U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB/A
(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 March 23,
2004, was $193,797,505. The number of shares of common stock outstanding as of
March 23, 2004 was 22,934,616.
PART I
Except for historical information contained herein, this annual
report on Form 10-KSB contains forward-looking statements within the meaning of
the Section 21E of the Securities and Exchange Act of 1934, as amended, which
involve certain risks and uncertainties. Forward-looking statements are included
with respect to, among other things, the Company's current business plan,
"Factors that May Effect our Business", and Managements Discussion and Analysis
of Results of Operations". These forward-looking statements are identified by
their use of such terms and phrases as "intends," "intend," "intended," "goal,"
"estimate," "estimates," "expects," "expect," "expected," "project,"
"projected," "projections," "plans," "anticipates," "anticipated," "should,"
"designed to," "foreseeable future," "believe," "believes" and "scheduled" and
similar expressions. The Company's actual results or outcomes may differ
materially from those anticipated. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
the statement was made. The Company undertakes no obligation to publicly update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
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 resistance 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 Q2 of calendar
2004
Clofarabine (purine nucleoside anti-metabolite technology)
o Next generation, halogenated-purine nucleoside analogue, designed to
overcome the limitations and incorporate the best qualities of both
fludarabine (Fludara(R)) and cladribine (Leustatin(R)).
o Multiple Mechanisms of Action:
o Potent Inhibition of DNA Synthesis and Repair(active in
dividing cancer cells).
o Induces Apoptotic (cell death) Pathway (active in
non-dividing cancer cells).
o Potent ability to kill cancer cells in a wide range of cell lines,
including leukemia, non-small cell lung, colon, melanoma, ovarian,
renal, prostate, and breast cancer lines.
o Significant clinical benefit demonstrated in both pediatric and
adult leukemias:
o Overall response rates in relapsed/refractory pediatric
acute leukemias of between 25% and 36% achieved.
o Overall response rates in relapsed/refractory adult
acute myeloid leukaemia (AML) and chronic myeloid
leukaemia in blast crisis (CML-BP) of between 55% and
64% achieved.
o Solid tumor studies initiated with both the oral and intravenous
formulations of clofarabine.
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Anti-Cancer Product Portfolio
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Our anti-cancer product portfolio includes three products, Modrenal(R),
Clofarabine, Gossypol, used or which may be useful in eight indications and one
technology, Gene Therapy, which may be useful in two indications.
Modrenal(R)
We have the exclusive right to market and distribute Modrenal(R) (trilostane)
throughout the world for all human applications. Our exclusive license expires
upon the last to expire of the patents used or useful in connection with the
marketing of Modrenal(R). Given that we have new patent applications filed which
are subject to issuance, we expect the last to expire of our underlying patents
will be 2020.
Modrenal(R) is currently at market in the United Kingdom for the treatment of
women with advanced post menopausal breast cancer. We have a very small
marketing team that markets Modrenal(R) in the United Kingdom, and we record
revenues accordingly.
Modrenal is in Phase II clinical studies in prostate cancer trials, and in Q2-Q3
2004, we intend to commence a Phase IV study in postmenopausal breast cancer and
a Phase II study in pre-menopausal breast cancer.
Clofarabine
We have the exclusive right to manufacture, market and distribute Clofarabine
for all human applications in all areas of the world other than Japan and
Southeast Asia. We sublicensed the right to manufacture, market and distribute
Clofarabine in the U.S. and Canada to ILEX Oncology, Inc. solely with respect to
human cancer applications. We maintain our exclusive rights until the last to
expire of the patents used or useful in our development and sales efforts which
we expect to occur in 2020.
Currently, Clofarabine is in pivotal Phase II Clinical Trials for the treatment
of pediatric acute leukemias. The final part of a rolling NDA will be filed with
the FDA by early Q2, 2004. The drug has a Fast Track Designation and therefore
we expect an FDA ruling by Q3,2004. As indicated in the previous paragraph, ILEX
has the rights to market Clofarabine in the U.S. and we would receive a royalty
on U.S. annual net sales.
Clofarabine is also in Phase II Clinical Trials in a range of hematological
cancers and Phase I clinical trials in solid tumors.
Gossypol
We have the exclusive world-wide right to manufacture and market an optical
isomer of gossypol for human and veterinary applications. Currently gossypol, to
which we have ascribed the provisional trade name of Velostan, is completing the
manufacturing process. We have developed a novel method of separating the
enantiomers of gossypol and we are seeking patent protection for the process. We
expect to initiate Phase I clinical trials with the drug in Q2, 2004. The
primary indication we are targeting for the drug is in bladder cancer, although
the drug may show efficacy in other tumor indications
Gene Therapy
We have the exclusive world-wide right to develop products from a
gene therapy platform technology. To date, we have incorporated three human
genes into the proprietary technology and we have tested two of these in
preliminary clinical trials, with the emphasis on the treatment of patients with
end-stage liver disease. Management believes the technology may also have
application in patients undergoing chemotherapy for cancer. We maintain our
exclusive rights until the last to expire of the patents which we expect to
occur in 2017.
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Non-Cancer Product Portfolio
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Our non-cancer product portfolio is as follows:
Oligon(R) and Methylene Blue
We have the exclusive world-wide right to manufacture and market an
anti-infective technology for the use of thiazine dyes, including Methylene
Blue, and for other anti-infective uses. With the acquisition of Pathagon in
February 2002, we acquired the exclusive worldwide license to this technology
and license this technology from Oklahoma Medical Research Foundation. We
maintain our exclusive license until the last to expire of the underlying
patents. Currently, there are six patents issued in the U.S. and additional
patents have been filed in the U.S., Europe, Canada and Japan.
We have sub-licensed the right to market the technology in the U.S.
to Edwards Lifesciences which is currently marketing the technology in its line
of short-term vascular access catheters. Bioenvision earns a nominal royalty on
annual net sales from Edwards Lifesciences.
Products and Technologies
The following is a description of our current portfolio of platform
technologies.
Purine Nucleoside Technology
We have a license from Southern Research Institute, Birmingham,
Alabama, to develop and market purine nucleoside analogs which, based on
third-party studies conducted to date, may be effective in the treatment of
leukemia and lymphoma. These studies were conducted by MD Anderson Cancer Center
on behalf of the Company, ILEX and several United States hospitals involved with
ILEX clinical studies. The lead compound of these purine-based nucleosides is
known as Clofarabine. To facilitate its development, we entered into a
co-development agreement with Ilex Oncology, Inc. ("Ilex") in March 2001,
pursuant to which we granted Ilex an option on a sub-license to make, sell and
distribute Clofarabine in the United States and Canada, subject to successful
completion of certain milestones. Clofarabine has successfully completed Phase
I/II clinical trials at M.D. Anderson Cancer Center, Houston, Texas. Three Phase
II clinical trials have begun at MD Anderson and will be extended to other
leading centers in the United States and Europe. In addition, a clinical trial
exemption certificate has been granted for Clofarabine in the United Kingdom and
approval for a Phase I/II trial of Clofarabine in lymphoma has been obtained in
Switzerland. In January 2002, the European orphan drug application for use of
Clofarabine to treat acute leukemia in adults was approved. The drug also has
been granted orphan drug status in the United States. The combination of the
Phase II trials in acute leukemia at M.D. Anderson Cancer Center and other
leading cancer centers in the U.S. and Europe and the encouraging results from
the Phase I, early Phase II studies and current Phase II studies lead us to be
enthusiastic for the prospects of Clofarabine reaching the market, possibly as
soon as the third quarter of calendar year 2004. The United States Food and Drug
Administration recently indicated that it would review clofarabine for the
treatment of refractory or relapsed ALL in children more quickly than normal
after having granted "fast track" status to clofarabine. "Fast track" status
means that the FDA will start reviewing clinical trial data even before the
entire New Drug Application ("NDA") is complete. The FDA could complete its
review within six months rather than the normal 12 month review period. We
believe the set of clinical data from the current Phase II clinical trials could
serve as the basis for a marking application, which we believe could be filed as
early as April 2004. 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.
ILEX is obligated to pay us royalties on US and Canadian annual net
sales of Clofarabine on a sliding scale from 5.25% to 11.25%. The minimum
royalty of 5.25% applies to annual net sales of up to $30 million per year and
the maximum 11.25% royalty rate applies to annual net sales at or above $500
million per year. SRI receives royalties on the same scale of US and Canadian
annual net sales from 3.5% to 7.5% from each of Bioenvision and ILEX. We pay
royalties to each of SRI and ILEX in the amount of 3.5% to 7.5% on the same
scale as applies to the ILEX royalty payment obligations noted above. ILEX also
is responsible for 50% of our research and development costs associated with
Clofarabine development in the Territory (worldwide outside of Japan and
Southeast Asia) other than the US and Canada.
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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. The current projected expiration date of the
license is March 2021. We currently are developing Clofarabine for the treatment
of leukemia and lymphoma and we plan to study its potential role in treatment of
solid tumors. In August 2003, SRI granted us an irrevocable, exclusive option to
make, use and sell products derived from the technology in Japan and Southeast
Asia. We intend to convert the option to a license upon sourcing an appropriate
co-marketing partner to develop these rights in such territory.
Pre-clinical and clinical testing of Clofarabine demonstrated that
the drug has anti-tumor activity against a range of human and animal cancers,
including hematological malignancies and several solid tumors. Approximately 360
people participated in this clinical testing. In addition, Clofarabine has been
shown to have good oral bioavailability, and in conjunction with ILEX, we have
developed and expect to complete an oral formulation for clofarabine prior to
December 2003. Results from ongoing clinical studies indicate that Clofarabine
may be an effective treatment for relapsed acute leukemias in adult and
pediatric patients, as well as acute leukemias in adult and pediatric patients
that have become resistant, or refractory, to prior treatments. According to
researchers at M.D. Anderson Cancer Center, interim Phase II study results
showed that 45% of adults with acute myelogenous leukemia (AML) achieved a
complete remission (CR) rate, and acute lymphocytic leukemia (ALL) patients
achieved a 20% CR rate when treated with Clofarabine as a single agent. Data
from a separate Phase I dose-escalation study demonstrated a 25% CR rate, and an
overall response rate of 40%, in children with acute leukemias who were
refractory to previous therapy. Trials in pediatric acute leukemias are
currently ongoing in the U.S. and are planned to commence in Europe later this
calendar year. Complete remission, in this context, means complete clearance of
all leukemic cells from the blood and normalization of the blood count,
sustained for a period of more than four weeks. In this context, a response, or
partial response, has largely the same meaning, except that the bone marrow may
still contain more than five percent but less than 25% blast cells (leukemic
cells).
Clofarabine appears to attack cancer cells in at least four ways:
(1) damaging DNA in cancer cells;
(2) preventing DNA repair by damaged cancer cells;
(3) damaging the cancer cell's important control
structures--the mitochondria; and
(4) initiating the process of programmed cell death
(apoptosis) in cancer cells.
Clofarabine combines many of the favorable properties of the two
most commonly used nucleoside analog drugs, fludarabine(R) and cladribine(R),
but has several-fold greater potency, when compared to fludarabine(R), at
damaging the DNA of leukemia cells. Clofarabine appears to achieve this greater
potency by a process of breaking DNA chains and inhibiting an important enzyme,
ribonucleotide reductase. Clofarabine distinguishes itself from other drugs by
its broader activity; in particular, the manner in which it damages the cells
mitochondria and initiates the process of programmed cell death (apoptosis).
(See Blood 2000; volume 96, page 3537).
Because Clofarabine is a potent inhibitor of DNA repair, we, along
with our co-development partners in North America, ILEX, are exploring the
potential use of Clofarabine in combination with DNA damaging agents. This
strategy has already been validated through the combination of Fludarabine(R)
with cyclophosphamide in the treatment of chronic lymphocytic leukemia (CLL)
because Fludarabine, like clofarabine, is in the same class of compounds, known
as purine nucleoside analogs, with similar mechanisms of action in that the both
work by damaging DNA in a cancer cell. Public reports indicate that Fludarabine,
used in combination with a cyclophosphamide agent, blocks enzymes which promote
cancer cell growth. Because Clofarabine and Fludarabine are in the same class of
cancer agents with similar modes of action, we believe use of Clofarabine in
combination with DNA damaging agents may have the same effect as with
Fludarabine.
Purine Nucleoside--Solid Tumor. In pre-clinical tests, Clofarabine
has shown anti-tumor activity against several human cancers, including cancers
of the colon, kidney and prostate, as well as its action against leukemic cells.
This activity against solid tumors distinguishes Clofarabine from other drugs in
its class which have shown relatively little activity against solid tumors. We
intend to develop Clofarabine as a potential drug for the treatment
4
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
Selective steroid receptor modulation technology, the lead compound
of which is currently approved by regulatory authorities in the United Kingdom
for the treatment of advanced breast cancer in post-menopausal women, has also
been approved by regulatory authorities in Germany, for the treatment of certain
adrenal disorders, such as Cushing's Disease. The product had also received
marketing approval for the treatment of Cushing's disease in certain other
European countries and the United States. The lead product, trilostane, is
currently approved for marketing under the names Modrenal(R) and Modrastane(R).
We receive royalty payments from Dechra on sales of trilostane in the veterinary
market in Europe.
Breast cancer is, in general, a hormone-dependent disease, with
estrogen being the principal hormone driving cell growth. Consequently, a major
part of modern treatment is directed at blocking the action of estrogen, either
at the site of production in the body or at the cell's estrogen receptor. The
most widely used drug in this area, Tamoxifen(R), has been very successful in
improving response rates and survival in women with breast cancer. Until
recently, it was believed that estrogen acted via a single receptor on the
cancer cell. However, it is now known that more than one estrogen receptor
exists. Recent scientific data from Professor Gavin Vinson's laboratory at Queen
Mary & Westfield College, London, England (part of the University of London)
have shown that trilostane has a unique and previously unrecognized mode of
action. The drug inhibits estrogen binding to the classical estrogen receptor
(ER(alpha)) in an indirect (allosteric) fashion and also modulates estrogen
binding to the newly-described second receptor, ER(beta). This action makes
trilostane the first drug in a new class of agents that specifically modulate
ligand binding to ER(beta). This novel action may explain the high clinical
response rates seen when the drug was given to breast cancer patients with
Tamoxifen(R) resistance. Furthermore, trilostane's action is different from that
of other known "hormonal agents" although its actions may be complementary to
those of other drugs. Extensive clinical trials with the drug have shown that it
is effective in a significant proportion of breast cancer patients, particularly
those with hormone-sensitive tumors. Trilostane has no aromatase inhibitor
activity, which distinguishes it from some of the competitor hormonal products
currently marketed for the treatment of breast cancer. We believe that the new
data presents the drug with considerable market potential, although there can be
no assurance that the medical profession or the FDA will accept this new data or
that the drug will be successful in the marketplace.
Trilostane has been extensively studied in controlled trials in the
United States, Europe and Australia, and almost 800 patients with breast cancer
have been treated with trilostane. Of these 800 patients, 87 of them were given
the drug in the United States as part of an FDA-approved trial. Its anti-tumor
activity has been well documented and the drug has been shown to produce tumor
response rates (i.e. arrest the growth of the tumor) of up to 55% in women with
hormone-sensitive breast cancer. In a sub-set analysis of the clinical trial
data, patients with hormone-sensitive breast cancer who had responded to one or
more hormonal therapies were given trilostane upon relapse of the cancer. The
response rate was above 40% in this group of patients. This compares to a
response rate of about 30-35% with currently marketed aromatase inhibitors and
approximately 25% with herceptin given as second line therapy. Most of the
patients in the sub-set had received Tamoxifen(R) as first-line therapy. Thus,
trilostane given as follow-on, or salvage, therapy has a response rate in excess
of those reported for the drugs currently in use for second-line treatment in
this disease. Furthermore, trilostane has an acceptable side-effect profile. On
the basis of these data, trilostane was granted a product license in the United
Kingdom for the treatment of post-menopausal breast cancer.
We hold an exclusive license, until the expiration of existing and
new patents related to trilostane, to market trilostane in major international
territories, and an agreement with a United Kingdom company to co-
5
develop trilostane for other therapeutic indications. Trilostane is currently
manufactured by third-party contractors in accordance with good manufacturing
practices. We have no plans to establish our own manufacturing facility for
trilostane, but will continue to use third-party contractors.
We launched Modrenal(R) in May 2003 in the United Kingdom for use in
the treatment of post-menopausal breast cancer. We also intend to seek
regulatory approval for Modrenal(R) in the United States as salvage therapy for
hormone-sensitive breast cancers and hormone independent prostate cancers. This
would target patients that have hormone-sensitive cancers and have become
refractory to prior hormone treatments, such as Tamoxifen(R) or aromatase
inhibitors. We believe that the potential market for Modrenal(R), based upon the
sales of currently available drugs for hormonal therapy for breast cancers, is
in excess of $1.8 billion of sales per annum worldwide. The results of 11
clinical trails to date, with a total of 783 patients tested, in the United
States, Europe and Australia with Modrenal(R) show that it is at least as
effective in second line or third line treatment of advanced breast cancer as
the currently available hormonal treatments, such as the selective estrogen
receptor modulators, or SERMs, and aromatase inhibitors. In the view of several
clinicians and investigators familiar with Modrenal's mode of action,
Modrenal(R) is most effective in certain specific patient types, such as those
who have become Tamoxifen(R)-refractory. Furthermore, our management currently
intends to price Modrenal(R) in such a manner as to make treatment with
Modrenal(R) compare very favorably, on a price basis, with the cost of treatment
with the existing drugs used for second line or third line therapy. We believe
that this pricing strategy should result in cost benefits for physicians,
patients and health-care systems.
Anti-Estrogen Prostate. We have received Institutional Review Board
approval from the Massachusetts General Hospital for a Phase II study of
trilostane for the treatment of androgen independent prostate cancer. The study
will be conducted by The Dana Faber Cancer Institute and currently is intended
to commence in October 2003.
The human prostate gland is under the control of several hormones,
including androgens and estrogen. Receptors for estrogen have been identified in
the prostate gland, and the newly discovered "second receptor," ER(beta), has
been isolated from the human prostate gland. ER(beta) is also highly expressed
in uterine and ovarian tissue. Prostate cancer, in most cases, is initially
hormone-dependent and treatment of the disease is usually directed toward
blocking the action of the relevant hormones. Unfortunately, it is a common
occurrence for the cancer cells to become resistant to the standard hormonal
agents. We believe that this is probably due to the inability of currently
available treatments to block all the receptors on the prostate cancer cells.
The ability of trilostane to control prostate cell growth by altering hormone
binding on important receptors could expand the treatment options for patients
with prostate cancer.
Since adrenal disorders are relatively uncommon in humans, our
strategy is not to aggressively market trilostane for these indications, but,
rather, to focus our marketing efforts on trilostane for the treatment of breast
and prostate cancer, which have considerably greater market potential. We intend
to file for applicable regulatory approval of trilostane for treatment of breast
cancer in the United States within months after discussing the appropriate
course of regulatory consideration with applicable regulators. We will, however,
pursue opportunities for adrenal disorder products on a smaller scale,
principally in the veterinary market, which we believe will generate modest
revenues over the near term. Marketing approval for trilostane's use in the
veterinary market has been granted in the United Kingdom and the drug is being
distributed by a third party. Under the terms of a co-development agreement, we
were granted the exclusive worldwide license, excluding Japan and South Africa,
to make, use and sell products derived from this technology for a term expiring
on the date of expiration of the last patent covered by the license, subject to
earlier termination under certain circumstances, in exchange for, among other
things, certain royalty payments based on gross sales of products derived from
the technology.
We also plan to devote our research efforts to discover new
applications for trilostane and related products. The latest work has allowed
new patents to be filed which, if granted, will extend broadly the commercial
potential for trilostane and related products. In addition, a new analog of
trilostane, which shows increased activity compared with trilostane, is being
developed and is the subject of new patent filings.
OLIGON(R) Technology
With the acquisition of Pathagon in February 2002, we acquired
patents, technology and technology patents relating to OLIGON(R) anti-infective
technology, and have licensed rights from Oklahoma Medical Research Foundation
to the use of thiazine dyes, including methylene blue, for other anti-infective
uses.
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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.
Methylene Blue Technology
We have licensed from Oklahoma Medical Research Foundation the
rights to use a range of thiazine dyes, the most well known of which is
methylene blue, for the in vitro and in vivo inactivation of pathogens in
biological fluids. Methylene blue, especially when irradiated by light, acts by
preventing replication of nucleic acid (DNA and RNA) in pathogens. Currently, we
do not derive any revenues from its commercial use.
Blood transfusions are required to treat a variety of medical
conditions and, to meet that need, over 90 million blood donations occur each
year. Of these, approximately 39 million donations occur in North America,
Western Europe and Japan. Methylene blue is currently used in several European
countries to inactivate pathogens in fresh frozen plasma (FFP). We intend to
work closely with international blood collection agencies to maximize the value
of our intellectual property position.
Gene Therapy Technology
Our product portfolio also includes a variety of gene therapy
products which, we believe, may offer advancements in the field of cancer
treatment and may have additional applications in certain non-cancer diseases
such as diabetes, cystic fibrosis and other auto-immune disorders. Pursuant to a
co-development agreement with the Royal Free and University College Medical
School and a Canadian biotechnology company, we are developing DNA vector
technologies which, based on pre-clinical research and early Phase I clinical
trials, we believe are capable of elevating albumin levels in cancer and
cirrhosis patients with hypo-albuminemia, a serious physiological disorder. We
believe this has considerable market potential since low albumin levels are
considered to be very dangerous consequences of many diseases, including
cirrhosis and liver cancer.
Cytostatic Technology
We have acquired a license to develop a distinct group of compounds
that we believe could play an important role in controlling the rate of growth
of cancer cells. In some cancers, such as cancer of the bladder and skin, drugs
that stop cell growth (cytostatics) can be as effective as drugs that kill the
cell by direct toxicity (cytotoxics). The cytostatic drugs we are developing are
believed to work by blocking cell division and reversing the malignant process
in the cancer cell. The first compound is a synthetic analog of a drug derived
from a naturally grown plant, which has been widely tested for a variety of
clinical indications. The results of this testing have been published in the
medical literature. In particular, the drug has shown efficacy against certain
cancers by, it is believed, preventing cell division and promoting cell
differentiation.
We plan to develop more potent analogs and to study their role in
the process of cell differentiation and the prevention of the spread of cancer
cells. The first compound derived from this technology is currently approved for
a Phase I clinical trial at a leading United Kingdom cancer center.
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Animal Health Products
We also have one animal health product, Veteryl(R), at market in the
United Kingdom for the treatment of Cushing's disease in dogs. In November 2001,
we granted to Arnolds Ltd., a major distributor of animal products in the United
Kingdom, the right to market the drug for a six-month trial period, after which
time, if the results were satisfactory to Arnolds, we would enter into a
licensing arrangement whereby Arnolds would pay royalties to us on sales from
April 2002 onward. During the trial period, Arnolds posted more than $400,000 of
sales of the drug. Arnolds has licensed the drug from us for sale in the United
Kingdom market in consideration of a payment of a 5% royalty on sales.
Separately, in May 2003, we granted to Dechra Pharmaceuticals, PLC, an affiliate
of Arnolds Ltd., the exclusive right to market the drug in the United States for
$5.5 million of total consideration (including milestone payments) and a royalty
of 2%-4% of annual net sales.
Patents and Proprietary Rights
Our success will depend, in part, upon our ability to obtain and
enforce protection for our products under United States and foreign patent laws
and other intellectual property laws, preserve the confidentiality of our trade
secrets and operate without infringing the proprietary rights of third parties.
Our policy is to file patent applications in the United States and/or foreign
jurisdictions to protect technology, inventions and improvements to our
inventions that are considered important to the development of our business.
Also, we will rely upon trade secrets, know-how, continuing technological
innovations and licensing opportunities to develop a competitive position.
Through our current license agreements, we have acquired the right
to utilize the technology covered by five issued patents and six patent
applications, as well as additional intellectual property and know-how that
could be the subject of further patent applications in the future. We evaluate
the desirability of seeking patent or other forms of protection for our products
in foreign markets based on the expected costs and relative benefits of
attaining this protection. There can be no assurance that any patents will be
issued from any applications or that any issued patents will afford adequate
protection to us. Further, there can be no assurance that any issued patents
will not be challenged, invalidated, infringed or circumvented or that any
rights granted thereunder will provide competitive advantages to us. Parties not
affiliated with us have obtained or may obtain United States or foreign patents
or possess or may possess proprietary rights relating to our products. There can
be no assurance that patents now in existence or hereafter issued to others will
not adversely affect the development or commercialization of our products or
that our planned activities will not infringe patents owned by others.
As a result of the licenses described above, we are the exclusive
licensee or sublicensee of three United States patents expiring in 2005, 2008
and 2014 relating to compounds, pharmaceutical compositions and methods of use
encompassing clofarbine. We have also filed two United States patent
applications relating to the use of clofarbine in autoimmune diseases. Although
the basic patents to trilostane have expired, we are the exclusive licensee of
several United States and foreign patent applications relating to the use of
trilostane alone or in combination with anticancer agents.
We could incur substantial costs in defending ourselves in
infringement suits brought against us or any of our licensors or in asserting
any infringement claims that we may have against others. We could also incur
substantial costs in connection with any suits relating to matters for which we
have agreed to indemnify our licensors or distributors. An adverse outcome in
any litigation could have a material adverse effect on our business and
prospects. In addition, we could be required to obtain licenses under patents or
other proprietary rights of third parties. No assurance can be given that any of
these licenses would be made available on terms acceptable to us, or at all. If
we are required to, and do not obtain any required licenses, we could be
prevented from, or encounter delays in, developing, manufacturing or marketing
one or more of our products.
We also rely upon trade secret protection for our confidential and
proprietary information. There can be no assurance that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to our trade secrets or disclose this
technology or that we can meaningfully protect our trade secrets.
It is our policy to require our employees, consultants, members of
the Scientific Advisory Board and parties to collaborative agreements to execute
confidentiality agreements upon the commencement of employment or consulting
relationships or a collaboration with us. These agreements provide that all
confidential information developed or made known during the course of the
relationship with us is to be kept confidential and not disclosed to third
parties except in specific circumstances. In the case of employees, the
agreements provide that all inventions resulting from work performed for us,
utilizing our property or relating to our business and conceived or
8
completed by the individual during employment shall be our exclusive property to
the extent permitted by applicable law.
Sales and Marketing
We intend to establish strategic partnerships for the marketing,
sales and distribution of our products in North America and certain countries in
Europe. As of the date of this annual report on From 10-KSB, we have one such
arrangement in place with Ilex for the co-development and marketing of one of
our initial lead products, clofarabine, and another arrangement with Edwards
Lifesciences for the marketing of short-term vascular access catheters using the
OLIGON(R) technology. We have also engaged in our own marketing and sales
efforts in connection with the marketing and sale of Modrenal(R) in the United
Kingdom and upon regulatory authorities' granting mutual recognition with which
we intend to apply during calendar 2004, throughout Europe. However, in order to
market any of our products effectively, we would need to establish a much more
integrated marketing and sales force with technical expertise and distribution
capability or contract with other pharmaceutical and/or health care companies
with distribution systems and direct sales forces.
Our marketing policy will be to generate awareness of our products
and target the two key audiences for our products - doctors and patients.
Medical education will be a priority, with the use of peer-opinion leaders,
clinical trials at major centers, satellite symposia and conferences, product
advertising in specific scientific journals and trained sales personnel. Patient
education is carefully controlled and is important to our marketing approach.
Patient education is particularly important because Modrenal(R), our first
product for which we have obtained regulatory approval (in the United Kingdom)
for marketing for use in a type of cancer treatment, is effective for patients
with post-menopausal breast cancer, one of the most common cancers in women. In
particular, the drug is approved as follow-on treatment for patients who have
previously responded to hormonal therapy.
If the trials of trilostane in prostate cancer prove successful, we
will have a drug for treating a cancer found in approximately 180,000 men each
year in the United States. We will work with patient help organizations, inform
the lay public through consumer journals and television.
Manufacturing
We do not have and do not intend to establish any internal product
testing, manufacturing or distribution capabilities. Our strategy is to enter
into collaborative arrangements with other companies for the clinical testing,
manufacture and distribution of its products. These collaborators are generally
expected to be responsible for funding or reimbursing all or a portion of the
development costs, including the costs of clinical testing necessary to obtain
regulatory clearances and for commercial-scale manufacturing, in exchange for
exclusive or semi-exclusive rights to market specific products in particular
geographic territories. Manufacturers of our products will be subject to Good
Manufacturing Practices prescribed by the FDA or other rules and regulations
prescribed by foreign regulatory authorities.
Raw Materials
Our raw materials (such as laboratory chemicals) and other supply
items to be used in our research and development processes are available from
many different suppliers and are generally available in sufficient quantities in
timely fashion. We do not anticipate any significant problems in the
availability of, or significant price increases for, required raw materials or
other production items in the foreseeable future.
Research and Development
In developing new products, we consider a variety of factors
including: (i) existing or potential marketing opportunities for these products;
(ii) our capability to arrange for these products to be manufactured on a
commercial scale; (iii) whether or not these products complement our existing
products; (iv) the opportunities to leverage these products with the development
of additional products; and (v) the ability to develop co-marketing
relationships with pharmaceutical and/or other companies with respect to the
products. We intend to fund future research and development activities at a
number of medical and scientific centers in Europe and the United States. Costs
related to these activities are expected to include: clinical trial expenses;
drug production costs; salaries and benefits of scientific, clinical and other
personnel; patent protection costs; analytical and other testing costs;
professional fees; and insurance and other administrative expenses. We currently
have three scientists currently working on a full-time basis who are involved in
research and development activities. We have spent approximately $1,900,000 and
$1,700,000 on research and development activities in 2002 and 2003,
respectively.
9
Industry Overview
We believe the biopharmaceutical industry has evolved significantly
since its commercial inception in the 1970s and is currently approaching a
period of sustained growth. To be successful, we believe biopharmaceutical
companies must have the ability to harness rapidly advancing technology, provide
solutions for previously unmet therapeutic needs, ensure faster development of
new drugs and allow flexibility to exploit changing market conditions. We seek
to engage in this new generation of biopharmaceutical companies, linking the
technological skills of doctors and scientists in Europe and North America with
the U.S. and European capital markets.
The National Cancer Institute estimated in 2000 the overall costs
for cancer to be $107 billion in the United States; $37 billion for direct
costs, $11 billion for morbidity costs and $59 billion for mortality costs.
Treatment of breast, lung and prostate cancer account for over half the direct
medical costs.
The table below shows the forecast global cancer treatment market
for the period 2001-2007. The overall market is forecast to grow from $29.4
billion in 2001 to $42.8bn in 2007, representing an average annual growth rate
of 6.5%.
Forecast Global Cancer Treatment Market 2001 - 2007 (amounts in $ billions)
---------------------------------------------------------------------------
Drug Class 2001 2002 2003 2004 2005 2006 2007
------------------------ ----------- ----------- ----------- ----------- ---------- ----------- ------------
Adjunct therapies $11,321 $11,834 $12,347 $12,860 $13,373 $13,752 $14,132
Cytotoxics 8,651 9,136 9,501 9,881 10,277 10,585 10,902
Hormonals 5,720 5,841 5,950 5,952 5,856 5,688 5,464
Innovative agents 3,679 4,665 5,650 7,126 8,602 10,432 12,261
----------- ----------- ----------- ----------- ---------- ----------- ------------
TOTALS $29,372 $31,476 $33,448 $35,820 $38,108 $40,457 $42,760
=========== =========== =========== =========== =========== =========== ===========
Source: Reuters, 2002
We believe that new cancer therapies increasingly will be required
to be more cost-effective and allow for alternate site or in-home treatment and
to improve patient quality of life during treatment.
With respect to our products and technologies within the overall
cancer market, Clofarabine and Gossypol constitute cytotoxic agents and Modrenal
constitutes a hormonal agent, in each case, which we believe may have
significant market potential both in the U.S. and other parts of the world.
Although we have received orphan drug status for Clofarabine in the U.S. and
Europe in pediatric and adult acute leukemias, we continue to develop the drug,
in conjunction with our U.S. co-development partner, ILEX Oncology, Inc., in
other indications with broader markets including solid tumors and combination
studies. If Clofarabine demonstrates efficacy in all of these indications, we
believe it has potential to be a leading drug in the U.S. and Europe in
hematological cancers with widespread use in solid tumors. We believe efficacy
data on the use of Gossypol in bladder cancers will be available as early as Q1
2005 upon completion of our initial clinical trial. Modrenal is an approved
agent which we market for the treatment of post-menopausal women with advanced
breast cancer in the United Kingdom and we anticipate receiving mutual
recognition from other European Union member states in Q1 2005. Taken together,
we believe this portion of our cancer drug portfolio could create a significant
commercial advantage for our company and our stockholders.
Government Regulation
The FDA and comparable regulatory agencies in state and local
jurisdictions and in foreign countries impose substantial requirements upon the
clinical development, manufacture and marketing of pharmaceutical products.
These agencies and other federal, state and local entities regulate research and
development activities and the testing, manufacture, quality control, safety,
effectiveness, labeling, storage, record keeping, approval, advertising and
promotion of our drug delivery products.
The process required by the FDA under the new drug provisions of the
Federal Food, Drug and Cosmetics Act before our products may be marketed in the
United States generally involves the following:
o pre-clinical laboratory and animal tests;
10
o submission to the FDA of an investigational new drug application,
or IND, which must become effective before clinical trials may
begin;
o adequate and well-controlled human clinical trials to establish
the safety and efficacy of the proposed pharmaceutical in our
intended use;
o submission to the FDA of a new drug application; and
o FDA review and approval of the new drug application.
The testing and approval process requires substantial time, effort, and
financial resources and we cannot be certain that any approval will be granted
on a timely basis, if at all.
Pre-clinical tests include laboratory evaluation of the product, its
chemistry, formulation and stability, as well as animal studies to assess the
potential safety and efficacy of the product. The results of the pre-clinical
tests, together with manufacturing information and analytical data, are
submitted to the FDA as part of an IND, which must become effective before we
may begin human clinical trials. The IND automatically becomes 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
11
been commercialized, and the agency has the power to require changes in labeling
or to prevent further marketing of a product based on the results of these
post-marketing programs.
The FDA has a Fast Track program intended to facilitate the
development and expedite the review of drugs that demonstrate the potential to
address unmet medical needs for treatment of serious or life-threatening
conditions. Under this program, if the FDA determines from a preliminary
evaluation of clinical data that a fast track product may be effective, the FDA
can review portions of a new drug application for a Fast Track product before
the entire application is complete, and undertakes to complete its review
process within six months of the filing of the new drug application. The FDA
approval of a Fast Track product can include restrictions on the product's use
or distribution such as permitting use only for specified medical procedures or
limiting distribution to physicians or facilities with special training or
expertise. The FDA may grant conditional approval of a product with Fast Track
status and require additional clinical studies following approval.
Satisfaction of FDA requirements or similar requirements of state,
local and foreign regulatory agencies typically takes several years and the
actual time required may vary substantially, based upon the type, complexity and
novelty of the pharmaceutical product. Government regulation may delay or
prevent marketing 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.
12
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) ($m) (%)
------------ ----------------------- ---------------------- ------------------------ --------- ---------- -------- ------------
TAP Lupron Leuprorelin LHRH agonsists 775 798 833 4.4
AstraZeneca Zoladex Goserelin LHRH agonsists 686 734 728 -0.8
AstraZeneca Nolvadex Tamoxifen Anti-estrogens 573 576 630 9.4
AstraZeneca Casodex Bicalulamide Anti-estrogens 340 433 569 31.4
Takeda Leuplin leuprorelin LHRH agonsists 485 515 530e 2.9
Barr Tamoxifen Tamoxifen Anti-estrogens 297 322 501 55.6
Pharmacia Depo-Provera Medroxy Progestagens 252 272 283 4.0
AstraZeneca Arimidex Anastrozole Aromatase Inhibitors 140 156 191 22.4
Abbott Lupron leuprorelin LHRH agonsists 140 153 163 6.5
BMS Megace megestrol Progestagens 114 180 150e -16.7
Novartis Femara letrozole Aromatase Inhibitors 57 74 125 68.9
Ipsen Deccapepryl triptorelin LHRH agonsists 100 105 110e 4.8
Aventis Nilandron nilutamide Anti-androgens 72 87 93e 6.9
Schering AG Androcur cyproterone Anti-androgens 91 95 92 -3.0
Aventis Suprecur/ buserelin LHRH agonsists 83 84 85e 1.7
Suprefact
13
Growth
1999 2000 2001 2000-01
Company Brand Generic Class ($m) ($m) ($m) (%)
------------ ----------------------- ---------------------- ------------------------ --------- ---------- -------- ------------
SP Eulexin flutamide Anti-androgens 155 128 83 -35.2
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.
14
Factors that May Affect Our Business
You should carefully consider the following risks before you decide
to buy our common stock. Our business, financial condition or operating results
may suffer if any of the events described in the following risk factors actually
occur. Although all known material risks are presented in this annual report,
the Company may face other risks that are not discussed in the following
description of its risk factors, either because we are unaware of such risks or
because we presently believe that such risks are immaterial. These risks may
also adversely affect our business, financial condition or operating results. If
any of the events we have identified or those that we cannot now identify
occurs, the trading price of our common stock could decline, and you may lose
all or part of the money you paid to buy our common stock.
The price of our common stock is likely to be volatile and subject to wide
fluctuations.
The market price of the securities of biotechnology companies has
been especially volatile. Thus, the market price of our common stock is likely
to be subject to wide fluctuations. For the twelve month period ended March 23,
2004, our closing stock price has ranged from a high of $8.40 to a low of $0.69.
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 3,000,000 shares of
common stock for a stock option plan for our employees. Historically, from time
to time, we have awarded our common stock to officers of the Company, in lieu of
cash compensation, although we do not expect to do so in the future. As of June
30, 2003, (i) no shares are currently registered under the Securities Act and
(iii) the sale of shares underlying options are not registered under the
Securities Act, on Form S-8 or otherwise.
The terms of our Series A Convertible Preferred Stock include
antidilution protection upon the occurrence of sales of our common stock below
certain prices, stock splits, redemptions, mergers and other similar
transactions. If one or more of these events occurs the number of shares of our
common stock that may be acquired upon conversion or exercise would increase. If
converted or exercised, these securities will result in a dilution to your
percentage ownership of our common stock. The resale of many of the shares of
common stock which underlie these options and warrants are registered under this
prospectus and the sale of such shares may adversely affect the market price of
our common stock.
The provisions of our charter and Delaware law may inhibit potential acquisition
bids that stockholders may believe are desirable, and the market price of our
common stock may be lower as a result.
Section 203 of the Delaware corporate statute
We are subject to the anti-takeover provisions of Section 203 of the
Delaware corporate statute, which regulates corporate acquisitions. Section 203
may affect the ability of an "interested stockholder" to engage in certain
business combinations, including mergers, consolidation or acquisitions of
additional shares, for a period of three years following the time that the
stockholder becomes an "interested stockholder". An "interested stockholder" is
defined to include persons owning directly or indirectly 15% or more of the
outstanding voting stock of a corporation. These provisions could discourage
potential acquisition proposals and could delay or prevent a change in control
transaction. They could also have the effect of discouraging others from making
tender offers for our common stock. As a result, these provisions may prevent
our stock price from increasing
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substantially in response to actual or rumored takeover attempts. These
provisions may also prevent changes in our management.
Issuance of Preferred Stock Without Shareholder Approval.
Our charter authorizes our board of director to increase the number
of shares of preferred stock we may issue without shareholder approval.
Preferred stock may be issued in one or more series, the terms of which may be
determined without further action by shareholders. These terms may include
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms or conditions of
redemption. The issuance of any preferred stock could materially adversely
affect the rights of holders of our common stock, and therefore could reduce its
value. In addition, specific rights granted to future holders of preferred stock
could be used to restrict our ability to merge with, or sell assets to, a third
party. The power of the board of directors to issue preferred stock could make
it more difficult, delay, discourage, prevent or make it more costly to acquire
or effect a change in control, thereby preserving the current shareholders'
control.
We have a limited operating history, which makes it difficult to evaluate our
business and to predict our future operating results.
Since our inception, August of 1996, we have been primarily engaged
in organizational activities, including developing a strategic operating plan,
entering into various collaborative agreements for the development of products
and technologies, hiring personnel and developing and testing our products. We
have not generated any material revenues to date. Accordingly, we have no
relevant operating history upon which an evaluation of our performance and
prospects can be made.
We have incurred net losses since commencing business and expect future losses.
To date, we have incurred significant net losses, including net
losses of $4,373,118 for the six-month period ended December 31, 2003 and
$1,773,811 for the three month period ended December 31, 2003. At December 31,
2003, we had a deficit accumulated of $33,436,828. We anticipate that we may
continue to incur significant operating losses for the foreseeable future. We
may never generate material revenues or achieve profitability and, if we do
achieve profitability, we may not be able to maintain profitability.
Clinical trials for our products will be expensive and may be time consuming,
and their outcome is uncertain, but we must incur substantial expenses that may
not result in any viable products.
Before obtaining regulatory approval for the commercial sale of a
product, we must demonstrate through pre-clinical testing and clinical trials
that a product candidate is safe and effective for use in humans. Conducting
clinical trials is a lengthy, time-consuming and expensive process. We will
incur substantial expense for, and devote a significant amount of time to
pre-clinical testing and clinical trials. Even with Modrenal, which is approved
and marketed by us in the U.K. for the treatment of advanced post-menopausal
breast cancer, we are conducting a clinical trial in the U.S. in prostate
cancer, which is a new potential indication for this approved drug.
Historically, the results from pre-clinical testing and early
clinical trials have often not been predictive of results obtained in later
clinical trials. A number of new drugs have shown promising results in clinical
trials, but subsequently failed to establish sufficient safety and efficacy data
to obtain necessary regulatory approvals. Data obtained from pre-clinical and
clinical activities are susceptible to varying interpretations, which may delay,
limit or prevent regulatory approval. Regulatory delays or rejections may be
encountered as a result of many factors, including changes in regulatory policy
during the period of product development. Regulatory authorities may require
additional clinical trials, which could result in increased costs and
significant development delays. Clofarabine currently is at a pivotal stage of
its development, but many of our other products and technologies are at various
less mature stages of development including gossypol for which we have just
commenced a Phase I clinical trial in the U.K. and gene therapy which is
currently in pre-clinical testing.
Completion of clinical trials for any product may take several years
or more. The length of time generally varies substantially according to the
type, complexity, novelty and intended use of the product candidate. Our
commencement and rate of completion of clinical trials may be delayed by many
factors, including:
o inability of vendors to manufacture sufficient quantities of
materials for use in clinical trials;
16
o slower than expected rate of patient recruitment or variability in
the number and types of patients in a study;
o inability to adequately follow patients after treatment;
o unforeseen safety issues or side effects;
o lack of efficacy during the clinical trials; or
o government or regulatory delays.
If our development agreement with ILEX does not proceed as planned we may incur
delay in the commercialization of Clofarabine, which would delay our ability to
generate sales and cash flow from the sale of Clofarabine.
ILEX, and any third party to which ILEX may grant a sublicense or in
any way transfer its oblihgations, has primary responsibility for conducting
clinical trials and administering regulatory compliance and approval matters in
the United States and Canada pursuant to the terms of our co-development
agreement with ILEX. While there are target dates for completion, that agreement
allows ILEX time to continue working beyond those dates under certain
circumstances. For example, under the co-development agreement, ILEX was
required to complete Pivotal Phase II Trials not later than December 31, 2002,
but ILEX failed to do so. In this situation the co-development agreement
provides that the milestone shall be adjusted such that ILEX receives more time
to complete the pivotal trials if the trials are ongoing at December 31, 2002
and progressing to completion within a reasonable time thereafter. Further, ILEX
was required under the co-development agreement to have filed a New Drug
Application by August 31, 2003, subject to extension if ILEX continues to use
its reasonable efforts to promptly complete the filing after August 31, 2003.
ILEX continued to use its reasonable efforts to complete the filing after August
31, 2003 and in March 2004, ILEX completed the filing.
If ILEX fails to meet its obligations under the co-development
agreement, we could lose valuable time in developing Clofarabine for
commercialization both in the U.S. and in Europe. Because we intend to make use
of clinical data from the clinical trials which ILEX conducted, and is
conducting, to prepare and support our regulatory applications in Europe and
elsewhere, ILEX's failure to expeditiously file the New Drug Application with
FDA could adversely affect the timing of European approval. We can not provide
assurance that ILEX will not fail to meet its obligations under the
co-development agreement. Development of compounds to the stage of approval
includes inherent risk at each stage of development that FDA in its discretion
will mandate a requirement not foreseeable by us or by ILEX. There would also be
testing delays if, for example, our sources of drug supply could not produce
enough Clofarabine to support the then ongoing clinical trials being conducted.
If this were to occur, it could have a material adverse effect on our ability to
develop Clofarabine, obtain necessary regulatory approvals, and generate sales
and cash flow from the sale of Clofarabine.
If delays in completion constitute a breach by ILEX or there are
certain other breaches of the co-development agreement by ILEX, then, at our
discretion, the primary responsibility for completion would revert to us, but
there is no assurance that we would have the financial, managerial or technical
resources to complete such tasks in timely fashion or at all.
We 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 in being a development
stage business venture including insurance risks, risks related to the
establishment of new vendor relationships to develop our lead drugs, risks
related to establishing a work force of our own both in the U.K. and in the
U.S., certain internal accounting control risks. Although we have addressed
these risks in part based on consultation with our professional advisors, no
assurance can be given that we have addressed these risks appropriately. 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 our product portfolio;
17
o successfully execute our business and marketing strategy;
o continue to 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. We are
developing Clofarabine with ILEX Oncology, our U.S. co-development partner, but
on February 26, 2004, Genzyme announced a merger pursuant to which Genzyme
intends to acquire ILEX in a merger transaction. If this transaction is
consummated, no assurance can be given that the operational and managerial
relations with Genzyme will proceed favorably or that the timeline for
development of Clofarabine will not be elongated. If the U.S. regulatory
timeline is elongated, this could materially and adversely affect the European
regulatory timeline for the approval of Clofarabine.
With respect to our co-lead drug, Modrenal, we currently have an
Investigational New Drug Application filed with FDA to conduct in the U.S. a
Phase II Clinical Trial to determine efficacy of Modrenal in prostate cancer
patients. This Phase II Clinical Trial will be conducted on our behalf at the
Mass General Hospital in Boston, MA at the direction of Dr. Mathew Smith. To our
knowledge, Modrenal has not been tested in this indication in the past and there
can be no assurance that Modrenal will be an effective therapy in prostate
cancer. Further, our long-term drug development objectives for Modrenal include
attempting to test the drug and get approval in the U.S. for treatment of
advanced post-menopausal breast cancer patients. These trials will take
significant time and resource and no assurance can be given that developing the
drug in this indication will result in a U.S. approval for Modrenal in advanced
post-menopausal breast cancer patients.
Generally, most products resulting from our or our collaborative
partners' product development efforts are not expected to be available for sale
for at least several years, if at all. Potential products that appear to be
promising at early stages of development may not reach the market for a number
of reasons, including:
o discovery during pre-clinical testing or clinical trials that the
products are ineffective or cause harmful side effects;
o failure to receive necessary regulatory approvals;
o inability to manufacture on a large or economically feasible scale;
o failure to achieve market acceptance; or
o preclusion from commercialization by proprietary rights of third
parties.
Most of the existing and future products and technologies developed
by us will require extensive additional development, including pre-clinical
testing and clinical trials, as well as regulatory approvals, prior to
commercialization. Our product development efforts may not be successful. We may
fail to receive required regulatory approvals from U.S. or foreign authorities
for any indication. Any products, if introduced, may not be capable of being
produced in commercial quantities at reasonable costs or being successfully
marketed. The failure of our research and development activities to result in
any commercially viable products or technologies would materially adversely
affect our future prospects.
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Our industry is subject to extensive government regulation and our products
require other regulatory approvals which makes it more expensive to operate our
business.
Regulation in General. Virtually all aspects of our business are
regulated by federal and state statutes and governmental agencies in the United
States and other countries. Failure to comply with applicable statutes and
government regulations could have a material adverse effect on our ability to
develop and sell products which would have a negative impact on our cash flow.
The development, testing, manufacturing, processing, quality, safety, efficacy,
packaging, labeling, record-keeping, distribution, storage and advertising of
pharmaceutical products, and disposal of waste products arising from these
activities, are subject to regulation by one or more federal agencies. These
activities are also regulated by similar state and local agencies and equivalent
foreign authorities. In our material contracts with vendors providing any
portion of these types of services, we seek assurances that our vendors comply
and will continue to maintain compliance with all applicable rules and
regulations. This is the case, for example, with respect to our contracts with
Ferro Pfanstiehl and Penn Pharmaceuticals. No assurance can be given that our
most significant vendors will continue to comply with these rules and
regulations.
FDA Regulation. All pharmaceutical manufacturers in the United
States are subject to regulation by the FDA under the authority of the Federal
Food, Drug, and Cosmetic Act. Under the Act, the federal government has
extensive administrative and judicial enforcement powers over the activities of
pharmaceutical manufacturers to ensure compliance with FDA regulations. Those
powers include, but are not limited to the authority to:
o initiate court action to seize unapproved or non-complying products;
o enjoin non-complying activities;
o halt manufacturing operations that are not in compliance with
current good manufacturing practices prescribed by the FDA;
o recall products which present a health risk; and
o seek civil monetary and criminal penalties.
Other enforcement activities include refusal to approve product
applications or the withdrawal of previously approved applications. Any
enforcement activities, including the restriction or prohibition on sales of
products marketed by us or the halting of manufacturing operations of us or our
collaborators, would have a material adverse effect on our ability to develop
and sell products which would have a negative impact on our cash flow. In
addition, product recalls may be issued at our discretion or by the FDA or other
domestic and foreign government agencies having regulatory authority for
pharmaceutical product sales. Recalls may occur due to disputed labeling claims,
manufacturing issues, quality defects or other reasons. Recalls of
pharmaceutical products marketed by us may occur in the future. Any product
recall could have a material adverse effect on our revenue and cash flow.
FDA Approval Process. We have a variety of products under
development, including line extensions of existing products, reformulations of
existing products and new products. All "new drugs" must be the subject of an
FDA-approved new drug application before they may be marketed in the United
States. All generic equivalents to previously approved drugs or new dosage forms
of existing drugs must be the subject of an FDA-approved abbreviated new drug
application before they may by marketed in the United States. In both cases, the
FDA has the authority to determine what testing procedures are appropriate for a
particular product and, in some instances, has not published or otherwise
identified guidelines as to the appropriate procedures. The FDA has the
authority to withdraw existing new drug application and abbreviated application
approvals and to review the regulatory status of products marketed under the
enforcement policy. The FDA may require an approved new drug application or
abbreviated application for any drug product marketed under the enforcement
policy if new information reveals questions about the drug's safety or
effectiveness. All drugs must be manufactured in conformity with current good
manufacturing practices and drugs subject to an approved new drug application or
abbreviated application must be manufactured, processed, packaged, held and
labeled in accordance with information contained in the new drug application or
abbreviated application.
The required product testing and approval process can take a number
of years and require the expenditure of substantial resources. Testing of any
product under development may not result in a commercially-viable product.
Further, we may decide to modify a product in testing, which could materially
extend the test period and increase the development costs of the product in
question. Even after time and expenses, regulatory approval by the FDA may not
be obtained for any products we develop. In addition, delays or rejections may
be encountered
19
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
20
for seven years, subject to limitations. Competing products may not receive
orphan drug designations and FDA marketing approval before the products under
development by us.
New drug application approval of a drug with an orphan drug
designation does not prevent the FDA from approving the same drug for a
different indication, or a molecular variation of the same drug for the same
indication. Because doctors are not restricted by the FDA from prescribing an
approved drug for uses not approved by the FDA, it is also possible that another
company's drug could be prescribed for indications for which products developed
by us have received orphan drug designation and new drug application approval.
Prescribing of approved drugs for unapproved uses, commonly referred to as "off
label" use, could adversely affect the marketing potential of products that have
received an orphan drug designation and new drug application approval. In
addition, new drug application approval of a drug with an orphan drug
designation does not provide any marketing exclusivity in foreign markets.
The possible amendment of the Orphan Drug Act by the United States
Congress has been the subject of frequent discussion. Although no significant
changes to the Orphan Drug Act have been made for a number of years, members of
Congress have from time to time proposed legislation that would limit the
application of the Orphan Drug Act. The precise scope of protection that may be
afforded by orphan drug designation and marketing approval may be subject to
change in the future.
The use of our products may be limited or eliminated by professional guidelines
which would decrease our sales of these products and, therefore, our revenue and
cash flows.
In addition to government agencies, private health/science
foundations and organizations involved in various diseases may also publish
guidelines or recommendations to the healthcare and patient communities. These
private organizations may make recommendations that affect the usage of
therapies, drugs or procedures, including products developed by us. These
recommendations may relate to matters such as usage, dosage, route of
administration and use of concomitant therapies. Recommendations or guidelines
that are followed by patients and healthcare providers and that result in, among
other things, decreased use or elimination of products developed by us could
have a material adverse effect on our revenue and cash flows. For example, if
Clofarabine is definitively determined in clinical trials to be an active agent
to treat solid tumor cancer patients, but the required dose is high, private
healthcare/science foundations could recommend various other regimens of
treatment which may from time to time show activity at lower doses.
Generic products which third parties may develop may render our products
noncompetitive or obsolete.
An increase in competition from generic pharmaceutical products
could have a material adverse effect on our ability to generate revenue and cash
flow. For example, many of the indications in which Clofarabine and Modrenal,
our co-lead drugs, have demonstrated activity are areas of unmet clinical need,
such as Clofarabine's application to pediatric acute leukemia in which,
initially, the drug will be used as a salvage therapy after other regimens of
treatment have failed. Our lead investigators who have assisted with the
development of Modrenal envision, initially, that Modrenal would be used as
second or third line therapy, only after patients with advanced post-menopausal
breast cancer receive regimens of timoxifin and faslodex (or similar drug)
treatments. If generic drug companies develop a compound which is more effective
than either Clofarabine or Modrenal, in these areas of unmet clinical need, , or
equally as effective but at lower doses, it could adversely affect our market
and/or render our drugs obsolete.
Because many of our competitors have substantially greater capabilities and
resources, they may be able to develop products before us or develop more
effective products or market them more effectively which would limit our ability
to generate revenue and cash flow.
Competition in our industry is intense. Potential competitors in the
United States and Europe are numerous and include pharmaceutical, chemical and
biotechnology companies, most of which have substantially greater capital
resources, marketing experience, research and development staffs and facilities
than us. Potential competitors for certain indications of our lead drugs
include, with respect to Clofarabine, Schering AG, which markets Fludarabine,
and certain generic drug companies in Europe which could market Fludarabine upon
expiry of the patent protections held by Schering. Potential competitors with
respect to Modrenal include Astra-zeneca and Novartis, which market timoxifen
and other aromitase inhibitors, which could be used by clinicians as first and
second line therapies in patients with hormone sensitive advanced
post-menopausal breast cancer prior to a
21
Modrenal regimen of treatment. No assurance can be given that the ongoing
business activities of our competitors will not have a material adverse effect
on our business prospects and projections going forward.
Although we seek to limit potential sources of competition by
developing products that are eligible for orphan drug designation and new drug
application approval or other forms of protection, our competitors may develop
similar technologies and products more rapidly than us or market them more
effectively. Competing technologies and products may be more effective than any
of those that are being or will be developed by us. The generic drug industry is
intensely competitive and includes large brand name and multi-source
pharmaceutical companies. Because generic drugs do not have patent protection or
any other market exclusivity, our competitors may introduce competing generic
products, which may be sold at lower prices or with more aggressive marketing.
Conversely, as we introduce branded drugs into our product portfolio, we will
face competition from manufacturers of generic drugs which may claim to offer
equivalent therapeutic benefits at a lower price. The aggressive pricing
activities of our generic competitors could have a material adverse effect on
our revenue and cash flow.
If we fail to keep up with rapid technological change and evolving therapies,
our technologies and products could become less competitive or obsolete.
The pharmaceutical industry is characterized by rapid and
significant technological change. We expect that pharmaceutical technology will
continue to develop rapidly, and our future success will depend on our ability
to develop and maintain a competitive position. Technological development by
others may result in products developed by us, branded or generic, becoming
obsolete before they are marketed or before we recover a significant portion of
the development and commercialization expenses incurred with respect to these
products. Alternative therapies or new medical treatments could alter existing
treatment regimes, and thereby reduce the need for one or more of the products
developed by us, which would adversely affect our revenue and cash flow. See
also "--Generic products which third parties may develop may render our products
noncompetitive or obsolete."
We depend on others for clinical testing of our products which could delay our
ability to develop products.
We do not currently have any internal product testing capabilities.
Our inability to retain third parties for the clinical testing of products on
acceptable terms would adversely affect our ability to develop products. Any
failures by third parties to adequately perform their responsibilities may delay
the submission of products for regulatory approval, impair our ability to
deliver products on a timely basis or otherwise impair our competitive position.
Our dependence on third parties for the development of products may adversely
affect our potential profit margins and our ability to develop and deliver
products on a timely basis.
We depend on others to manufacture our products and have not manufactured them
in significant quantities.
We have never manufactured any products in commercial quantities,
and the products being developed by us may not be suitable for commercial
manufacturing in a cost-effective manner. Manufacturers of products developed by
us will be subject to current good manufacturing practices prescribed by the FDA
or other rules and regulations prescribed by foreign regulatory authorities. We
may not be able to enter into or maintain relationships either domestically or
abroad with manufacturers whose facilities and procedures comply or will
continue to comply with current good manufacturing practices or applicable
foreign requirements. Failure by a manufacturer of our products to comply with
current good manufacturing practices or applicable foreign requirements could
result in significant time delays or our inability to commercialize or continue
to market a product and could have a material adverse effect on our sales of
products and, therefore, our cash flow. In the United States, failure to comply
with current good manufacturing practices or other applicable legal requirements
can lead to federal seizure of violative products, injunctive actions brought by
the federal government, and potential criminal and civil liability on the part
of a company and our officers and employees.
We have limited sales and marketing capability, and may not be successful in
selling or marketing our products.
The creation of infrastructure to commercialize oncology products is
a difficult, expensive and time-consuming process. We may not be able to
establish direct or indirect sales and distribution capabilities or be
successful in gaining market acceptance for proprietary products or for other
products. We currently have very limited sales and marketing capabilities. We
currently employ one fulltime sales employee and two fulltime marketing
employees. To market any products directly, we will need to develop a more
fulsome marketing and sales force with technical expertise and distribution
capability or contract with other pharmaceutical and/or health care companies
with distribution systems and direct sales forces. To the extent that we enter
into co-promotion or
22
other licensing arrangements, any revenues to be received by us will be
dependent on the efforts of third parties. The efforts of third parties may not
be successful. Our failure to establish marketing and distribution capabilities
or to enter into marketing and distribution arrangements with third parties
could have a material adverse effect on our revenue and cash flows.
We depend on patent and proprietary rights to develop and protect our
technologies and products, which rights may not offer us sufficient protection.
The pharmaceutical industry places considerable importance on
obtaining patent and trade secret protection for new technologies, products and
processes. Our success will depend on our ability to obtain and enforce
protection for products that we develop under United States and foreign patent
laws and other intellectual property laws, preserve the confidentiality of our
trade secrets and operate without infringing the proprietary rights of third
parties. Through our current license agreements, we have acquired the right to
utilize the technology covered by issued patents and patent applications, as
well as additional intellectual property and know-how that could be the subject
of further patent applications in the future. Several of the original patents to
trilostane have expired in the United States and foreign countries. Thus, we and
our licensors are pursuing patent applications to specific uses, combination
therapy and dosages or formulations of trilostane. We cannot guarantee that such
applications will result in issued patents or that such patents if issued will
provide adequate protection against competitors. Patents may not be issued from
these applications and issued patents may not give us adequate protection or a
competitive advantage. Issued patents may be challenged, invalidated, infringed
or circumvented, and any rights granted thereunder may not provide us with
competitive advantages. Parties not affiliated with us have obtained or may
obtain United States or foreign patents or possess or may possess proprietary
rights relating to products being developed or to be developed by us. Patents
now in existence or hereafter issued to others may adversely affect the
development or commercialization of products developed or to be developed by us.
Our planned activities may infringe patents owned by others. Our patents to
Clofarabine are licensed from Southern Research Institute. The current projected
expiration date of the license is March 2021. These patents cover pharmaceutical
compositions and methods of using Clofarabine. We cannot guarantee that these
patents would survive an attack on their validity or that they will provide a
competitive advantage over our competitors. Moreover, we cannot guarantee that
Southern Research Institute was the first to invent the subject matter of these
patents. In addition, we are aware of a third party patent which is directed to
the treatment of chronic myelogenous leukemia ("CML") using specific doses of
Clofarabine. We do not believe that we will infringe this patent. If this patent
is asserted against us, even though we may be successful in defending against
such an assertion, our defense would require substantial financial and human
resources. And, we may need a license to this patent to use the claimed dose in
the treatment of CML. However, we do not know if such a license is available at
commercially reasonable terms, if at all.
We could incur substantial costs in defending infringement suits
brought against us or any of our licensors or in asserting any infringement
claims that we may have against others. We could also incur substantial costs in
connection with any suits relating to matters for which we have agreed to
indemnify our licensors or distributors. An adverse outcome in any litigation
could have a material adverse effect on our ability to sell products or use
patents in the future. In addition, we could be required to obtain licenses
under patents or other proprietary rights of third parties. These licenses may
not be made available on terms acceptable to us, or at all. If we are required
to, and do not obtain any required licenses, we could be prevented from, or
encounter delays in, developing, manufacturing or marketing one or more
products.
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
23
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.
Dr. Wood constitutes a key employee of the Company and he has an
employment agreement with the Company. Dr. Wood is not near retirement age and
he does not, to our knowledge, plan on leaving the Company in the near future.
Dr. Wood is one of our co-founders and, as such, is most familiar with all of
our key relationships (for example, the inventors and licensors of our lead
products); all of our material agreements which were negotiated at his direction
and with the science which underlies our lead drugs and ancillary technologies.
Dr. Wood maintains a position on the Clofarabine management team which is
responsible for drug development activities. Based on the responsibilities noted
above and the ongoing clinical trials we are conducting, losing Dr. Wood could
materially and adversely affect the timing of our development objectives and/or
the goodwill created by our management with our key business, scientific and
medical contacts.
Our management and internal systems might be inadequate to handle our potential
growth.
Our success will depend in significant part on the expansion of our
operations and the effective management of growth. This growth has and will
continue to place a significant strain on our management and information systems
and resources and operational and financial systems and resources. To manage
future growth, our management must continue to improve our operational and
financial systems and expand, train, retain and manage our employee base. Our
management may not be able to manage our growth effectively. If our systems,
procedures, controls, and resources are inadequate to support our operations,
our expansion would be halted or delayed and we could lose our opportunity to
gain significant market share or the timing with which we would otherwise gain
significant market share. Any inability to manage growth effectively may harm
our ability to institute our business plan. The strain on our systems,
procedures, controls and resources is further heightened by the fact that our
executive office and operational development facilities are located in separate
time zones (New York and Edinburgh, Scotland, respectively).
Because we have international operations, we will be subject to risks of
conducting business in foreign countries.
We have the right to manufacture, market and distribute our lead
drugs, Clofarabine and Modrenal, in territories outside of the United States.
Specifically, we currently market Modrenal in the United Kingdom and upon
receiving European approval for Clofarabine, we intend to market the drug
throughout Europe. Further, half of our employees are employed by Bioenvision
Limited, our wholly-owned subsidiary with offices in Edinburgh, Scotland.
Because we have international operations in the conduct of our
business, we are subject to the risks of conducting business in foreign
countries, including:
o difficulty in establishing or managing distribution relationships;
o different standards for the development, use, packaging, pricing and
marketing of our products and technologies;
o our inability to locate qualified local employees, partners,
distributors and suppliers;
o the potential burden of complying with a variety of foreign laws,
trade standards and regulatory requirements, including the regulation of
pharmaceutical products and treatment; and
o general geopolitical risks, such as political and economic
instability, changes in diplomatic and trade relations, and foreign
currency risks.
24
o We do not engage in forward currency transactions which means we are
susceptible to fluctuations in the U.S. dollar against foreign currencies
such as the pound sterling. Accordingly, as the value of the dollar
becomes weaker against the pound sterling, ongoing services provided by
our UK employees, Cancer Research Organizations and other service
providers become more expensive to us. No assurance can be given that the
U.S. dollar will not continue to weaken which could have a material
adverse effect on the costs associated with our drug development
activities.
We 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 March 2004, we completed a $12,500,000 offering through the sale
of shares of common stock and issuance of 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.
For example, we will need to employ a European sales force within the next
twelve months to capitalize on the commercial potential for Clofarabine and
Modrenal if and to the extent our lead drugs are at market in Europe in the
first half of 2005. To the extent that we will be required to fund operating
losses, our financial position would deteriorate. There can be no assurance that
we will be able to find significant additional financing at all or on terms
favorable to us. If equity securities are issued in connection with a financing,
dilution to our stockholders may result, and if additional funds are raised
through the incurrence of debt, we may be subject to restrictions on our
operations and finances. Furthermore, if we do incur additional debt, we may be
limiting our ability to repurchase capital stock, engage 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 December 31, 2003, we had stockholders' equity of $15,404,099
and net working capital of $3,115,285.
If adequate financing is not available, we may be required to delay,
scale back or eliminate some of our research and development programs, to
relinquish rights to certain technologies or products, or to license third
parties to commercialize technologies or products that we would otherwise seek
to develop. Any inability to obtain additional financing, if required, would
have a material adverse effect on our ability to continue our operations and
implement our business plan.
The prices we charge for our products and the level of third-party reimbursement
may decrease and our revenues could decrease.
Our ability to commercialize products successfully depends in part
on the price we may be able to charge for our products and on the extent to
which reimbursement for the cost of our products and related treatment will be
available from government health administration authorities, private health
insurers and other third-party payors. Government officials and private health
insurers are increasingly challenging the price of medical products and
services. Significant uncertainty exists as to the pricing flexibility
distributors will have with respect to, and the reimbursement status of, newly
approved health care products.
Third-party payors may attempt to control costs further by selecting
exclusive providers of their pharmaceutical products. If third-party payors were
to make this type of arrangement with one or more of our competitors, they would
not reimburse patients for purchasing our competing products. For example, if a
third-party payor in the U.K. were to pay patients for regimens of aromitase
inhibitor treatment but not treatments of Modrenal, this would cause sales of
Modrenal to decline. This lack of reimbursement would diminish the market for
products developed by us and could have a material adverse effect on us.
Our products may be subject to recall.
Product recalls may be issued at our discretion or by the FDA, the
FTC or other government agencies having regulatory authority for product sales.
Product recalls, if any in the future, may harm our reputation and cause us to
lose development opportunities, or customers or pay refunds. Products may need
to be recalled due to disputed labeling claims, manufacturing issues, quality
defects, or other reasons. We do not carry any insurance to cover the risk of
potential product recall. Any product recall could have a material adverse
effect on us, our prospects, our financial condition and results of operations.
We may face exposure from product liability claims and product liability
insurance may not be sufficient to cover the costs of our liability claims
related to technologies or products.
25
We face exposure to product liability claims if the use of our
technologies or products or those we license from third parties is alleged to
have resulted in adverse effects to users thereof. Product liability claims may
be brought by trial participants, although to date, no such claims have been
brought against us. If any such claims were brought against us, the cost of
defending such claims may adversely affect our business. Regulatory approval for
commercial sale of our products does not mitigate product liability risks. Any
precautions we take may not be sufficient to avoid significant product liability
exposure. Although we have obtained product liability insurance on our
technologies and products at levels with which management deems reasonable, no
assurance can be given that this insurance will cover any particular claim or
that we have obtained an appropriate level of liability insurance coverage for
our development and marketing activities. We currently maintain three million
dollars per year, claims made product liability insurance coverage which we
believe is adequate. Existing coverage may not be adequate as we further develop
our products. In the future, adequate insurance coverage or indemnification by
collaborative partners may not be available in sufficient amounts, or at
acceptable costs, if at all. To the extent that product liability insurance, if
available, does not cover potential claims, we will be required to self-insure
the risks associated with those claims. The successful assertion of any
uninsured product liability or other claim against us could limit our ability to
sell our products or could cause monetary damages. In addition, future product
labeling may include disclosure of additional adverse effects, precautions and
contra indications, which may adversely impact product sales. The pharmaceutical
industry has experienced increasing difficulty in maintaining product liability
insurance coverage at reasonable levels, and substantial increases in insurance
premium costs in many cases have rendered coverage economically impractical.
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 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
26
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.
We have never declared or paid cash dividends on our capital stock,
and our board of directors does not intend to declare or pay any dividends on
the common stock in the foreseeable future. However, the Company is required to
accrue for and pay a dividend of 5%, subject to certain adjustments, on its
cumulative Series A Convertible Participating Preferred Stock. We have not paid
dividends on our cumulative Series A Convertible Participating Preferred Stock
since May 8, 2002 but have accrued the dividends since that time. Our earnings,
if any, are expected to be retained for use in expanding our business. The
declaration and payment in the future of any cash or stock dividends on the
common stock will be at the discretion of the board of directors and will depend
upon a variety of factors, including our ability to service our outstanding
indebtedness and to pay our dividend obligations on securities ranking senior to
the common stock, our future earnings, if any, capital requirements, financial
condition and such other factors as our board of directors may consider to be
relevant from time to time.
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 at
fair market value to Mr. Smith in settlement of any and all obligations owing to
Mr. Smith under the Smith Employment Agreement. The issuance of these shares was
exempt from registration under Regulation D under the Securities Act or Section
4(2) of the Securities Act.
27
In May 2003, in connection with that certain consulting agreement,
dated November 19, 2001 (the "Sterling Consulting Agreement"), we issued 15,225
shares of our common stock at fair market value to Mr. Sterling in settlement of
all outstanding obligations under the Sterling Consulting Agreement. The
issuance of these shares was exempt from registration under Regulation D under
the Securities Act or Section 4(2) of the Securities Act.
In February 2003, in connection with that certain consulting
agreement, dated March 1, 2002, by and between the Company and Mr. Edward W.
Kelly (the "Kelly Consulting Agreement"), we issued 200,000 shares of our common
stock at fair market value to Mr. Kelly in settlement of all of our outstanding
obligations under the Kelly Consulting Agreement. The issuance of these shares
was exempt from registration under Regulation D under the Securities Act or
Section 4(2) of the Securities Act.
In January 2003, in connection with our employment of our office
manager at the principal executive office, we issued options to purchase 20,000
shares of our common stock at an exercise price of $1.42 per share which
approximated the fair market value of the common stock on the date of the grant.
Of such options, subject to certain terms and conditions, options to purchase
10,000 shares of our common stock vested immediately and options to purchase
10,000 shares of our common stock vest on the one-year anniversary of January 9,
2003, the grant date.
On December 31, 2002 the Company issued options to purchase 500,000
shares of common stock at an exercise price equal to $1.45 per share, which
approximated the fair market value of the common stock on the date of the grant,
to its Chairman and Chief Executive Officer, Dr. Christopher B. Wood. Of these
options, subject to certain circumstances, options to purchase 166,666 shares of
common stock vest on each of the first, second and third anniversary of the
grant date.
On December 31, 2002 the Company issued options to purchase 200,000
shares of common stock at an exercise price of $2.00 per share, which
approximated the fair market value of the common stock on the date of the grant,
to a consultant to the Company who performs European regulatory services for the
Company. Of these options, options to purchase 66,666 shares of common stock
vest on each of the first, second and third anniversary of the grant date.
Compensation expense of $24,333 was recorded as consulting fees for the year
ended June 30, 2003.
In October 2002, in connection with our employment of Ian
Abercrombie as our Sales Manager (Europe), we issued options to purchase 50,000
shares of our common stock at an exercise price of $1.45 per share, which
approximated the fair market value of the common stock on the date of the grant.
Of these options, subject to certain terms and conditions, options to purchase
25,000 shares of common stock vest on each of the first and second anniversaries
of October 23, 2002, the grant date.
In October 2002, in connection with our employment of Hugh Griffith
as our Commercial Director (Europe), we issued options to purchase 300,000
shares of our common stock at an exercise price of $1.45 per share, which
approximated the fair market value of the common stock on the date of the grant.
Of these options, subject to certain terms and conditions, options to purchase
100,000 shares of common stock vest on each of the first, second and third
anniversaries of October 23, 2002, the grant date.
In July 2002, in connection with our employment of David P. Luci as
our Director of Finance and General Counsel, we issued options to purchase
380,000 shares of our common stock at an exercise price of $1.95 per share,
which approximated the fair market value of the common stock on the date of the
grant. In connection with our entering into an employment agreement with Mr.
Luci, dated March 31, 2003, we cancelled these options and issued options to
purchase 500,000 shares of common stock, which are exercisable at $0.735 per
share, which approximated the fair market value of the common stock on the date
of the grant. Of these options, subject to certain terms and conditions, options
to purchase 170,000 shares of common stock vested on March 31, 2003 (the grant
date), and options to purchase 110,000 shares of common stock vest on each of
the first, second and third anniversaries of March 31, 2003.
In May 2002, Bioenvision issued an aggregate of 5,916,666 shares of
Series A convertible participating preferred stock for $3.00 per share and
warrants to purchase an aggregate of 5,916,666 shares of common stock to
seventeen accredited investors, as defined under Regulation D of the Securities
Act. The issuance of these shares and warrants was exempt from registration
under Regulation D under the Securities Act or Section 4(2) of the Securities
Act.
28
On February 1, 2002, Bioenvision issued 7,000,000 shares of common
stock to the former stockholders of Pathagon in connection with the consummation
of the Pathagon transaction. The issuance of these shares was exempt from
registration under Regulation D under the Securities Act or Section 4(2) of the
Securities Act.
On November 16, 2001, we entered into an engagement letter with SCO
Capital, pursuant to which SCO Capital would act as our financial advisor. In
connection with the engagement letter, we issued a warrant to purchase 100,000
shares of common stock at an exercise price of $1.25 per share, subject to
certain anti-dilution adjustments. In connection with securing a credit facility
with SCO Capital, we issued warrants to purchase 1,500,000 shares of our common
stock at a strike price of $1.25 per share, subject to certain anti-dilution
adjustments. The warrants expire five years from the date of issuance. The
issuance of these shares and warrants were exempt from registration under
Regulation D under the Securities Act or Section 4(2) of the Securities Act.
In October 2001, we issued 134,035 shares of common stock to three
officers as payment for salaries accrued to September 30, 2001, each of which
were accredited investors, as defined under the Securities Act of 1933. The
issuance of these shares was exempt from registration under Regulation D under
the Securities Act or Section 4(2) of the Securities Act.
In August 2001 in connection with outstanding deferred salaries, we
issued 208,333 shares of common stock at the rate of $1.25 per share as follows:
Christopher Wood 98,684 shares; Thomas Nelson, 27,412 shares; and Stuart Smith,
82,237 shares. The issuance of these shares was exempt from registration under
Regulation D under the Securities Act or Section 4(2) of the Securities Act.
In addition, in August 2001, we granted 150,000 options to purchase
shares of our common stock at an exercise price of $1.25 per share. The options
were issued to two consultants in exchange for certain services rendered. The
options expire in August 2004 and are immediately vested. Those issuances of
options were exempt from registration under Regulation S promulgated under the
Securities Act or Section 4(2) of the Securities Act. In August 2001, we
cancelled these options and replaced them with 150,000 shares.
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
29
Opinion 25 and related interpretations in accounting for our stock option plan
and, accordingly, we do not recognize compensation expense for employee stock
options granted with exercise prices equal to or greater than fair market value.
Non-employee stock-based compensation arrangements are accounted for in
accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force
No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services.
Under EITF No. 96-18, as amended, where the fair value of the equity instrument
is more reliably measurable than the fair value of services received, such
services will be valued based on the fair value of the equity instrument.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles of the United States
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements as well as the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates, and such differences may be material to the
financial statements.
Overview
We are an emerging biopharmaceutical company that develops and
markets drugs to treat cancer. We have several products and technologies under
development, but our two lead drugs are Clofarabine and Modrenal(R).
Clofarabine is a purine nucleoside analogue, or a small molecule,
which, based on our own clinical studies and studies conducted by others on our
behalf, we believe is effective in the treatment of leukemia. Clofarabine may
also be an effective agent to treat patients with solid tumor cancers, based on
preclinical studies and Phase I/II clinical trials performed to date. In the
United Kingdom, we are currently conducting clinical trials with Clofarabine for
the treatment of pediatric and adult acute leukemias. In the U.S., Clofarabine
is currently in Pivotal Phase II clinical trials for pediatric acute leukemias.
In January, 2002, the European orphan drug application for use of Clofarabine to
treat acute leukemia in adults was approved. Orphan Drug Designation provides
the Company with ten years of market exclusivity in Europe for Clofarabine. The
drug has also been granted orphan drug status and "fast track" treatment by the
United States Food and Drug Administration (the "FDA"). Further, in August 2003,
we obtained the exclusive, irrevocable option to sell, market and distribute
Clofarabine in Japan and Southeast Asia from the inventor of Clofarabine. These
rights were not previously granted by Southern Research Institute and fall
outside the scope of the Company's then current licensing and development
contracts with respect to Clofarabine. We originally obtained an exclusive
license from Southern Research Institute to sell, market and distribute
Clofarabine throughout the world, except for Japan and Southeast Asia, for all
human applications, pursuant to a co-development agreement, dated August 31,
1998, between the Company and Southern Research Institute. On March 12, 2001, we
granted an exclusive option to sell, market and distribute Clofarabine in the
U.S. and Canada to ILEX Oncology, Inc. We converted ILEX's option to an
exclusive sublicense on December 30, 2003. Accordingly, we do not possess the
rights to sell, market and distribute Clofarabine in the U.S.
Modrenal(R) is a hormonal agent with a novel mode of action, that
makes it an effective agent in patients with advanced breast cancer who have
acquired resistance to other hormonal agents. We launched Modrenal(R) in May
2003 in the United Kingdom, where we have received regulatory approval for its
use in the treatment of post-menopausal breast cancer. In the first half of
2004, we intend to apply for mutual recognition in another four large European
territories in an effort to gain approval for Modrenal(R) in each such
territory. We anticipate receiving approval in each such territory in the first
half of calendar year 2005. Further, we filed an IND for prostate cancer
clinical trials in the US in February 2004 and intend to commence our first US
clinical trial in the second quarter of calendar year 2004. Further, we intend
to seek regulatory approval for Modrenal(R) in the United States as salvage
therapy for hormone-sensitive breast cancer upon completion of additional
clinical studies. We originally obtained an exclusive license from Stegram
Pharmaceuticals Ltd. to sell, market and distribute Modrenal(R) throughout the
world, except for South Africa, for all human and animal health applications,
pursuant to a co-development agreement dated July 15, 1998.
Our primary business strategy relates to our two lead drugs, Clofarabine and
Modrenal(R). With Clofarabine, our strategy is to complete drug development in
Europe and obtain marketing authorization from the European regulatory
authorities to market and distribute Clofarabine for the treatment of pediatric
and adult acute leukemias. We anticipate receiving approval early in 2005,
subject to our obtaining approval of the regulatory authorities. We will
continue clinical trials in other indications with the intention of seeking
label extensions after Clofarabine's first approval. With Modrenal, our strategy
is to expand sales in the United Kingdom and apply for mutual recognition to
obtain the right to sell Modrenal(R) throughout Europe. We anticipate receiving
mutual recognition from major European Community member states by mid-2005. Our
secondary business strategy is to continue to
30
develop our portfolio of ancillary products and technologies. We anticipate that
revenues derived from Clofarabine and Modrenal(R) will permit us to further
develop our portfolio of ancillary products and technologies.
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;
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.
31
Results of Operations
Year Ended June 30, 2003 Compared to Year Ended June 30, 2002
We reported revenues of $505,000 and $803,000 for the years ended
June 30, 2003 and 2002, respectively. Revenues reflect recognition of
consideration received pursuant to our agreements with co-development and
sub-licensing partners in connection with our platform of drugs and
technologies. Of the revenues recorded for the year ended June 30, 2003, $12,000
was recognized from Dechra, pursuant to the Sub-License Agreement, dated May 13,
2003.
Research and development costs for the years ended June 30, 2003 and
2002 were $1,689,000 and $1,912,000, respectively, representing a decrease of
$223,000.
Our research and development costs include costs associated with
four projects for which the Company devotes significant time and resource.
Clofarabine research and development costs for the year ended June 30, 2003 and
2002 were $871,000 and $596,000, respectively, representing an increase of
$275,000. The increase primarily reflects the costs associated with our having
commenced clinical trials in Europe to develop Clofarabine. Modrenal research
and development costs for the year ended June 30, 2003 and 2002 were $913,000
and $923,000, respectively, representing a decrease of $10,000. Gossypol
research and development costs were $30,000 and $90,000, respectively,
representing a decrease of $60,000. The decrease primarily reflects a decrease
in the amount of resource devoted by the Company to this compound while the
Company focused on developing its lead drugs. Gene Therapy research and
development costs for the year ended June 30, 2003 were $(130,000) and $303,000,
respectively, representing a decrease of $433,000. The decrease primarily
reflects an accrued expense in the year ended 2002 of $200,000 which was
determined to be less than originally estimated by the Company in the year ended
June 30, 2003. The clinical trials and development strategy for the Clofarabine
and Modrenal projects, in each case, is anticipated to cost several million
dollars and will continue for several years based on the number of clinical
indications within which we plan to develop these drugs. Currently, management
cannot estimate the timing or costs associated with these projects because many
of the variables, such as interaction with regulatory authorities and response
rates in various clinical trials, are not predictable.
Administrative expenses for the year ended June 30, 2003 and 2002
were $4,567,000 and $2,128,000, respectively, representing an increase of
$2,439,000. Of this amount, $1,600,000 of this increase was due to the expansion
of the internal management team from one full time employee to eight full time
employees; approximately $150,000 of this increase was due to lease expenses and
office supplies /equipment for the newly opened New York and Edinburgh, Scotland
offices, both of which we opened during the year; approximately $300,000 of the
increase was due to an increase in investor and public relations expenses
related to pre-marketing activities with Clofarabine and marketing costs
associated with Modrenal; approximately $200,000 of the increase was related to
increases in related travel expense to successfully manage our drug development
activities; and approximately $150,000 of the increase was due to increases in
our consulting and legal expenses as the result of our recent growth.
We reported interest and finance charges of $325,000 for the year
ended June 30, 2003, representing a decrease of $1,848,000 from the year ended
June 30, 2002. This decrease reflects the retirement of our credit facility in
May 2002 and the fact that we carried no long term debt during the year ended
June 30, 2003.
Depreciation and amortization expense totaled $1,345,000 for the
year ended June 30, 2003, representing an increase of $766,000 from the year
ended June 30, 2002. The increase is primarily due to the amortization of
certain intangible assets we acquired in the Pathagon transaction which we
consummated in February 2002.
Year Ended June 30, 2002 Compared to Year Ended June 30, 2001
We reported revenues of $803,000 and $245,000 for the years ended
June 30, 2002 and 2001, respectively. Revenues reflect our agreements with our
co-development partners and/or licensees in connection with our platform of
drugs and technologies.
Research and development costs for the years ended June 30, 2002 and
2001 were $1,912,000 and $1,566,000, respectively, representing an increase of
approximately $346,000. This increase primarily is attributable to a full year
amortization of deferred royalties, which represent advance royalties paid to
SRI that are being amortized over the same period that related revenue is being
recognized.
32
Administrative expenses for the year ended June 30, 2002 and 2001
were $2,128,000 and $550,000, respectively, representing an increase of
$1,578,000. Of this amount, (i) approximately $650,000 related to an increase in
legal and other professional fees paid during the year, (ii) approximately
$750,000 related to an increase in printing, investor and public relations costs
and (iii) approximately $85,000 was due to an increase in travel expenses
related to the Company's expansion of the internal management team.
We reported interest and finance charges of $2,173,000 and $229,000
for the years ended June 30, 2002 and 2001, respectively, representing an
increase of $1,944,000. This increase reflects charges related to the issuance
of warrants in connection with the Company's various financings.
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.
33
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 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
34
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.
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.
35
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.
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
36
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 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.
In May 2003, the Emerging Issues Task Force ("EITF") reached a
consensus on EITF Issue No. 00-21, "Revenue Arrangements with Multiple
Deliverables" ("EITF 00-21"). EITF 00-21 provides guidance on how to determine
when an arrangement that involves multiple revenue-generating activities or
deliverables should be divided into separate units of accounting for revenue
recognition purposes, and if this division is required, how the arrangement
consideration should be allocated among the separate units of accounting. The
guidance in the consensus is effective for revenue arrangements entered into in
quarters beginning after June 15, 2003. The adoption of EITF 00-21 did not
impact the Company's consolidated financial position or results of operations,
but could affect the timing or pattern of revenue recognition for future
collaborative research and/or license agreements.
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.
37
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
38
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, the other being Genethics Ltd which was sold
to Proteus International 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
39
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
40
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:
41
Summary Compensation Table
Annual compensation Long term compensation
----------------------------------- --------------------------------------------------------------
Awards Payouts
Other
Annual Restricted Securities
Comp- Stock underlying All other
Name & Salary ensation Awards options/SARs LTIP 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. On December 31, 2002, Dr. Wood was granted options to
purchase 500,000 shares of our common stock which vest and become
exercisable in equal amounts on the first, second and third
anniversaries of the December 31, 2002 grant date.
(2) On July 22, 2002, Mr. Luci was granted options to purchase 380,000
shares of our common stock. On March 31, 2003, in connection with the
execution of an employment agreement between the Company and Mr. Luci,
these options were cancelled and the Company issued options to purchase
500,000 shares of common stock at a then-current fair market value. Of
these options, options to purchase 170,000 shares of our common stock
are immediately exercisable and, subject to certain circumstances,
options to purchase 110,000 shares of common stock vest and become
exercisable on each of the first, second and third anniversaries of
March 31, 2003, the grant date.
(3) This annual bonus was prorated for the portion of calendar year 2002
within which Mr. Luci was employed by the Company. The net amount of
the bonus paid to Mr. Luci after such pro-ration was equal to $25,000.
(4) On October 23, 2002, Mr. Griffith was granted options to purchase
300,000 shares of our common stock at a then-current fair market value.
Of these options, options to purchase 100,000 shares of our common
stock vest and become exercisable, subject to certain circumstances, on
each of the first, second and third anniversaries of October 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
r
42
Eligibility and Administration.
The plan authorizes the Board of Directors or the compensation
committee (the "Administrator"), to (i)select the participants who are to be
granted options, restricted shares or performance units, (ii)determine the
number of shares of Common Stock to be granted to each participant,
(iii)designate options, to the extent the award consists of options, as
incentive stock options or nonstatutory stock options, (iv)determine the vesting
schedule and performance criteria, if any, for restricted shares and performance
units and (v)determine to what extent the awards may be transferable. As of the
date hereof, there are approximately 7 employees who are currently eligible to
participate in the plan under the Company's policies. All directors and
consultants are currently eligible to participate in the plan. The
Administrator's interpretations and construction of the plan are final and
binding on the Company.
Shares Available for Issuance Under the Plan
The stock subject to options granted under the plan are shares of
the Company's authorized but unissued or reacquired shares of Common Stock. On
March 23, 2004, the closing price of the common stock on the American Stock
Exchange of the Common Stock was $8.45 per share. There are 3,000,000 shares
reserved for grants of options under the plan. On the same date, there were
22,934,616 shares of Common Stock outstanding.
Grant, Exercise and other Terms of Awards.
Options issued under the plan are designated as either incentive
stock options or nonstatutory stock options. Incentive stock options are options
meeting the requirements of Section 422 of the Code, and nonstatutory options
are options not intended to so qualify.
The exercise price of options granted under the plan may not be less
than 100% of the fair market value of the Common Stock of the Company (as
defined by the plan) on the date of the grant. With respect to any participant
who owns stock representing more than 10% of the voting rights of the
outstanding Common Stock of the Company, the exercise price of any incentive
stock option granted must equal at least 110% of the fair market value of the
Common Stock on the grant date, and the maximum term of any such incentive stock
option must not exceed five years.
Options, restricted shares and performance units are evidenced by
written award agreements in a form approved by the Administrator from time to
time and no award is effective until the applicable award agreement has been
executed by both parties thereto. Options granted under the plan may become
exercisable in cumulative increments over a period of months or years, or
otherwise, as determined by the Administrator. The purchase price of options
shall be paid in cash; provided, however, that if the applicable award agreement
so provides, or the Administrator, in its sole discretion otherwise approves
thereof, the purchase price may be paid in shares of Common Stock having a fair
market value on the exercise date equal to the exercise price or in any
combination of cash and shares of Common Stock, as long as the sum of the cash
so paid and the fair market value of the shares so surrendered equals the
aggregate purchase price. In addition, the Administrator may permit deferred
compensation elections by certain directors and executive officers. The award
agreement evidencing the restricted shares and/or performance units shall set
forth the terms upon which the Common Stock subject to any awards or the
achievement of any cash bonus may be earned.
No options granted under the plan are exercisable after the
expiration of ten years (or less in the discretion of the Administrator) from
the date of the grant, and no incentive stock options granted under the Amended
Award Plan to a participant who owns more than ten percent of the total combined
voting power of all classes of outstanding stock of the Company shall be
exercisable after the expiration of five years (or less, in the discretion of
the Administrator) from the date of the grant. The aggregate fair market value
(as of the respective date or dates of grant) of the shares of Common Stock
underlying the incentive stock options that are exercisable for the first time
by a participant during any calendar year under the plan and all other similar
plans maintained by the Company may not exceed $100,000. If a participant ceases
to be an employee of the Company for any reason other than his or her death,
Disability or Retirement (as such terms are defined in the plan), such
participant shall have the right, subject to certain restrictions, to exercise
that option at any time within ninety days (or less, in the discretion of the
Administrator) after cessation of employment, but, except as otherwise provided
in the applicable award agreement, only to the extent that, at the date of
cessation of employee, the participant's right to exercise such option had
vested and had not been previously exercised. The Administrator, in its sole
discretion, may provide that the option shall cease to be exercisable on the
date of such cessation if such cessation arises by reason of termination for
43
Cause (as such term is defined in the Amended Award Plan) or if the participant
becomes an employee, director or consultant of an entity that the Administrator
determines is in direct competition with the Company.
In the event a participant dies before such participant has fully
exercised his or her option, then the option may be exercised at any time within
twelve months after the participant's death by the executor or administrator of
his or her estate or by any person who has acquired the option directly from the
participant by bequest or inheritance, but except as otherwise provided on the
applicable award agreement, only to the extent that, at the date of death, the
participant's right to exercise such option had vested pursuant to the terms of
the applicable award agreement and had not been forfeited or previously
exercised.
In the event a participant ceases to be an employee of the Company
by reason of Disability, such participant shall have the right, subject to
certain restrictions, to exercise the option at any time within twelve months
(or such shorter period as the Administrator may determine) after such cessation
of employment, but only to the extent that, at the date of cessation of
employment, the participant's right to exercise such option had previously
vested pursuant to the terms of the applicable award agreement and had not
previously been exercised.
In the event a participant ceases to be an employee of the Company
by reason of Retirement, such participant shall have the right, subject to
certain restrictions, to exercise the option at any time within ninety days (or
such longer or shorter period as the Administrator may determine) after
cessation of employment, but only to the extent that, at the date of cessation
of employment, the participant's right to exercise such option had vested
pursuant to the terms of the applicable award agreement and had not previously
been exercised.
Adjustment of Awards Upon Certain Events.
If the Company merges with another corporation and the Company is
the surviving corporation in such merger and under the terms of such merger the
shares of Common Stock outstanding immediately prior to the merger remain
outstanding and unchanged, each outstanding award shall continue to apply to the
shares subject thereto and will also pertain and apply to any additional
securities and other property, if any, to which a holder of the number of shares
subject to the option would have been entitled as a result of the merger.
In the event all or substantially all of the assets of the Company
are sold, the Company engages in a merger where the Company does not survive or
the Company is consolidated with another corporation, each participant shall
receive immediately before the effective date of such sale, merger or
consolidation restricted shares and the value of any performance units to which
the participant is then entitled (regardless of any vesting condition) and each
outstanding option will become exercisable (without regard to the vesting
provisions thereof) for a period of at least 30 days ending five days prior to
the effective date of the transaction. Notwithstanding the foregoing, the
surviving corporation may, in its sole discretion, (i) (a) grant to participants
with options, options to purchase shares of the surviving corporation upon
substantially the same terms as the options granted under the plan, (b) tender
to all participants with restricted shares, an award of restricted shares of the
surviving or acquiring corporation, and (c) tender to all participants with
performance units, an award of performance units of the surviving or acquiring
corporation, or (ii) (a) permit participants with restricted shares to receive
unrestricted shares immediately prior to the effective date of any transaction,
(b) permit participants with performance units to receive cash with respect to
the value of any performance units immediately before the effective date of the
transaction and (c) provide participants with options the choice of exercising
the option prior to the consummation of the transaction or receiving a
replacement option.
Notwithstanding anything to the contrary and except as otherwise
expressly provided in the applicable award agreement, the vesting or similar
installment provisions relating to the exercisability of any award, option or
replacement option tendered as described in the previous sentence shall be
accelerated, and the participant with restricted shares or performance units
shall become fully vested, and the participant with options shall have the
right, for a period of at least 30 days, to exercise such options; provided that
such accelerations of vesting and exercisability shall occur only in the event
that the participant's employment with or services for the Company should
terminate within two years following a Change of Control (as defined in the
plan), unless such employment or services are terminated by the Company for
Cause (as defined in the plan) or by the participant voluntarily without Good
Reason (as defined in the plan), or such employment or services are terminated
due to the death or Disability of the participant. Notwithstanding the
foregoing, no incentive stock option shall become exercisable pursuant to the
foregoing without the participant's consent, if the result would be to cause
such option not to be treated as an incentive stock option.
44
The number of shares of Common Stock covered by the plan, the number
of shares of Common Stock covered by each outstanding option, restricted share
and performance unit and the exercise price of any options shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a subdivision or consolidation of such
shares or a stock split or the payment of a stock dividend (but only of Common
Stock) or any other increase or decrease in the number of issued shares effected
without receipt of consideration by the Company.
Transfer of Awards.
Unless an award is designated transferable by the Administrator upon
grant, during the lifetime of the participant who has been granted an award, the
award shall be shall not be assignable or transferable. No incentive stock
option may be designated as transferable. In the event of the participant's
death, any nontransferable award shall be transferable by the participant's will
or the laws of descent and distribution.
Amendment and Termination.
The plan will continue in effect until terminated by the Board of
Directors or until expiration of the plan on November 17, 2013. The Board may
suspend or discontinue the plan or revise or amend it.
The following table sets forth information concerning option/SAR
grants in our fiscal year ended June 30, 2003 to all individuals serving as (a)
our chief executive officer, (b) each of our four other most highly compensated
executive officers (other than our chief executive officer) at the end of our
fiscal year ended June 30, 2003 whose total annual salary and bonus exceeded
$100,000 for these periods, and (c) up to two additional individuals, if any,
for whom disclosure would have been provided pursuant to (b) except that the
individual(s) were not serving as our executive officers at the end of our
fiscal year ended June 30, 2003:
------------------------------------------------------------------------------------------------------------------------------------
Option/SAR Grants in Last Fiscal Year
Individual Grants
------------------------------------------------------------------------------------------------------------------------------------
Name Number of securities Percent of total Exercise or base price Expiration Date
underlying options/SARs granted ($/Share)
options/SARs granted to employees in fiscal
(#) year
------------------------------------------------------------------------------------------------------------------------------------
Christopher B. Wood 500,000 35.84% $1.45 12/31/12
------------------------------------------------------------------------------------------------------------------------------------
David P. Luci 500,000 35.84% $.74 3/31/13
------------------------------------------------------------------------------------------------------------------------------------
Hugh Griffith 300,000 21.51% $1.45 10/22/12
------------------------------------------------------------------------------------------------------------------------------------
All Executive 1,300,000 93.19% n/a n/a
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.
45
On September 1, 1999, we entered into an employment agreement with
Christopher B. Wood, M.D. under which he serves as our Chairman and Chief
Executive Officer. The initial term of Dr. Wood's employment agreement is two
years with automatic one-year extensions thereafter unless either party gives
written notice to the contrary. On December 31, 2002, we entered into a new
employment agreement with Dr. Wood, under which he continues to serve as our
Chairman and Chief Executive Officer. Under this contract, the term is one year,
with automatic one-year extensions thereafter unless either party provides
written notice to the contrary. Dr. Wood's new employment agreement provides for
an initial base salary of $225,000, a bonus as determined by the Board of
Directors, health insurance and other benefits currently or in the future
provided to key employees of the Company. If Dr. Wood's employment is terminated
other than for cause or if he resigns for good reason or if a change of control
occurs, he will receive a lump sum payment in an amount equal to his then
current annual base salary and any and all unvested options will vest and
immediately become exercisable.
On January 1, 2000, we entered into an employment agreement with
Stuart Smith under which he serves as our Senior Vice President. The initial
term of Mr. Smith's employment agreement is two years, with automatic one-year
extensions thereafter unless either party gives written notice to the contrary.
Mr. Smith's agreement provides for an initial base salary of $150,000, a bonus
as determined by the board of directors, life insurance benefits equal to his
annual salary, health insurance and other benefits currently or in the future
provided to our key employees. On September 30, 2002, Mr. Smith resigned from
his position as Senior Vice President of the Company; his employment agreement
was terminated and the Company agreed to issue shares of its common stock to Mr.
Smith at the then current fair market value in satisfaction of all outstanding
obligations of the Company to Mr. Smith pursuant to the employment agreement.
On March 31, 2003, we entered into an employment agreement with
David P. Luci, pursuant to which he serves as our Director of Finance, General
Counsel and Corporate Secretary. The initial term of Mr. Luci's employment
agreement is one-year, with automatic one-year extensions thereafter unless
either party provides written notice to the contrary. If Mr. Luci's employment
is terminated other than for cause or if he resigns for good reason or if a
change of control occurs, he will receive a lump sum payment in an amount equal
to 1.5 multiplied by the sum of (i) his then current annual base salary plus
(ii) his then average annual bonus for the preceding two years and any and all
unvested options will vest and immediately become exercisable.
Director Compensation
Our policy is that non-management directors are entitled to receive
a director's fee of $1,000 per meeting for attendance at meetings of the board
of directors, and are reimbursed for actual expenses incurred in respect of such
attendance. We do not separately compensate employees for serving as directors.
We do not provide additional compensation for committee participation or special
assignments of the board of directors.
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.
46
NAME BENEFICIAL OWNERSHIP OF STOCK CURRENT PERCENTAGE 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
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 404 170,000 *
New York, New York 10022...........................
Hugh Griffith
c/o Bioenvision, Inc.
509 Madison Avenue, Suite 404
47
NAME BENEFICIAL OWNERSHIP OF STOCK CURRENT PERCENTAGE OF CLASS (1)
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 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
48
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. Deutsche Bank AG has sole voting and
investment power with respect to these shares.
(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.
(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
49
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.
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,
50
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
PennDevelopment 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, 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)
51
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)
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)
52
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-
53
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.
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/A 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: April 1, 2004
/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/A 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: April 1, 2004
/s/ David P. Luci
----------------------------------------
David P. Luci
Director of Finance, General Counsel and
Corporate Secretary
(Principal Accounting Officer)
54
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, F-5
2003 and 2002
Consolidated Statements of Cash Flows for years ended June 30, 2003 and 2002 F-6
Notes to Consolidated Financial Statements F-7
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 conformity with
accounting principles generally accepted in the United States of America.
/s/ Grant Thornton LLP
GRANT THORNTON LLP
New York, New York
September 22, 2003
F-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 (877,818) (131,328)
Beneficial conversion preferred stock dividend (9,351,339)
------------ -------------
Net loss available to common stockholders $(7,624,144) $(15,218,648)
============ =============
Basic and diluted net loss per share of common stock $ (0.45) $ (1.25)
============ =============
Weighted-average shares used in
computing basic and diluted
net loss per share 16,920,939 12,184,152
============ =============
The accompanying notes are an integral part of these statements.
F-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)
dividend 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
Adjustments to reconcile net loss to net $ (6,746,326) $ (5,735,981)
--------------- -------------
cash used in operating activities
Depreciation and amortization 1,344,969 579,342
Financing charges - noncash 2,129,482
Amortization of deferred tax liability (536,903)
Compensation costs - shares and warrants issued to nonemployees 1,440,429
Compensation costs - re-pricing of options 372,465
Changes in assets and liabilities
Deferred costs (63,573) 337,500
Deferred revenue 870,139 (736,364)
Accounts payable (22,924) (350,817)
Other current assets (105,976)
Other long term assets (126,869)
Accounts receivable 25,000 (50,000)
Security deposits (79,111)
Officer's salary for equity conversion 52,090
Other accrued expenses and liabilities (782,901) 1,099,636
--------------- ------------
Net cash used in operating activities (4,411,581) (2,675,113)
--------------- ------------
Cash flows from investing activities
Purchase of intangible assets (191,848) (455,500)
Capital expenditures (59,406)
Restricted cash (290,000)
--------------- ------------
Net cash used in investing activities (541,254) (455,500)
--------------- ------------
Cash flows from financing activities
Bank overdraft (127,241)
Proceeds from loan financing 982,943
Repayment of loan financing (982,943)
Proceeds from issuance of preferred stock 17,749,998
Costs incurred in connection with offering (1,609,623)
--------------- ------------
Net cash provided by financing activities 16,013,134
--------------- ------------
Net (decrease) increase in cash and cash equivalents (4,952,835) 12,882,521
Cash and cash equivalents, beginning of year 12,882,521 -
--------------- ------------
Cash and cash equivalents, end of year $ 7,929,686 $12,882,521
=============== ============
Supplemental disclosure of cash flow information:
Cash paid during the year for
Interest $ - $ 43,200
Supplemental disclosure of noncash investing and financing activities:
Noncash conversion of officer's salary into common stock $ - $ 1,270,912
Noncash conversion of trade payables into common stock $ - $ 168,473
Noncash issuance of warrants related to SCO financing agreement $ - $ 1,872,000
Noncash issuance of warrants in connection with preferred stock $ - $ 2,302,283
Noncash issuance of stock related to Pathagon acquisition $ - $12,491,926
Noncash issuance of warrants and shares related to OMRFA $ - $ 1,145,600
The accompanying notes are an integral part of these statements.
F-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
In accordance with SEC Staff Accounting Bulletin No. 101, upfront nonrefundable
fees associated with research and development collaboration agreements where the
Company has continuing involvement in the agreement, are recorded as deferred
revenue and recognized over the estimated research and development period. If
the estimated period is subsequently modified, the period over which the
up-front fee is recognized is 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. Continuation of
certain contracts and grants are dependent upon the Company and/or its
co-development partners' achieving specific contractual milestones; however,
none of the payments received to date are refundable regardless of the outcome
of the project.
Upfront nonrefundable fees associated with licensing arrangements are recorded
as deferred revenue and recognized over the licensing arrangement, which
approximates the life of the patent.
Research and development
Research and development costs are charged to expense as incurred.
Stock based compensation
At June 30, 2003, the Company has stock based compensation plans which are
described more fully in Note 9. As permitted by SFAS No. 123, "Accounting for
Stock Based Compensation", the Company accounts for stock based compensation
arrangements with employees in accordance with provisions of Accounting
Principles Board ("APB") Opinion No. 25 "Accounting for Stock Issued to
Employees". Compensation expense for stock options issued to employees is based
on the difference on the date of grant, between the fair value of the Company's
stock and the exercise price of the option. Under APB 25, no stock based
employee compensation cost is reflected in reported net loss, 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.
F-8
The following table illustrates the effect on net loss and loss per share as if
the fair value based method had been applied to all outstanding and unvested
awards in each period.
Year Ended June 30,
----------------------
2003 2002
------- ------
Net loss available to common stockholders, as reported $(7,624,144) $(15,218,648)
Add: Stock based employee compensation expense
included in reported net loss 372,465 --
Deduct: Total stock based employee compensation
expense determined under fair value based method
for all awards (1,214,723) --
Pro forma net loss available to common stockholders $(8,466,402) $(15,218,648)
Loss per share
Basic and diluted - as reported $(0.45) $(1.25)
Basic and diluted - pro forma $(0.50) $(1.25)
The fair value of options at the date of grant was established 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
F-8
as accumulated other comprehensive income in stockholders' equity (deficit).
Effective July 1, 2001, the functional and reporting currency is the United
States dollar.
F-8
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
Deferred costs represents royalty payments that became due and payable to SRI
upon the Company's execution of the co-development agreement with Ilex Oncology
advance royalties. These costs have been presented together with research and
development costs on the statement of operations for the years ended June 30,
2003 and 2002.
Property and equipment
Property and equipment are stated at cost, net of accumulated depreciation and
amortization. Property and equipment are depreciated on a straight-line basis
over an estimated three-year useful life.
Goodwill and Other Intangible Assets
Goodwill represents the excess of costs over the fair value of identifiable net
assets of Pathagon. Intangible assets include patents and licensing rights
acquired in connection with the acquisition of Pathagon. The Company accounts
for these assets in accordance with Statement of Financial Accounting Standards
("SFAS") No. 142, Goodwill and Other Intangible Assets. Goodwill and intangible
assets acquired in a purchase business combination and determined to have an
indefinite useful life are not amortized, but instead tested for impairment at
least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142
also requires that intangible assets with estimable useful lives be amortized
over their respective estimated useful lives to their estimated residual values,
and reviewed for impairment in accordance with SFAS No. 144, Accounting for
Impairment or Disposal of Long-Lived Assets ("SFAS No. 144"). The Company does
not have any intangible assets with an indefinite useful life.
Long-Lived Assets
The Company adopted the provisions of SFAS No. 144 on July 1, 2003. In
accordance with SFAS No. 144, long-lived assets, such as property and equipment
and intangible assets subject to amortization are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of
the asset exceeds the fair value of the asset.
Prior to the adoption of SFAS No. 144, the Company accounted for long-lived
assets in accordance with SFAS No. 121, Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of.
Impact of recently issued accounting pronouncements
In July 2002, the FASB Issued Statement 146, "Accounting for Costs Associated
with Exit or Disposal Activities" ("SFAS
F-9
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-9
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.
In May 2003, the Emerging Issues Task Force ("EITF") reached a consensus on EITF
Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables" ("EITF
00-21"). EITF 00-21 provides guidance on how to determine when an arrangement
that involves multiple revenue-generating activities or deliverables should be
divided into separate units of accounting for revenue recognition purposes, and
if this division is required, how the arrangement consideration should be
allocated among the separate units of accounting. The guidance in the consensus
is effective for revenue arrangements entered into in quarters beginning after
June 15, 2003. The adoption of EITF 00-21 did not impact the Company's
consolidated financial position or results of operations, but could affect the
timing or pattern of revenue recognition for future collaborative research
and/or license agreements.
NOTE 2 - Acquisition of Pathagon
On February 1, 2002, the Company completed the acquisition of Pathagon. The
acquisition was accounted for as a purchase business combination in accordance
with SFAS 141. The Company issued 7,000,000 shares of common stock to complete
the acquisition, which was valued at $12,600,000 based on the 5-day average
trading price of the stock ($1.80) surrounding November 22, 2001, the day of the
Company's announcement of the agreed upon acquisition. The acquired patents and
licensing rights of OLIGON(R) and methylene blue (collectively referred to as
"Purchased Technologies"), were recorded at their fair market value which was
approximately $17,576,000. The patent and licensing rights acquired are being
amortized over 13 years, which is the estimated remaining contractual life of
these assets. Since the estimated fair value of the Purchased Technologies was
at least equal to the amount paid, the purchase price, net of assumed
liabilities, was allocated to
F-10
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-10
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-11
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-12
The Company received a nonrefundable, upfront payment of $1.35 million when they
entered into the agreement with ILEX and is entitled to receive milestone
payments of $2.5 million upon completion of management designed pivotal Phase II
clinical trials of Clofarabine and $5.0 million after submission of a new drug
application with the FDA. The upfront payment was deferred and recognized as
revenues ratably, on a straight-line basis concurrent with certain development
activities described in the contract, through December 2002. The Company
recognized revenues of approximately $490,000 and $800,000_in connection with
the up-front payment of ILEX agreement for the years ended June 30, 2003 and
2002, respectively.
Deferred costs represents royalty payments that became due and payable to SRI
upon the Company's execution of the co-development agreement with Ilex Oncology.
The Company also defers all royalty payments made to SRI and recognizes these
costs ratably, on a straight-line basis concurrent with revenue that is
recognized in connection with Ilex agreement. Research and Development includes
approximately $207,000 and $368,000 for the years ended June 30, 2003 and 2002,
respectively, related to such charges.
F-12
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 June 2003, we entered into a supply agreement with Ferro-Pfanstiehl
Laboratories ("Ferro"), pursuant to which Ferro has agreed to manufacture and
supply 100% of Bioenvisions global requirements for Clofarabine-API. Subject to
certain circumstances, this agreement will expire on the fifth anniversary date
of the first regulatory approval of Clofarabine drug product.
In June 2003, the Company entered into a development agreement with Ferro,
pursuant to which Ferro agreed to perform certain development activities to
scale up, develop, finalize, and supply CTM and GMP supplier qualifications of
the API-Clofarabine. Subject to certain circumstances, this agreement expires
upon the completion of the development program. The development agreement is
milestone based and payments are to be paid upon completion of each milestone.
If Ferro has not completed the development agreement by December 2007, the
development agreement will automatically terminate without further action by
either party. Through June 30, 2003, the Company paid and capitalized $50,000
related to development costs.
In May 2003, we entered into a sub-license agreement with Dechra, pursuant to
which Dechra has been granted a sub-license for all of Bioenvision's rights and
entitlements to market and distribute modrenal in the United States and Canada
solely in connection with animal health applications. Subject to certain
circumstances, this agreement expires upon expiration of the last patent related
to modrenal or the completion of the last royalty set forth in the agreement.
Through June 30, 2003, we have recognized deferred revenue and deferred costs
related to this agreement as described below in this Note 4. The Company
received an upfront non-refundable payment of $1.25 million upon execution of
this agreement and may receive up to an additional $3.75 million upon the
achievement by Dechra of certain milestones set forth in the agreement.
In May 2003, we entered into a master services agreement with
Penn-Pharmaceutical Services Limited ("Penn"), pursuant to which Penn has agreed
to label, package and distribute clofarabine on behalf of and at our request.
The services to be performed by Penn also include regulatory support and the
manufacture , quality control, packaging and distribution of proprietary
medicinal products including clinical trials supplies and samples. Subject to
certain circumstances, the term of this agreement is twelve months and renews
for subsequent twelve month periods unless either party tenders notice of
termination upon no less than three month prior written notice
F-13
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.
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-14
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-15
BIOENVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
NOTE 6 - Stockholders' transactions
Common Stock and Securities Convertible into Common Stock
In April 2001, in accordance with the terms of the Company's stock option plan,
the Company issued the following options at an exercise price of $1.25 per
share, which immediately vested:
o a total of 2,200,000 options to employees (Christopher Wood - 1,500,000
options; Stuart Smith - 500,000 options; and Thomas Scott Nelson - 200,000
options);
o a total of 2,654,544 options to certain consultants to the Company; and
o a total of 500,000 options to Phoenix Ventures, which were issued in
connection with a credit facility made available to the Company by Glen
Investments Limited, a Jersey (Cnannel Islands) corporation wholly owned
by Kevin R. Leech, a U.K. citizen and one of the Company's stockholders,
which facility was terminated in August 2001.
Originally, the terms of the options were that each option could be exercised
after April 30, 2001 for a period of three years, whereby the options would no
longer be able to be exercised after April 30, 2004 unless otherwise agreed to
with the Company. In July 2002, the Company changed the three-year term to a
five-year term. The extension of the foregoing options to a five-year term
required the Company to record additional compensation, interest and finance
charges and consulting fees and expenses of $422,500 in the quarter ended
September 30, 2002.
In August 2001, the Board of Directors approved the issuance of 208,333 shares
of common stock to its officers and directors in exchange for accrued
compensation at a rate of $1.25 per share. In October 2001, the Board of
Directors approved the issuance of 134,055 shares of commons stock to its
officers and directors in exchange for accrued compensation of approximately
$206,000.
In connection with securing the Facility with SCO Capital in November 2001, the
Company issued warrants to purchase 1,500,000 shares of the Company's common
stock at a strike price of $1.25 per share, subject to certain anti-dilution
adjustments. The warrants expire five years from the date of issuance. The
Company measured the fair market value of the warrants and recorded financing
costs of $1,872,000, which were amortized over the term of the Facility. The
warrants expire five years from the date of issuance. The credit facility with
SCO Capital was terminated in May 2002 at which time the Company received a
payoff letter evidencing such termination.
In December 2001, the Company granted 200,000 shares of common stock to a
consultant to the Company, these shares vesting over an eighteen month period.
Compensation expense of $212,108 and $80,456 were recorded as consulting fees
for the years ended June 30, 2003 and 2002, respectively.
On February 1, 2002, in connection with the Company's acquisition of Pathagon,
the Company issued 7,000,000 shares of its common stock. In connection with the
closing of the acquisition of Pathagon, the Company also entered into
Registration Rights Agreements, with the persons or entities who were
shareholders of Pathagon, pursuant to which the Company is required to register
the offer and resale of the shares of common stock issued in the acquisition.
Affiliates of SCO Capital owned 82% of Pathagon prior to the acquisition.
On May 12, 2002, a majority of the Company's shareholders delivered a written
consent to authorize amendment of the Company's certificate of incorporation,
approved by the Company's Board of Directors, to increase the number of
authorized shares of common stock from 25,000,000 to 50,000,000 and to authorize
the issuance of 10,000,000 shares of the Company's Series A Convertible
Preferred Stock. The shareholder action became effective, and the amendment was
filed and became effective, on April 30, 2002.
F-16
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-17
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-19
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
Average
Weighted Remaining Number of
Average Number of Contractual Stock Options
Exercise Price Range Exercise 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-20
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-20
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-21
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 on
April 1, 2004, thereunto duly authorized.
BIOENVISION, INC.
By /s/ Christopher B. Wood, M.D.
----------------------------------
Christopher B. Wood, M.D.
Chairman and Chief Executive Officer
(Principal Executive Officer)
By /s/ David P. Luci
----------------------------------
David P. Luci
Director of Finance, General Counsel and
Corporate Secretary
(Principal Financial and
Accounting Officer)
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 April 1, 2004
----------------------------- and Officer and Director
Christopher B. Wood, M.D. (Principal Executive Officer)
* Director of Finance, General Counsel and April 1, 2004
---------------------- Corporate Secretary
David P. Luci (Principal Financial and Accounting Officer)
* Director April 1, 2004
----------------------
Thomas S. Nelson, C.A.
/s/ Michael Kauffman
---------------------- Director April 1, 2004
Michael Kauffman
* Director April 1, 2004
----------------------
Jeffrey B. Davis
* Director April 1, 2004
----------------------
Andrew N. Schiff
April 1, 2004
* Director
----------------------
Steven A. Elms