
Gibraltar trust. Lee J. Cole, in his capacity as the trustee of the trust,
has investment power and voting power with respect to these shares, but
disclaims any beneficial ownership thereof.
(9) These shares are owned of record by General Capital Limited, a Bermuda
corporation which, to our knowledge, is wholly-owned by the Estate of David
Chester, a private investor.
(10)Bioaccelerate, Inc. is a BVI corporation, owned of record by several private
investors and includes options to acquire 1,454,544 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.
(11)Includes 318,750 shares of common stock owned by Julie Wood, Dr. Wood's
spouse, as to which Dr. Wood disclaims any beneficial interest, and
1,500,000 options which are exercisable at $1.25 for five years from April
30, 2001. Also includes 500,000 options which are exercisable at $1.45 from
December 31, 2002.
45
(12)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.
(13) Includes options to acquire 170,000 shares of common stock which are
exercisable at $0.735 per share from March 31, 2003.
(14) 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.
(15) 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.
(16)Includes shares of common stock owned by Christopher B. Wood, Stuart Smith,
Thomas Nelson, Jeffrey Davis, Steven A. Elms and Andrew Schiff, M.D. Also
includes (a) 318,750 shares of common stock owned by Julie Wood, Dr. Wood's
spouse, as to which Dr. Wood disclaims any beneficial interest, (b)
Christopher Wood's options to acquire 1,500,000 shares of common stock, (c)
Stuart Smith's options to acquire 500,000 shares of common stock, (d) David
Luci's options to acquire 50,000 shares of common stock, (e) Thomas Nelson's
options to acquire 200,000 shares of common stock and (e) Jeffrey B. Davis'
warrant to purchase 250,000 shares of common stock.
Item 12. Certain Relationships and Related Transactions.
In August 2001 Bioenvision issued 208,333 shares at the rate of
$1.25 per share 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
shareholders. 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
Capital, 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 Capital
performs investor relations services for the Company and earns a monthly fee of
$9,000 per month in connection therewith.
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.
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. An affiliate of SCO Capital Partners LLC, one
of our stockholders, served as financial advisor to the Company in connection
with this financing and earned a placement fee of approximately $1,200,000 in
connection therewith. This affiliate of SCO Capital Partners LLC continues to
serve as a financial advisor to the Company.
46
Item 13. Exhibits, List and Reports on Form 10-KSB.
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)
10.1 Pharmaceutical Development Agreement, dated as of June 10,
2003, by and between Bioenvision, Inc. and Ferro Pfanstiehl
Laboratories, Inc.
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
Penn Development Pharmaceutical Services Limited and
Bioenvision, Inc.
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
47
between Bioenvision, Inc. and Dechra Pharmaceuticals, plc
Exhibit
Number Description
------- -----
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 shareholders 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 shareholders of
Pathagon, Inc. party thereto, Chirstopher 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)
48
Exhibit
Number Description
------- -----
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)
24.1 Power of Attorney (appears on signature page)
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 Accounting Officer, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32.1 Certification of 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 Chief Accounting Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
-----------------------
(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
49
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.
(b) Reports on Form 8-K. No Current Reports on Form 8-K were filed by the
registrant during the last quarter of the period covered by this report.
50
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets as of June 30, 2003 and 2002 F-3
Consolidated Statements of Operations for years ended
June 30, 2003 and 2002 F-4
Consolidated Statements of Stockholders' Equity
(Deficit) for years ended June 30, 2003 and 2002 F-5
Consolidated Statements of Cash Flows for years ended
June 30, 2003 and 2002 F-6
Notes to Consolidated Financial Statements F-7
51
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
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 auditing standards generally accepted
in the United States of America. 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 comformity 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-2
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-3
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
Beneficial conversion preferred stock dividend (877,818) (131,328)
------------ -------------
(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-4
Bioenvision, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Accumulated Total
Additional Other Stockholders'
Preferred 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-5
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
Amortization of deferred tax liability (1,338,298)
Amortization of goodwill 801,395
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-6
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 Capital Partners LLC, 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-7
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
Note 1 - Organization and significant accounting policies - continued
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.
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, as all 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.
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)
F-8
The fair value of options at the date of grant was established usine 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,
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.
F-9
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
Note 1 - Organization and significant accounting policies - continued
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
Payments for certain royalties incurred pursuant to collaborative agreement are
recognized as deferred charges and amortized to research and development costs,
ratably on a straight-line basis over the applicable development periods.
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 Intangible assets
Goodwill is evaluated and tested on a periodic basis. If it is determined that
goodwill has been impaired it will be written down at that time to its fair
value. Intangible assets primarily consist of patents and licenses acquired as a
result of the acquisition of Pathagon. Acquired intangibles are stated at their
cost less accumulated amortization. Amortization is provided on a straight-line
basis over 13 years.
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.
F-10
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
Impact of recently issued accounting pronouncements - continued
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".
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.
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 as
determined by an outside consultant and 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
F-11
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
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 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.
F-12
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
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 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.
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)
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. Management believes that trilostane currently is
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.
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.
Operational Developments
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 a 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 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 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
F-15
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 and capitalized $175,000 related to
development costs over an eighteen month period.
Deferred revenue
As of June 30, 2003, the Company had fully amortized the deferred revenue
related to the contract with ILEX. The Company had been amortizing the deferred
revenue, and recognizing revenues ratably, on a straight-line basis concurrent
with certain development activities described in the contract, through December
2002. As of June 30, 2003, the Company reported deferred revenue of $1,238,321
related to the payment received by the Company of $1.25 million from Dechra upon
execution of the agreement with Dechra. The Company is recognizing the initial
payment to revenues on a straight-line basis over the term of the license
agreement through May 2014.
Deferred Costs
Deferred costs represent amounts that became due and payable upon the Company's
execution of co-development and sub-licensing agreements. Since the revenue
related to these agreements is to be realized over the life of the agreement,
the Company has deferred the related costs. The Company amortizes such costs
ratably, on a straight-line basis. As of June 30, 2003 and 2002, the Company has
deferred costs of $247,664 and $184,091, respectively.
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 Company issued 208,333 shares to officers of the Company, in
exchange for accrued officers' salaries of $154,214.
In October 2001, the Company issued 134,035 shares to officers as payment for
accrued salaries of $206,017 to September 30, 2001. In October 2001, the Company
issued 146,499 shares as payment for trade payables of $168,473 to certain
creditors.
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 March 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 David Luci 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 Mr Luci, 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 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.
F-18
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
NOTE 6 - Stockholders' transactions - continued
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 fo $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 Capital,
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 David Luci 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 Mr Luci, 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
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BIOENVISION, INC.
By /s/ Christopher B. Wood, M.D.
--------------------------------
Christopher B. Wood, M.D.
Chairman and Chief Executive
Officer
By /s/ David P. Luci
--------------------------------
David P. Luci
Director of Finance, General
Counsel and Corporate Secretary
Each person whose signature appears below hereby constitutes and
appoints either Christopher B. Wood, M.D. or David P. Luci his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this report, and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying all that said attorney-in-fact and agent or his
substitute or substitutes, or any of them, may lawfully do or cause to be done
by virtue hereof. In accordance with the requirements of the Exchange Act, this
report 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 Officer and September 25, 2003
-----------------------------
Christopher B. Wood, M.D. Director
(Principal Executive Officer)
September 25, 2003
/s/ Thomas S. Nelson, C.A. Director
--------------------------
Thomas S. Nelson, C.A.
/s/ Jeffrey B. Davis Director September 25, 2003
--------------------
Jeffrey B. Davis
/s/ Andrew N. Schiff
Andrew N. Schiff Director September 25, 2003
/s/ Steven A. Elms Director September 25, 2003
------------------
Steven A. Elms
F-24
Item 14. Controls and Procedures.
(a) Certificate of Chief Executive Officer.
I, Christopher B. Wood, certify that:
1. I have reviewed this annual report on Form 10-KSB of Bioenvision, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14 for the registrant and have:
a. designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a. all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: September 25, 2003
/s/ Christopher B. Wood
----------------------------------------
Christopher B. Wood
Chairman and Chief Executive Officer
(Principal Executive Officer)
(b) Certificate of Director of Finance.
I, David P. Luci, certify that:
7. I have reviewed this annual report on Form 10-KSB of Bioenvision, Inc.;
8. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
9. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
10. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14 for the registrant and have:
a. designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
11. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
functions):
a. all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
12. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: September 25, 2003
/s/ David P. Luci
----------------------------------------
David P. Luci
Director of Finance, General Counsel and
Corporate Secretary
(Principal Accounting Officer)
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 By-Laws of the Registrant. (2)
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)
10.1 Pharmaceutical Development
Agreement, dated as of June 10,
2003, by and between Bioenvision,
Inc. and Ferro Pfanstiehl
Laboratories, Inc.
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 Penn
Development Pharmaceutical Services
Limited and Bioenvision, Inc.
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
10.7 Employment agreement between
Bioenvision, Inc. and Christopher B.
Wood, dated December 31, 2002 (13)
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
shareholders 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
shareholders of Pathagon, Inc. party
thereto, Chirstopher 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)
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)
24.1 Power of Attorney (appears on
signature page)
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 Accounting Officer, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of 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 Chief Accounting Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
----------
(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.