10-Q 4 f10qmarch2001.txt PERIOD ENDED MARCH 31, 2001 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 0-25544 Miravant Medical Technologies -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Delaware 77-0222872 -------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 336 Bollay Drive, Santa Barbara, California 93117 -------------------------------------------------------------------------------- (Address of principal executive offices, including zip code) (805) 685-9880 -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| As of May 10, 2001, the number of shares outstanding of the registrant's common stock was 18,582,750. TABLE OF CONTENTS PART I. FINANCIAL INFORMATION
Page Item 1. Consolidated Financial Statements Consolidated balance sheets as of March 31, 2001 and December 31, 2000................................................... 4 Consolidated statements of operations for the three months ended March 31, 2001 and 2000............................................. 5 Consolidated statements of cash flows for the three months ended March 31, 2001 and 2000............................................. 6 Notes to consolidated financial statements ........................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ................................ 8 Item 3. Qualitative and Quantitative Disclosures About Market Risk............ 27 PART II. OTHER INFORMATION Item 2. Changes in Securities................................................. 28 Item 6. Exhibits and Reports on Form 8-K...................................... 28 Signatures ........................................................... 29
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This quarterly report on Form 10-Q contains forward-looking statements, which involve known and unknown risks and uncertainties. These statements relate to our future plans, objectives, expectations and intentions. These statements may be identified by the use of words such as "may," "will," "should," "potential," "expects," "anticipates," "intends," "plans," "believes," and similar expressions. These statements are based on our current beliefs, expectations and assumptions and are subject to a number of risks and uncertainties. Our actual results could differ materially from those discussed in these statements. See "Risk Factors" for a discussion of certain risks, including those related to our operating losses and our products, strategic collaborations and risks related to our industry. PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS MIRAVANT MEDICAL TECHNOLOGIES CONSOLIDATED BALANCE SHEETS
March 31, December 31, 2001 2000 -------------------- ------------------- (Unaudited) Assets Current assets: Cash and cash equivalents............................................... $ 2,255,000 $ 1,935,000 Investments in short-term marketable securities......................... 14,801,000 18,900,000 Accounts receivable..................................................... 246,000 932,000 Prepaid expenses and other current assets............................... 1,334,000 967,000 -------------------- ------------------- Total current assets....................................................... 18,636,000 22,734,000 Property, plant and equipment: Vehicles................................................................ 28,000 28,000 Furniture and fixtures.................................................. 1,649,000 1,649,000 Equipment............................................................... 5,908,000 5,882,000 Leasehold improvements.................................................. 4,548,000 4,538,000 -------------------- ------------------- 12,133,000 12,097,000 Accumulated depreciation................................................ (10,099,000) (9,781,000) -------------------- ------------------- 2,034,000 2,316,000 Investments in affiliates.................................................. 759,000 859,000 Deferred financing costs................................................... 1,194,000 1,287,000 Patents and other assets................................................... 870,000 831,000 -------------------- ------------------- Total assets............................................................... $ 23,493,000 $ 28,027,000 ==================== =================== Liabilities and stockholders' deficit Current liabilities: Accounts payable........................................................ $ 2,313,000 $ 2,665,000 Accrued payroll and expenses............................................ 594,000 638,000 -------------------- ------------------- Total current liabilities.................................................. 2,907,000 3,303,000 Long-term liabilities: Long-term debt.......................................................... 25,321,000 24,794,000 Sublease security deposits.............................................. 94,000 94,000 -------------------- ------------------- Total long-term liabilities................................................ 25,415,000 24,888,000 Stockholders' deficit: Common stock, 50,000,000 shares authorized; 18,582,750 and 18,576,503 shares issued and outstanding at March 31, 2001 and December 31, 2000, respectively................................... 158,826,000 158,842,000 Notes receivable from officers.......................................... (493,000) (487,000) Deferred compensation................................................... (969,000) (1,220,000) Accumulated other comprehensive loss.................................... (232,000) (132,000) Accumulated deficit..................................................... (161,961,000) (157,167,000) -------------------- ------------------- Total stockholders' deficit................................................ (4,829,000) (164,000) -------------------- ------------------- Total liabilities and stockholders' deficit................................ $ 23,493,000 $ 28,027,000 ==================== =================== See accompanying notes.
MIRAVANT MEDICAL TECHNOLOGIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three months ended March 31, 2001 2000 -------------------- --------------------- Revenues: License - contract research and development....... $ 82,000 $ 1,369,000 Grants............................................ -- 9,000 -------------------- --------------------- Total revenues....................................... 82,000 1,378,000 Costs and expenses: Research and development.......................... 2,885,000 4,719,000 Selling, general and administrative............... 1,664,000 1,548,000 -------------------- --------------------- Total costs and expenses............................. 4,549,000 6,267,000 Loss from operations................................. (4,467,000) (4,889,000) Interest and other income (expense): Interest and other income......................... 321,000 268,000 Interest expense.................................. (648,000) (380,000) -------------------- --------------------- Total net interest expense........................... (327,000) (112,000) -------------------- --------------------- Net loss............................................. $ (4,794,000) $ (5,001,000) ==================== ===================== Net loss per share - basic and diluted............... $ (0.26) $ (0.28) ==================== ===================== Shares used in computing net loss per share.......... 18,579,108 18,112,326 ==================== ===================== See accompanying notes.
MIRAVANT MEDICAL TECHNOLOGIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three months ended March 31, Operating activities: 2001 2000 ------------------- ---------------------- Net loss.......................................................... $ (4,794,000) $ (5,001,000) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization.................................. 337,000 451,000 Amortization of deferred compensation.......................... 144,000 201,000 Stock awards................................................... 91,000 40,000 Non-cash interest and amortization of deferred financing costs on long-term debt............................ 620,000 379,000 Changes in operating assets and liabilities: Accounts receivable......................................... 686,000 4,276,000 Prepaid expenses and other assets........................... (374,000) (361,000) Accounts payable and accrued payroll........................ (402,000) (1,213,000) ------------------- ---------------------- Net cash used in operating activities............................. (3,692,000) (1,228,000) Investing activities: Purchases of marketable securities ............................... -- (5,100,000) Sales of marketable securities ................................... 4,099,000 -- Purchases of patents.............................................. (51,000) (1,000) Sublease security deposits........................................ -- (14,000) Purchases of property, plant and equipment........................ (36,000) (100,000) ------------------- ---------------------- Net cash provided by (used in) investing activities............... 4,012,000 (5,215,000) Financing activities: Proceeds from issuance of Common Stock, less issuance costs....... -- 1,676,000 ------------------- ---------------------- Net cash provided by financing activities......................... -- 1,676,000 Net increase (decrease) in cash and cash equivalents.............. 320,000 (4,767,000) Cash and cash equivalents at beginning of period.................. 1,935,000 19,168,000 ------------------- --------------------- Cash and cash equivalents at end of period........................ $ 2,255,000 $ 14,401,000 =================== ===================== Supplemental disclosures: Cash paid for: State taxes..................................................... $ 3,000 $ 4,000 ==================== ===================== Interest ....................................................... $ -- $ -- ==================== ===================== See accompanying notes.
MIRAVANT MEDICAL TECHNOLOGIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation The information contained herein has been prepared in accordance with Rule 10-01 of Regulation S-X. The information at March 31, 2001 and for the three month periods ended March 31, 2001 and 2000, is unaudited. In the opinion of management, the information reflects all adjustments necessary to make the results of operations for the interim periods a fair statement of such operations. All such adjustments are of a normal recurring nature. Interim results are not necessarily indicative of results for a full year. For a presentation including all disclosures required by accounting principles generally accepted in the United States, these financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2000 included in the Miravant Medical Technologies Annual Report on Form 10-K filed with the Securities and Exchange Commission. 2. Comprehensive Income (Loss) For the three months ended March 31, 2001 and 2000, comprehensive loss amounted to approximately $4.9 million and $3.9 million, respectively. The difference between net loss and comprehensive loss relates to the change in the unrealized loss or gain the Company recorded for its available-for-sale securities on its investment in its affiliate Xillix Technologies Corp. 3. Per Share Data Basic loss per common share is computed by dividing the net loss by the weighted average shares outstanding during the period. Diluted earnings per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted to common stock. Since the effect of the assumed exercise of common stock options and other convertible securities was anti-dilutive, basic and diluted loss per share as presented on the consolidated statements of operations are the same. 4. Reclassifications Certain reclassifications have been made to the 2000 consolidated financial statements to conform to the current period presentation. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements and accompanying Notes. General Since our inception, we have been principally engaged in the research and development of drugs and medical device products for use in PhotoPoint(TM), our proprietary technologies for photodynamic therapy. We have been unprofitable since our founding and have incurred a cumulative net loss of approximately $162.0 million as of March 31, 2001. We expect to continue to incur substantial, and possibly increasing, operating losses for the next few years due to continued and increased spending on research and development programs, the funding of preclinical studies, clinical trials and regulatory activities and the costs of manufacturing and administrative activities. Our historical revenues primarily reflect income earned from licensing agreements, grants awarded, royalties from device product sales, milestone payments, payments for our devices and interest income. To date, we have received no revenue from the commercial sale of drug products and we are not permitted to engage in commercial sales of drugs or devices until such time, if ever, as we receive requisite regulatory approvals. As a result, we do not expect to record significant commercial product sales or royalties related to such product sales until such approvals are received. Until we commercialize our product(s), we expect revenues to continue to be attributed to licensing agreements. Additional revenues will also be provided in the near future from sales of drug components of SnET2 to Pharmacia Corporation. These drug components are manufactured by us and are used to produce our drug SnET2, which is currently being used in preclinical studies and Phase III clinical trials for wet age-related macular degeneration, or AMD. We anticipate that future revenues and results of operations may continue to fluctuate significantly depending on, among other factors, the timing and outcome of applications for regulatory approvals, our or our collaborative partners' ability to successfully manufacture, market and distribute our drug and device products, the level of participation of our collaborative partners in our preclinical studies and clinical trials and/or the restructuring or establishment of collaborative arrangements for the development, manufacturing, marketing and distribution of some of our products. We anticipate our operating activities will result in substantial, and possibly increasing, operating losses for the next few years. Pharmacia Corporation, with our assistance, is currently conducting the Phase III clinical trials for the treatment of AMD. These trials were fully enrolled in December 1999, and these patients are now in the two-year follow-up period for safety and efficacy evaluation. Pharmacia Corporation, which has assumed control of the clinical and regulatory aspects of SnET2 in ophthalmology and the related Phase III AMD clinical trials, has elected to continue the clinical trials through to the conclusion of the two-year follow-up period, which is December 2001. Subsequently, a full analysis of the safety and efficacy data will be performed and a determination of the status of the SnET2 AMD program will be made. We are also conducting preclinical studies of new photoselective drugs for cardiovascular diseases, in particular for the prevention and treatment of restenosis. Restenosis is the renarrowing of an artery that commonly occurs after balloon angioplasty for obstructive coronary artery disease. In our dermatology program, we have developed a topical formulation to deliver a new photoselective drug through the skin and continue to conduct preclinical studies with the expectation of pursuing clinical studies in 2001. In oncology, we are conducting preclinical research of our photoselective therapy to destroy abnormal blood vessels in tumors. We are pursuing this tumor research with some of our new photoselective drugs and also investigating combination therapies with PhotoPoint therapy and other types of compounds. Based upon the outcome of these studies and various economic and development factors, including cost, reimbursement and the available alternative therapies, we may or may not elect to further develop PhotoPoint therapy procedures in ophthalmology, cardiovascular disease, dermatology, oncology or in any other indications. Under the 1998 amendments of the License Agreements with Pharmacia Corporation, we were to conduct all preclinical studies and U.S. clinical trials in AMD and would be reimbursed by Pharmacia Corporation for most of the out-of-pocket expenses incurred. Pharmacia Corporation was to conduct all international clinical trials for AMD. The 1998 amendments also returned to us the rights for SnET2 in dermatology, and provided for the quarterly funding of $2.5 million for eight quarters for use in our oncology and urology programs. In January 1999, we entered into an Equity Investment Agreement, whereby Pharmacia Corporation purchased 1,136,533 shares of our Common Stock for an aggregate purchase price of $19.0 million, or $16.71 per share. Also, in February 1999, under a separate Credit Agreement, Pharmacia Corporation extended to us up to $22.5 million in credit, which was subject to certain limitations and requirements, including interest at a variable rate, in the form of up to six quarterly loans of $3.75 million each to be used to support our ophthalmology, oncology and other development programs, as well as for general corporate purposes. As of March 31, 2001, we have received the entire $22.5 million available under the Credit Agreement. Under the terms of the Credit Agreement and in connection with each draw-down, we were obligated to issue Pharmacia Corporation a certain number of warrants based on the amount borrowed. The exercise price of each warrant is equal to 140% of the average of the closing bid prices of the Common Stock for the ten trading days immediately preceding the borrowing request for the related loan. In connection with the quarterly loans received, we have issued warrants to purchase 360,000 shares of Common Stock at an exercise price of $11.87 per warrant share for 120,000 shares, $14.83 per warrant share for 120,000 shares and $20.62 per warrant share for the last 120,000 shares. Additionally, in connection with the Equity Investment Agreement and the Credit Agreement, in February 1999 we amended the 1998 amendments of the License Agreements with Pharmacia Corporation to eliminate the remaining future cost reimbursements for oncology and urology and any future milestone payments in AMD. The amendments are referred to in this report as the 1999 Amendments. In connection with the 1999 Amendments, we refined the use of our resources to correspond with the change in cost reimbursement and assistance from Pharmacia Corporation while maintaining our core development programs. We will continue to evaluate the use of our resources in connection with our operating cash balances, funding availability, external resource assistance and as opportunities present themselves. In December 1999, we transitioned the majority of the operations of the Phase III AMD clinical trials, as well as the drug manufacturing scale-up responsibility, to Pharmacia Corporation in accordance with the 1999 Amendments. Pharmacia Corporation is now responsible for directly funding the majority of the Phase III AMD clinical trials and drug manufacturing scale-up costs. We will continue to be responsible for some of the drug and device development and manufacturing costs and the majority of the preclinical studies required for the possible New Drug Application, or NDA, submission for AMD and will be reimbursed for most of those costs in accordance with the 1999 Amendments. In January 2001, we entered into a non-binding letter of intent with Pharmacia Corporation to provide us up to an additional $20.0 million of funding. As of May 11, 2001, we are in the process of finalizing this funding and the related terms and conditions under which any such funding would be available to us. Results of Operations Revenues. Our revenues decreased from $1.4 million for the three months ended March 31, 2000 to $82,000 for the three months ended March 31, 2001. The decrease in license revenues for the three months ended March 31, 2001 compared with the same period in 2000 is primarily attributed to the finalization of certain preclinical studies and drug and device activities, which are reimbursed by Pharmacia Corporation, to support a possible NDA submission for AMD. In addition, the consistent decrease of license revenues over these periods has been a result of the December 1999 transition of the majority of the operations and funding responsibility of the Phase III AMD clinical trials to Pharmacia Corporation in accordance with the 1999 Amendments. We are responsible for the majority of the preclinical studies and some of the drug and device development and manufacturing necessary for the possible NDA submission for AMD and will be reimbursed for those costs in accordance with the 1999 Amendments. We anticipate the 2001 license revenue related to the reimbursement of out-of-pocket or direct costs, as well as our related expenses, will continue to decrease compared to last year as we continue to finalize the preclinical studies and our AMD responsibilities. The level of license and grant income is likely to fluctuate materially from period to period and in the future depending on the amount of reimbursable preclinical and clinical costs incurred and/or reimbursed, the extent of development activities under the 1999 Amendments and any future license agreements and the amount of grant income awarded and expended. We currently do not have any grant funds available nor have any grants been awarded. Research and Development. Our research and development expenses decreased to $2.9 million for the three months ended March 31, 2001 from $4.7 million for the three months ended March 31, 2000. The decrease in research and development expenses for the three months ended March 31, 2001 compared to the same period in 2000 is primarily related to the near completion of our responsibilities for the preclinical studies required to prepare a possible NDA submission for AMD. Research and development expenses for the three months ended March 31, 2001 and March 31, 2000 consisted of: * Payroll and other operating costs; * The preclinical studies required to prepare a possible NDA submission for AMD; * Development work associated with the development of existing and new drug compounds and formulations; and * Preclinical and clinical programs. Future research and development expenses may fluctuate depending on available funds, continued expenses incurred in our preclinical studies and clinical trials in our ophthalmology, dermatology, cardiovascular and other programs, costs associated with the purchase of raw materials and supplies for the production of devices and drug for use in preclinical studies and clinical trials, the pharmaceutical manufacturing requirements and expansion of our research and development programs, which includes the increased hiring of personnel, the continued expansion of existing or the commencement of new preclinical studies and clinical trials and the development of new drug compounds and formulations. Selling, General and Administrative. Our selling, general and administrative expenses for the three months ended March 31, 2001 of $1.7 million remained consistent with the $1.5 million incurred in the three months ended March 31, 2000. Selling, general and administrative expenses consist primarily of payroll, taxes and other operating costs. Future selling, general and administrative expenses are expected to remain consistent with prior years and may fluctuate depending on available funds, and the support required for research and development activities, continuing corporate development and professional services, compensation expense associated with stock options and warrants granted to consultants and expenses for general corporate matters. Loss in Investment in Affiliate. In connection with the $2.0 million line of credit we have provided to our affiliate, Ramus Medical Technologies or Ramus, we have recorded a reserve for the entire $2.0 million outstanding credit line balance plus accrued interest of $495,000 as of March 31, 2001. Interest and Other Income. Interest and other income increased to $321,000 for the three months ended March 31, 2001 from $268,000 for the three months ended March 31, 2000. The fluctuations in interest and other income are directly related to the levels of cash and marketable securities earning interest and the rates of interest being earned. The level of future interest and other income will primarily be subject to the level of cash balances we maintain from period to period and the interest rates earned. Interest Expense. Interest expense increased to $648,000 for the three months ended March 31, 2001 from $380,000 for the same period in 2000. The increase for the three month period is directly related to the amount of borrowings under the Credit Agreement with Pharmacia Corporation. At March 31, 2001, the outstanding principal and interest due was $25.3 million as compared to $15.7 million due at March 31, 2000. In addition, the increase also related to the value of the additional warrants issued in connection with the additional borrowings under the Credit Agreement. Interest expense may fluctuate in the future based on the interest rate related to the borrowings and the balance of such borrowings. Liquidity and Capital Resources Since inception through March 31, 2001, we have accumulated a deficit of approximately $162.0 million and expect to continue to incur substantial, and possibly increasing, operating losses for the next few years. We have financed our operations primarily through private placements of Common Stock and Preferred Stock, private placements of convertible notes and short-term notes, our initial public offering, a secondary public offering, Pharmacia Corporation's purchases of Common Stock and credit arrangements. As of March 31, 2001, we have received proceeds from the sale of equity securities, convertible notes and credit arrangements of approximately $223.0 million. We do not anticipate achieving profitability in the next few years, as such we expect to continue to rely on external sources of financing to meet our cash needs for the foreseeable future. In January 1999, under the Equity Investment Agreement, Pharmacia Corporation purchased 1,136,533 shares of our Common Stock for an aggregate purchase price of $19.0 million. In February 1999, in accordance with the Credit Agreement, Pharmacia Corporation also extended to us up to $22.5 million in credit to be used to support our ophthalmology, oncology and other development programs, as well as for general corporate purposes. We were able to issue promissory notes for the amounts borrowed until December 2000. Beginning in 2001, we will be able to issue promissory notes for the quarterly interest due for any quarter in which our adjusted net earnings, as described by the Credit Agreement, is less than the quarterly interest due. The ability to issue promissory notes may also be restricted by certain sales of our equity securities. The promissory notes for both principal and interest mature in June 2004 and, at our option, can be repaid in the form of our Common Stock, subject to certain limitations and restrictions as defined by the Credit Agreement. The promissory notes accrue interest at the prime rate, which was 8.00% at March 31, 2001. As of March 31, 2001, in accordance with the Credit Agreement, we have received all six quarterly loans for a total of $22.5 million available under the Credit Agreement. In accordance with the Credit Agreement, we have issued promissory notes to Pharmacia Corporation for the loan amounts received and issued additional promissory notes for a total of $2.8 million for the related interest due on each of the quarterly due dates through March 31, 2001. In connection with the borrowings received, we have issued warrants to purchase 360,000 shares of Common Stock at an exercise price of $11.87 per warrant share for 120,000 shares, $14.83 per warrant share for 120,000 shares and $20.62 per warrant share for 120,000 shares. The warrants to purchase 360,000 shares of Common Stock are callable by us if the average closing prices of the Common Stock for 30 consecutive trading days, preceding such request, exceeds the related warrant exercise price. For the three months ended March 31, 2001 and March 31, 2000 we required cash for operations of $3.7 million and $1.2 million, respectively. The increase in cash required for operations for the three months ended March 31, 2001 compared to the three months ended March 31, 2000 was due primarily to the amount and timing of the funds received from Pharmacia Corporation for reimbursable research and development costs. For the three months ended March 31, 2001 net cash provided by investing activities was $4.0 million and for the three months ended March 31, 2000 net cash used in investing activities was $5.2 million. For the three months ended March 31, 2001, the amounts provided by investing activities related to the sales of marketable securities that were used to fund operations. For the three months ended March 31, 2000, the funds used for investing activities were used to purchase investments to maximize the interest earned on our cash balances and the amounts were based on an analysis of the funds available for investment. For the three months ended March 31, 2000, the net cash of $1.7 million provided by financing activities was related to warrant and option exercises. There was no cash provided by or used in financing activities for the three months ended March 31, 2001. We invested a total of $9.4 million in property and equipment from 1996 through March 31, 2001. During 1998, we entered into a new lease agreement for an additional facility, which we subleased in December 1999. Based on available funds, we may continue to purchase property and equipment in the future as we expand our preclinical, clinical and research and development activities as well as the buildout and expansion of laboratories and office space. In addition to receiving funds through private and public stock offerings, we have also received funding through the exercise of warrants and stock options. Based on the exercise prices, expiration dates and call features contained in certain warrants, and depending on the market value of our Common Stock, we may receive additional funding through the exercise of these outstanding warrants and stock options in the future. Our future capital funding requirements will depend on numerous factors including: * The progress and magnitude of our research and development programs, preclinical studies and clinical trials; * The time involved in obtaining regulatory approvals; * The cost involved in filing and maintaining patent claims; * Competitor and market conditions; * Investment opportunities; * Our ability to establish and maintain collaborative arrangements; * The level of Pharmacia Corporation's involvement in our Phase III AMD clinical trials; * The cost of manufacturing, manufacturing scale-up and the cost and effectiveness of commercialization activities and arrangements; * The extent and nature of costs reimbursed by current and future collaborations; * Our ability to maintain the covenants set forth in the Credit Agreement with Pharmacia Corporation; and * Our ability to obtain grants to finance research and development projects. Based on our current cash and investment balances, we anticipate that we have sufficient cash to fund our operations through December 2001. We have also entered into a non-binding letter of intent with Pharmacia Corporation for additional funding of up to $20.0 million. If we receive the entire amount of this additional funding, then we may have sufficient cash to fund our operations through December 2002. Our ability to generate substantial additional funding to continue our research and development activities, preclinical studies and clinical trials and manufacturing, and administrative activities and to pursue any additional investment opportunities is subject to a number of risks and uncertainties and will depend on numerous factors including: * Our ability to successfully negotiate and complete our funding agreement with Pharmacia Corporation; * Our ability to raise funds in the future through public or private financings, collaborative arrangements or from other sources; * Our requirement to allocate 50% of the net proceeds from public or private financings towards the repayment of the funds received under the Credit Agreement with Pharmacia Corporation; * The potential for equity investments, collaborative arrangements, license agreements or development or other funding programs with us in exchange for manufacturing, marketing, distribution or other rights to products developed by us; * The amount of funds received from outstanding warrant and stock option exercises; * Our ability to maintain our existing collaborative arrangements; * Our ability to liquidate our equity investments in Ramus, Xillix or other assets; * Our requirement to allocate 100% of the net proceeds from the liquidation of an existing asset towards the repayment of the funds received under the Credit Agreement with Pharmacia Corporation; and * Our ability to collect the loan and accrued interest provided to Ramus under their credit agreement with us. We cannot guarantee that additional funding will be available to us when needed, if at all. If additional funding is not available, we may be required to scale back our research and development programs, preclinical studies and clinical trials and administrative activities and our business and financial results and condition would be materially adversely affected. RISK FACTORS Factors Affecting Future Operating Results You should carefully consider the risks described below before making an investment decision. The risks and uncertainties described below are not the only ones facing our company. Our business operations may be impaired by additional risks and uncertainties that we do not know of or that we currently consider immaterial. Our business, results of operations or cash flows may be adversely affected if any of the following risks actually occur. In such case, the trading price of our Common Stock could decline, and you may lose all or part of your investment. This report also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors, including the risks described below and elsewhere in this report. RISKS RELATED TO OUR BUSINESS ALL OF OUR PRODUCTS, EXCEPT SNET2, ARE IN AN EARLY STAGE OF DEVELOPMENT AND ALL OF OUR PRODUCTS, INCLUDING SNET2, MAY NEVER BE SUCCESSFULLY COMMERCIALIZED. Our products, except SnET2, are at an early stage of development and our ability to successfully commercialize these products, including SnET2, is dependent upon: * Successfully completing our research or product development efforts or those of our collaborative partners; * Successfully transforming our drugs or devices currently under development into marketable products; * Obtaining the required regulatory approvals; * Manufacturing our products at an acceptable cost and with appropriate quality; * Favorable acceptance of any products marketed; and * Successful marketing and sales efforts of our corporate partner(s). We may not be successful in achieving any of the above, and if we are not successful, our business, financial condition and operating results would be adversely affected. The time frame necessary to achieve these goals for any individual product is long and uncertain. Most of our products currently under development will require significant additional research and development and preclinical studies and clinical trials, and all will require regulatory approval prior to commercialization. The likelihood of our success must be considered in light of these and other problems, expenses, difficulties, complications and delays. OUR PRODUCTS, IN PARTICULAR SNET2, MAY NOT SUCCESSFULLY COMPLETE THE CLINICAL TRIALS PROCESS AND WE MAY BE UNABLE TO PROVE THAT OUR PRODUCTS ARE SAFE AND EFFICACIOUS. All of our drug and device products currently under development will require extensive preclinical studies and clinical trials prior to regulatory approval for commercial use, which is a lengthy and expensive process. None of our products have completed testing for efficacy or safety in humans. Some of the risks and uncertainties related to safety and efficacy testing and the completion of preclinical studies and clinical trials include: * Our ability to demonstrate to the Food and Drug Administration, or FDA, that SnET2 or any of our other products is safe and efficacious; * Our ability to successfully complete the testing for any of our compounds within any specified time period, if at all; * Clinical data reported may change as a result of the continuing evaluation of patients; * Data obtained from preclinical studies and clinical trials are subject to varying interpretations which can delay, limit or prevent approval by the FDA or other regulatory authorities; * Problems in research and development, preclinical studies or clinical trials that will cause us to delay, suspend or cancel clinical trials; and * As a result of changing economic considerations, competitive or new technological developments, market approvals or changes, clinical or regulatory conditions, or clinical trial results, our focus may shift to other indications, or we may determine not to further pursue one or more of the indications currently being pursued. To date, we have limited experience in conducting clinical trials. We are relying on Pharmacia Corporation and contract research organizations for our AMD clinical trials. We will either need to rely on third parties, including our collaborative partners, to design and conduct any required clinical trials or expend resources to hire additional personnel or engage outside consultants or contract research organizations to administer current and future clinical trials. We may not be able to find appropriate third parties to design and conduct clinical trials or we may not have the resources to administer clinical trials in-house. Our ability to complete clinical trials is dependent upon the rate of patient enrollment. Patient enrollment is a function of many factors including: * The nature of our clinical trial protocols; * Existence of competing protocols or treatments; * Size and longevity of the target patient population; * Proximity of patients to clinical sites; and * Eligibility criteria for the trials. There can be no assurance that we will obtain or maintain adequate levels of patient enrollment in current or future clinical trials. Delays in planned patient enrollment may result in increased costs, delays or termination of clinical trials, which could have material adverse effects. In addition, the FDA may suspend clinical trials at any time if, among other reasons, it concludes that patients participating in such trials are being exposed to unacceptable health risks. There is an approved treatment for AMD and our patients enrolled in our Phase III AMD clinical trials may choose to drop out of the trial or pursue alternative treatments. This could result in delays or incomplete clinical trial data. Data already obtained from preclinical studies and clinical trials of our products under development do not necessarily predict the results that will be obtained from future preclinical studies and clinical trials. A number of companies in the pharmaceutical industry, including biotechnology companies like us, have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. The failure to adequately demonstrate the safety and effectiveness of a product under development could delay or prevent regulatory approval of the potential product and would materially harm our business. Our clinical trials may not demonstrate the sufficient levels of safety and efficacy necessary to obtain the requisite regulatory approval or may not result in marketable products. OUR PRODUCTS MAY EXHIBIT ADVERSE SIDE EFFECTS THAT PREVENT THEIR WIDESPREAD ADOPTION OR THAT NECESSITATE WITHDRAWAL FROM THE MARKET. Our PhotoPoint therapy drug and device products may exhibit undesirable and unintended side effects that may prevent or limit their commercial adoption and use. One such side effect upon the adoption of our PhotoPoint therapy drug and device products as potential therapeutic agents may be a period of photosensitivity for a certain period of time after receiving PhotoPoint therapy treatment. This period of photosensitivity is dose dependent and typically declines over time. Currently, this photosensitivity, as it relates to SnET2, is being considered in the clinical trials. Even upon receiving approval by the FDA and other regulatory authorities, our products may later exhibit adverse side effects that prevent widespread use or necessitate withdrawal from the market. The manifestation of such side effects could cause our business to suffer. OUR COLLABORATIVE PARTNERS MAY CONTROL ASPECTS OF OUR CLINICAL TRIALS AND REGULATORY SUBMISSION THAT MAY RESULT IN UNANTICIPATED DELAYS OR TERMINATION OF OUR DEVELOPMENT EFFORTS CAUSING OUR BUSINESS TO SUFFER. Our collaborative partners have certain rights to control aspects of our product and device development and clinical programs. As a result, we may not be able to conduct these programs in the manner we currently contemplate. Pharmacia Corporation In accordance with the 1999 Amendments, we transitioned the majority of the operations of the Phase III AMD clinical trials to Pharmacia Corporation, along with the ophthalmology IND and related filings for SnET2. We will continue to be responsible for the majority of the preclinical studies and some of the drug and device development and manufacturing necessary for a possible NDA submission in AMD. In January 2001, we announced that Pharmacia Corporation performed an interim analysis of the 12-month patient data, and has elected to continue the clinical trials to their 24-month conclusion in December 2001. Subsequently, a full analysis of the safety and efficacy data will be performed and a determination of the status of the SnET2 AMD program will be made. If Pharmacia Corporation fails to complete the clinical trials as agreed upon or fails to file the NDA submission in AMD, we may not be able to continue our development program as planned and this could materially harm our business. Iridex In May 1996, we entered into a co-development and distribution agreement with Iridex, a leading provider of semiconductor-based laser systems to treat eye diseases. The agreement generally provides Miravant with the exclusive right to co-develop with Iridex light producing devices for use in photodynamic therapy in the field of ophthalmology. We will conduct clinical trials and make regulatory submissions with respect to all co-developed devices and Iridex will manufacture all devices for such trials, with costs shared as set forth in the agreement. Iridex is currently the sole supplier of the light producing device used in our AMD clinical trials. We currently have limited capabilities, experience and personnel to manufacture the AMD light producing device. If Iridex fails to provide the devices as agreed upon, we may not be able to continue our development program as planned and this may harm our business. BECAUSE WE ARE RELYING ON OUR CORPORATE PARTNER, PHARMACIA CORPORATION, TO ASSIST US WITH AND TO PROVIDE FUNDS TO CO-DEVELOP OUR POTENTIAL OPHTHALMOLOGY PRODUCTS, WE COULD EXPERIENCE DELAYS IN OUR DEVELOPMENT, AND OUR BUSINESS WILL SUFFER, IF PHARMACIA CORPORATION FAILS TO PROVIDE US WITH ADEQUATE FINANCIAL AND OPERATIONAL SUPPORT. We are relying on Pharmacia Corporation to provide funds and co-develop with us our potential ophthalmology products. We cannot be certain that Pharmacia Corporation will continue to fund the co-development program. If Pharmacia Corporation fails to co-develop our products or fails to provide funding as required, we may not be able to continue our development program as we have planned and our business may be materially harmed. ACCEPTANCE OF OUR PRODUCTS IN THE MARKETPLACE IS UNCERTAIN, AND FAILURE TO ACHIEVE MARKET ACCEPTANCE WILL HARM OUR BUSINESS. Even if approved for marketing, our products may not achieve market acceptance. The degree of market acceptance will depend upon a number of factors, including: * The establishment and demonstration in the medical community of the safety and clinical efficacy of our products and their potential advantages over existing therapeutic products and diagnostic and/or imaging techniques; * Pricing and reimbursement policies of government and third-party payors such as insurance companies, health maintenance organizations and other plan administrators; and * The possibility that physicians, patients, payors or the medical community in general may be unwilling to accept, utilize or recommend any of our products. If our products are not accepted due to these or other factors our business will not develop as planned and may be harmed. OUR BUSINESS IS NOT EXPECTED TO BE PROFITABLE FOR THE FORESEEABLE FUTURE AND WE WILL NEED ADDITIONAL FUNDS TO CONTINUE OUR OPERATIONS IN THE FUTURE. IF WE FAIL TO OBTAIN ADDITIONAL FUNDING, WE COULD BE FORCED TO REDUCE OR CEASE OPERATIONS. We will need substantial additional resources to develop our products. The timing and magnitude of our future capital requirements will depend on many factors, including: * The pace of scientific progress in our research and development programs; * The magnitude of our research and development programs; * The scope and results of preclinical studies and clinical trials; * The time and costs involved in obtaining regulatory approvals; * The costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims; * The costs involved in any potential litigation; * Competing technological and market developments; * Our ability to establish additional collaborations; * Changes in existing collaborations; * Our dependence on others for development and commercialization of our potential products; * The cost of manufacturing, marketing and distribution; and * The effectiveness of our commercialization activities. Based on our current cash and investment balances, we anticipate that we have sufficient cash to fund our operations through December 2001. We have also entered into a non-binding letter of intent with Pharmacia Corporation for additional funding of up to $20.0 million. If we receive the entire amount of this additional funding, then we may have sufficient cash to fund our operations through December 2002. We intend to seek any additional capital needed to fund our operations through new collaborations, the extension of our existing collaboration or through public or private equity or debt financings. However, additional financing may not be available on acceptable terms or at all or may be limited based on our Credit Agreement with Pharmacia Corporation. Any inability to obtain additional financing would adversely affect our business and could cause us to reduce or cease operations. OUR CREDIT AGREEMENT WITH PHARMACIA CORPORATION IS SECURED BY ALL OF OUR ASSETS AND IF WE BECOME UNABLE TO REPAY OUR BORROWINGS UNDER THE CREDIT AGREEMENT, PHARMACIA CORPORATION COULD FORECLOSE ON OUR ASSETS. Our February 1999 credit agreement with Pharmacia Corporation, pursuant to which Pharmacia Corporation has loaned $22.5 million to us, is secured by a lien against all of our assets. Our ability to comply with all covenants and to make scheduled payments or to refinance our obligations with respect to this indebtedness will depend on our financial and operating performance, which in turn will be subject to prevailing economic conditions and certain financial, business and other factors, including factors that are beyond our control. If our cash flow and capital resources become insufficient to fund our debt service obligations or we otherwise default under the credit agreement, Pharmacia Corporation could accelerate the debt and foreclose on our assets. As a result, we could be forced to reduce or cease operations. WE HAVE A HISTORY OF SIGNIFICANT OPERATING LOSSES AND EXPECT TO CONTINUE TO HAVE LOSSES IN THE FUTURE, WHICH MAY FLUCTUATE SIGNIFICANTLY. WE MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY. We have incurred significant operating losses since our inception in 1989 and, as of March 31, 2001, had an accumulated deficit of approximately $162.0 million. We expect to continue to incur significant, and possibly increasing, operating losses over the next few years as we continue to incur increasing costs for research and development, preclinical studies, clinical trials, manufacturing and general corporate activities. Our ability to achieve profitability depends upon our ability, alone or with others, to successfully complete the development of our proposed products, obtain the required regulatory clearances and manufacture and market our proposed products. No revenues have been generated from sales of our drugs and only limited revenues have been generated from sales of our devices. We do not expect to achieve significant levels of revenues for the next few years. Our revenues to date have consisted of license reimbursements, grants awarded, royalties, milestone payments, payments for our devices, and interest income. Our revenues for the foreseeable future are expected to consist primarily of revenue related to license agreements, interest income and non-commercial drug component sales to Pharmacia Corporation. IF WE ARE NOT ABLE TO SUCCESSFULLY MAINTAIN OUR RELATIONSHIP WITH PHARMACIA CORPORATION AND ESTABLISH COLLABORATIVE AND LICENSING ARRANGEMENTS WITH OTHERS, OUR BUSINESS MAY BE HARMED. We have entered into collaborative relationships with certain corporations and academic institutions for the research and development, preclinical studies and clinical trials, licensing, manufacturing, sales and distribution of our products. These collaborative relationships include: * The License Agreements under which we granted to Pharmacia Corporation an exclusive worldwide license to use, distribute and sell SnET2 for therapeutic or diagnostic applications in photodynamic therapy for ophthalmology, oncology and urology; * Definitive agreements with Iridex, Ramus and Xillix for the development of devices for use in photodynamic therapy in the fields of ophthalmology, cardiovascular disease and oncology, respectively; * Definitive agreement with Fresenius for final drug formulation and drug product supply; * Letter agreements with Boston Scientific Corporation, or BSC, and Cordis for the co-development of catheters for use in photodynamic therapy; * Letter agreement with Medicis for the clinical development of PhotoPoint therapy in dermatology; and * Letter agreement with Chiron for the early detection and treatment of lung cancer. The amount of royalty revenues and other payments, if any, ultimately paid by Pharmacia Corporation globally to Miravant for sales of SnET2 is dependent, in part, on the amount and timing of resources Pharmacia Corporation commits to research and development, clinical testing and regulatory approval and marketing and sales activities, which are entirely within the control of Pharmacia Corporation. Pharmacia Corporation may not pursue the development and commercialization of SnET2 and/or may not perform its obligations as expected. We have not yet entered into any definitive collaborative agreements with BSC, Cordis, Medicis or Chiron. These collaborations may not culminate in definitive collaborative agreements or marketable products. Additionally, Iridex, Ramus and Xillix may not continue the development of devices for use in photodynamic therapy, or such development may not result in marketable products. We are currently at various stages of discussions with some of these and other companies regarding the establishment of collaborations. Our current and future collaborations are important to us because they allow us greater access to funds, to research, development or testing resources and to manufacturing, sales or distribution resources that we would otherwise not have. We intend to continue to rely on such collaborative arrangements. Some of the risks and uncertainties related to the reliance on collaborations include: * Our ability to negotiate acceptable collaborative arrangements, including those based upon existing letter agreements; * Future or existing collaborative arrangements may not be successful or may not result in products that are marketed or sold; * Collaborative relationships, such as our license and credit agreements with Pharmacia Corporation, may limit or restrict us; * Collaborative partners are free to pursue alternative technologies or products either on their own or with others, including our competitors, for the diseases targeted by our programs and products; * Our partners may fail to fulfil their contractual obligations or terminate the relationships described above, and we may be required to seek other partners, or expend substantial resources to pursue these activities independently. These efforts may not be successful; and * Our ability to manage, interact and coordinate our timelines and objectives with our strategic partners may not be successful. WE HAVE LIMITED MANUFACTURING AND MARKETING CAPABILITY AND EXPERIENCE AND THUS RELY HEAVILY UPON THIRD PARTIES. Prior to our being able to supply drugs for commercial use, our manufacturing facilities must comply with Good Manufacturing Practices, or GMPs, as approved by the FDA. In addition, if we elect to outsource manufacturing to third-party manufacturers, these facilities also have to satisfy GMP and FDA manufacturing requirements. To be successful, our products must be manufactured in commercial quantities under current GMPs and must be at acceptable costs. Although we intend to manufacture drugs and devices, we have not yet manufactured any products in commercial quantities under GMPs and have no experience in such commercial manufacturing. We are licensed by the State of California to manufacture bulk drug substance at our Santa Barbara, California facility for clinical trial and other use. We currently manufacture the SnET2 drug substance, the process up to the final formulation and packaging step and have the ability to manufacture light producing devices and light delivery devices, and conduct other production and testing activities, at this location. However, we have limited capabilities, personnel and experience in the manufacture of finished drug product, light producing and light delivery devices and utilize outside suppliers, contracted or otherwise, for certain materials and services related to our manufacturing activities. We currently have the capacity, in conjunction with our manufacturing suppliers Fresenius and Iridex, to manufacture products at certain commercial levels and will be able to do so under GMPs with subsequent FDA approval. If we receive an FDA or other regulatory approval we may need to expand our manufacturing capabilities and/or depend on our collaborators, licensees or contract manufacturers for the expanded commercial manufacture of our products. If we expand our manufacturing capabilities, we will need to expend substantial funds, hire and retain significant additional personnel and comply with extensive regulations. We may not be able to expand successfully or we may be unable to manufacture products in increased commercial quantities for sale at competitive prices. Further, we may not be able to enter into future manufacturing arrangements with collaborators, licensees, or contract manufacturers on acceptable terms or at all. If we are not able to expand our manufacturing capabilities or enter into additional commercial manufacturing agreements, our business growth could be limited and could be materially and adversely affected. Fresenius is the sole manufacturer of the final formulation of our drug product SnET2 and Iridex is currently the sole supplier of the light producing devices used in our AMD clinical trials. Both currently have commercial quantity capabilities. We have no direct experience in marketing, distributing and selling pharmaceutical or medical device products. We will need to develop a sales force or rely on our collaborators or licensees or make arrangements with others to provide for the marketing, distribution and sale of our products. We currently intend to rely on Pharmacia Corporation and Iridex for these needs for the AMD project. Our marketing, distribution and sales capabilities or current or future arrangements with third parties for such activities may not be adequate for the successful commercialization of our products. OUR ABILITY TO ESTABLISH AND MAINTAIN AGREEMENTS WITH OUTSIDE SUPPLIERS MAY NOT BE SUCCESSFUL AND OUR FAILURE TO DO SO COULD ADVERSELY AFFECT OUR BUSINESS. We depend on outside suppliers for certain raw materials and components for our products. Such raw materials or components may not continue to be available to our standards or on acceptable terms, if at all, and alternative suppliers may not be available to us on acceptable terms, if at all. Further, we may not be able to adequately produce needed materials or components in-house. We are currently dependent on single, contracted sources for certain key materials or services used by us in our drug development, light producing and light delivery device development and production operations. Although most of our raw materials and components are available from various sources, we are currently developing qualified backup suppliers for each of these resources. We have or will enter into agreements with these suppliers, which may or may not be successful or which may encounter delays or other problems. If we encounter delays or other problems this may materially adversely affect our business. WE MAY NOT HAVE ADEQUATE PROTECTION AGAINST PRODUCT LIABILITY OR RECALL. The testing, manufacture, marketing and sale of human pharmaceutical products entails significant inherent, industry-wide risks of allegations of product liability. The use of our products in clinical trials and the sale of our products may expose us to liability claims. These claims could be made directly by patients or consumers, or by companies, institutions or others using or selling our products. The following are some of the risks related to liability and recall: * We are subject to the inherent risk that a governmental authority or third party may require the recall of one or more of our products; * We have not obtained liability insurance that would cover a claim relating to the clinical or commercial use or recall of our products; * In the absence of liability insurance, claims made against us or a product recall could have a material adverse effect on us; * If we obtain insurance coverage in the future, this coverage may not be available at a reasonable cost and in amounts sufficient to protect us against claims that could have a material adverse effect on our financial condition and prospects; and * Liability claims relating to our products or a product recall could negatively affect our ability to obtain or maintain regulatory approval for our products. We have agreed to indemnify certain of our collaborative partners against certain potential liabilities relating to the manufacture and sale of SnET2 and PhotoPoint therapy light devices. A successful product liability claim could materially adversely affect our business, financial condition and results of operations. WE MAY FAIL TO ADEQUATELY PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS, OUR PATENTS AND OUR PROPRIETARY TECHNOLOGY. Our success will depend, in part, on our and our licensors' ability to obtain, assert and defend our patents, protect trade secrets and operate without infringing the proprietary rights of others. The exclusive license relating to various drug compounds, including our leading drug candidate SnET2, may become non-exclusive if we fail to satisfy certain development and commercialization objectives. The termination or restriction of our rights under this or other licenses for any reason would likely have a material adverse impact on our business, our financial condition and results of our operations. Although we believe we should be able to achieve such objectives, we may not be successful. The patent position of pharmaceutical and medical device firms generally is highly uncertain. Some of the risks and uncertainties include: * The patent applications owned by or licensed to us may not result in issued patents; * Our issued patents may not provide us with proprietary protection or competitive advantages; * Our issued patents may be infringed upon or designed around by others; * Our issued patents may be challenged by others and held to be invalid or unenforceable; * The patents of others may have a material adverse effect on us; and * Significant time and funds may be necessary to defend our patents. We are aware that our competitors and others have been issued patents relating to photodynamic therapy. In addition, our competitors and others may have been issued patents or filed patent applications relating to other potentially competitive products of which we are not aware. Further, our competitors and others may in the future file applications for, or otherwise obtain proprietary rights to, such products. These existing or future patents, applications or rights may conflict with our or our licensors' patents or applications. Such conflicts could result in a rejection of our or our licensors' applications or the invalidation of the patents. This could have a material adverse effect on our competitive position. If such conflicts occur, or if we believe that such products may infringe on our proprietary rights, we may pursue litigation or other proceedings, or may be required to defend against such litigation. Such proceedings may materially adversely affect our competitive position, and we may not be successful in any such proceeding. Litigation and other proceedings can be expensive and time consuming, regardless of whether we prevail. This can result in the diversion of substantial financial, managerial and other resources from other activities. An adverse outcome could subject us to significant liabilities to third parties or require us to cease any related research and development activities or product sales. Some of the risks and uncertainties include: * We do not have contractual indemnification rights against the licensors of the various drug patents; * We may be required to obtain licenses under dominating or conflicting patents or other proprietary rights of others; * Such licenses may not be made available on terms acceptable to us, if at all; and * If we do not obtain such licenses, we could encounter delays or could find that the development, manufacture or sale of products requiring such licenses is foreclosed. We also seek to protect our proprietary technology and processes in part by confidentiality agreements with our collaborative partners, employees and consultants. These agreements could be breached and we may not have adequate remedies for any breach. Also, our trade secrets may become known or be independently discovered by competitors. Certain research activities relating to the development of certain patents owned by or licensed to us were funded, in part, by agencies of the United States Government. When the United States Government participates in research activities, it retains certain rights that include the right to use the resulting patents for government purposes under a royalty-free license. We also rely upon unpatented trade secrets, and no assurance can be given that others will not independently develop substantially equivalent proprietary information and techniques, or otherwise gain access to our trade secrets or disclose such technology, or that we can meaningfully protect its rights to its unpatented trade secrets and know-how. WE MAY NOT BE ABLE TO ATTRACT AND RETAIN KEY PERSONNEL AND CONSULTANTS. Our success will depend in large part on our ability to attract and retain highly qualified scientific, management and other personnel and to develop and maintain relationships with leading research institutions and consultants. We are highly dependent upon principal members of our management, key employees, scientific staff and consultants which we may retain from time to time. Competition for such personnel and relationships is intense, and we may not be able to continue to attract and retain such personnel. Our consultants may be affiliated with or employed by others, and some have consulting or other advisory arrangements with other entities that may conflict or compete with their obligations to us. Inventions or processes discovered by such persons will not necessarily become our property and may remain the property of such persons or others. IF OUTSTANDING STOCK OPTIONS AND WARRANTS ARE EXERCISED, THE VALUE OF OUR COMMON STOCK OUTSTANDING JUST PRIOR TO THE EXERCISE MAY BE DILUTED. As of May 4, 2001, there were outstanding stock options to purchase 4,415,987 shares of Common Stock, with exercise prices ranging from $0.67 to $55.50 per share, with a weighted average exercise price of $14.79 per share. In addition, as of May 4, 2001, there were outstanding warrants to purchase 2,899,000 shares of Common Stock, with exercise prices ranging from $7.00 to $60.00 per share, with a weighted average exercise price of $24.97 per share. If the holders exercise a significant number of these securities at any one time, the market price of the Common Stock could fall and the value of the Common Stock held by other stockholders may be diluted. The holders of the options and warrants have the opportunity to profit if the market price for the Common Stock exceeds the exercise price of their respective securities, without assuming the risk of ownership. If the market price of the Common Stock does not rise above the exercise price of these securities, then they will probably not be exercised and may expire based on their respective expiration dates. THE PRICE OF OUR COMMON STOCK HAS BEEN AND MAY CONTINUE TO BE VOLATILE. From time to time and in particular during the last fiscal year, the price of our Common Stock has been highly volatile. These fluctuations create a greater risk of capital losses for our stockholders as compared to less volatile stocks. From January 1, 2000 to March 31, 2001, our Common Stock price, per Nasdaq closing prices, has ranged from a high of $29.86 to a low of $6.50. The market prices for our Common Stock, and the securities of emerging pharmaceutical and medical device companies, have historically been highly volatile and subject to extreme price fluctuations, which may have a material adverse effect on the market price of the Common Stock. Extreme price fluctuations could be the result of the following: * Future announcements concerning Miravant or our collaborators, competitors or industry; * The results of our testing, technological innovations or new commercial products; * The results of preclinical studies and clinical trials by us or our competitors; * Technological innovations or new therapeutic products; * Litigation; * Public concern as to the safety, efficacy or marketability of products developed by us or others; * Comments by securities analysts; * The achievement of or failure to achieve certain milestones; and * Governmental regulations, rules and orders, or developments concerning safety of our products. In addition, the stock market has experienced extreme price and volume fluctuations. This volatility has significantly affected the market prices of securities of many emerging pharmaceutical and medical device companies for reasons frequently unrelated or disproportionate to the performance of the specific companies. These broad market fluctuations may materially adversely affect the market price of the Common Stock. OUR CHARTER AND BYLAWS CONTAIN PROVISIONS THAT MAY PREVENT TRANSACTIONS THAT COULD BE BENEFICIAL TO STOCKHOLDERS. Our charter and bylaws restrict certain actions by our stockholders. For example: * Our stockholders can act at a duly called annual or special meeting but they may not act by written consent; * Special meetings can only be called by our chief executive officer, president, or secretary at the written request of a majority of our Board of Directors; and * Stockholders also must give advance notice to the secretary of any nominations for director or other business to be brought by stockholders at any stockholders' meeting. Some of these restrictions can only be amended by a super-majority vote of members of the Board and/or the stockholders. These and other provisions of our charter and bylaws, as well as certain provisions of Delaware law, could prevent changes in our management and discourage, delay or prevent a merger, tender offer or proxy contest, even if the events could be beneficial to our stockholders. These provisions could also limit the price that investors might be willing to pay for our Common Stock. In addition, our charter authorizes our Board of Directors to issue shares of undesignated preferred stock without stockholder approval on terms that the Board may determine. The issuance of preferred stock could decrease the amount of earnings and assets available for distribution to our other stockholders or otherwise adversely affect their rights and powers, including voting rights. Moreover, the issuance of preferred stock may make it more difficult for another party to acquire, or may discourage another party from acquiring, voting control of us. EFFECTING A CHANGE OF CONTROL OF MIRAVANT WOULD BE DIFFICULT, WHICH MAY DISCOURAGE OFFERS FOR SHARES OF OUR COMMON STOCK. Our Board of Directors has adopted a Preferred Stockholder Rights Plan. The plan may have the effect of delaying, deterring, or preventing changes in our management or control of Miravant, which may discourage potential acquirers who otherwise might wish to acquire us without the consent of the Board of Directors. Under the plan, if a person or group acquires 20% or more of our common stock, all holders of rights (other than the acquiring stockholder) may, upon payment of the purchase price then in effect, purchase common stock having a value of twice the purchase price. In the event that we are involved in a merger or other similar transaction where Miravant is not the surviving corporation, all holders of rights (other than the acquiring stockholder) shall be entitled, upon payment of the then in effect purchase price, to purchase Common Stock of the surviving corporation having a value of twice the purchase price. The rights will expire on July 31, 2010, unless previously redeemed. OUR BUSINESS COULD SUFFER IF WE ARE UNSUCCESSFUL IN INTEGRATING BUSINESS COMBINATIONS AND STRATEGIC ALLIANCES. We may expand our operations and market presence by entering into business combinations, joint ventures or other strategic alliances with other companies. These transactions create risks, such as the difficulty assimilating the operations, technology and personnel of the combined companies; the disruption of our ongoing business, including loss of management focus on existing businesses and other market developments; problems retaining key technical and managerial personnel; expenses associated with the amortization of goodwill and other purchased intangible assets; additional operating losses and expenses of acquired businesses; the impairment of relationships with existing employees, customers and business partners; and, additional losses from any equity investments we might make. We may not succeed in addressing these risks, and we may not be able to make business combinations and strategic investments on terms that are acceptable to us. In addition, any businesses we may acquire may incur operating losses. BUSINESS INTERRUPTIONS COULD ADVERSELY AFFECT OUR BUSINESS. Our operations are vulnerable to interruption by fire, earthquake, power loss, telecommunications failure and other events beyond our control. We do not have a detailed disaster recovery plan. Our facilities are all located in the state of California and are currently subject to electricity blackouts as a consequence of a shortage of available electrical power. In the event these blackouts continue or increase in severity, they could disrupt the operations of our affected facilities. In addition, we may not carry sufficient business interruption insurance to compensate us for losses that may occur and any losses or damages incurred by us could have a material adverse effect on our business. RISKS RELATED TO OUR INDUSTRY WE ARE SUBJECT TO UNCERTAINTIES REGARDING HEALTH CARE REIMBURSEMENT AND REFORM. Our products may not be covered by the various health care providers and third party payors. If they are not covered, our products may or may not be purchased or sold as expected. Our ability to commercialize our products successfully may depend, in part, on the extent to which reimbursement for these products and related treatment will be available from collaborative partners, government health administration authorities, private health insurers, managed care entities and other organizations. These payers are increasingly challenging the price of medical products and services and establishing protocols and formularies, which effectively limit physicians' ability to select products and procedures. Uncertainty exists as to the reimbursement status of health care products, especially innovative technologies. Additionally, reimbursement coverage, if available, may not be adequate to enable us to achieve market acceptance of our products or to maintain price levels sufficient for realization of an appropriate return on our products. The efforts of governments and third-party payors to contain or reduce the cost of healthcare will continue to affect our business and financial condition as a biotechnology company. In foreign markets, pricing or profitability of medical products and services may be subject to government control. In the United States, we expect that there will continue to be federal and state proposals for government control of pricing and profitability. In addition, increasing emphasis on managed healthcare has increased pressure on pricing of medical products and will continue to do so. These cost controls may have a material adverse effect on our revenues and profitability and may affect our ability to raise additional capital. In addition, cost control initiatives could adversely affect our business in a number of ways, including: * Decreasing the price we, or any of our partners or licensees, receive for any of our products; * Preventing the recovery of development costs, which could be substantial; and * Minimizing profit margins. Further, our commercialization strategy depends on our collaborators. As a result, our ability to commercialize our products and realize royalties may be hindered if cost control initiatives adversely affect our collaborators. FAILURE TO OBTAIN PRODUCT APPROVALS OR COMPLY WITH ONGOING GOVERNMENTAL REGULATIONS COULD ADVERSELY AFFECT OUR BUSINESS. The production and marketing of our products and our ongoing research and development, preclinical studies and clinical trial activities are subject to extensive regulation and review by numerous governmental authorities in the United States, including the FDA, and in other countries. All drugs and most medical devices we develop must undergo rigorous preclinical studies and clinical trials and an extensive regulatory approval process administered by the FDA under the Food, Drug and Cosmetic Act, or FDC Act, and comparable foreign authorities, before they can be marketed. These processes involve substantial cost and can often take many years. We have limited experience in, and limited resources available for, regulatory activities and we rely on our collaborators and outside consultants. Failure to comply with the applicable regulatory requirements can, among other things, result in non-approval, suspensions of regulatory approvals, fines, product seizures and recalls, operating restrictions, injunctions and criminal prosecution. To date, none of our product candidates being developed have been submitted for approval or have been approved by the FDA or any other regulatory authority for marketing. Some of the risks and uncertainties relating to United States Government regulation include: * Delays in obtaining approval or rejections due to regulatory review of each submitted new drug, device or combination drug/device application or product license application, as well as changes in regulatory policy during the period of product development; * If regulatory approval of a product is granted, such approval may entail limitations on the uses for which the product may be marketed; * If regulatory approval is obtained, the product, our manufacturer and the manufacturing facilities are subject to continual review and periodic inspections; * If regulatory approval is obtained, such approval may be conditional on the satisfaction of the completion of clinical trials or require additional clinical trials; * Later discovery of previously unknown problems with a product, manufacturer or facility may result in restrictions on such product or manufacturer, including withdrawal of the product from the market and litigation; and * Photodynamic therapy products have been categorized by the FDA as combination drug-device products. If current or future photodynamic therapy products do not continue to be categorized for regulatory purposes as combination products, then: - The FDA may require separate drug and device submissions; and - The FDA may require separate approval by regulatory authorities. Some of the risks and uncertainties of international governmental regulation include: * Foreign regulatory requirements governing testing, development, marketing, licensing, pricing and/or distribution of drugs and devices in other countries; * Our drug products may not qualify for the centralized review procedure or we may not be able to obtain a national market application that will be accepted by other EU member states; * Our devices must also meet the new Medical Device Directive effective in Europe in 1998. The Directive requires that our manufacturing quality assurance systems and compliance with technical essential requirements be certified with a CE Mark authorized by a registered notified body of an EU member state prior to free sale in the EU; and * Registration and approval of a photodynamic therapy product in other countries, such as Japan, may include additional procedures and requirements, nonclinical and clinical studies, and may require the assistance of native corporate partners. WE MAY NOT BE ABLE TO KEEP UP WITH RAPID CHANGES IN THE BIOTECHNOLOGY AND PHARMACEUTICAL INDUSTRIES THAT COULD MAKE SOME OR ALL OF OUR PRODUCTS NON-COMPETITIVE OR OBSOLETE. COMPETING PRODUCTS AND TECHNOLOGIES MAY MAKE SOME OR ALL OF OUR PROGRAMS OR POTENTIAL PRODUCTS NONCOMPETITIVE OR OBSOLETE. Our industry is subject to rapid, unpredictable and significant technological change. Competition is intense. Well-known pharmaceutical, biotechnology and chemical companies are marketing well-established therapies for the treatment of AMD. Doctors may prefer familiar methods that they are comfortable using rather than try our products. Many companies are also seeking to develop new products and technologies for medical conditions for which we are developing treatments. Our competitors may succeed in developing products that are safer or more effective than ours and in obtaining regulatory marketing approval of future products before we do. We anticipate that we will face increased competition as new companies enter our markets and as the scientific development of PhotoPoint therapy evolves. We expect that our principal methods of competition with other photodynamic therapy companies will be based upon such factors as: * The ease of administration of our photodynamic therapy; * The degree of generalized skin sensitivity to light; * The number of required doses; * The safety and efficacy profile; * The selectivity of our drug for the target lesion or tissue of interest; * The type and cost of our light systems; and * The cost of our drug. We cannot give you any assurance that new drugs or future developments in photodynamic therapy or in other drug technologies will not have a material adverse effect on our business. Increased competition could result in: * Price reductions; * Lower levels of third-party reimbursements; * Failure to achieve market acceptance; and * Loss of market share. Any of the above could have an adverse effect on our business. Further, we cannot give you any assurance that developments by our competitors or future competitors will not render our technology obsolete. WE FACE INTENSE COMPETITION AND TECHNOLOGICAL UNCERTAINTY. Many of our competitors have substantially greater financial, technical and human resources than we do, and may also have substantially greater experience in developing products, conducting preclinical studies or clinical trials, obtaining regulatory approvals and manufacturing and marketing. Further, our competitive position could be materially adversely affected by the establishment of patent protection by our competitors. The existing competitors or other companies may succeed in developing technologies and products that are more safe, effective or affordable than those being developed by us or that would render our technology and products less competitive or obsolete. We are aware that other companies are marketing or developing certain products to prevent, diagnose or treat diseases for which we are developing PhotoPoint therapy. These products, as well as others of which we may not be aware, may adversely affect the existing or future market for our products. Competitive products may include, but are not limited to, drugs such as those designed to inhibit angiogenesis or otherwise target new blood vessels, certain medical devices, and other photodynamic therapy treatments. We are aware of various competitors involved in the photodynamic therapy sector. We understand that these companies are conducting preclinical studies and/or clinical trials in various countries and for a variety of disease indications. One company is QLT Inc., or QLT. We understand that QLT's drug Visudyne has received marketing approval in the United States and certain other countries for the treatment of AMD. QLT is therefore first to market in this disease area. We understand that at least two other photodynamic therapy drugs have received marketing approval in the United States - Photofrin(R) (QLT / Axcan Pharmaceuticals) for the treatment of certain oncology indications and Levulan(R) (DUSA Pharmaceuticals / Berlex Laboratories) for the treatment of actinic keratoses, a dermatological condition. We are aware of other drugs and devices under development by these and other photodynamic therapy competitors, such as Pharmacyclics, in disease areas for which we are developing PhotoPoint therapy. These competitors may develop superior products or reach the market prior to PhotoPoint therapy and render our products non-competitive or obsolete. The pharmaceutical industry is subject to rapid and substantial technological change. Developments by others may render our products under development or technologies noncompetitive or obsolete, or we may be unable to keep pace with technological developments or other market factors. Technological competition in the industry from pharmaceutical and biotechnology companies, universities, governmental entities and others diversifying into the field is intense and is expected to increase. These entities represent significant competition for us. Acquisitions of, or investments in, competing pharmaceutical or biotechnology companies by large corporations could increase such competitors' financial, marketing, manufacturing and other resources. We are a relatively new enterprise and are engaged in the development of novel therapeutic technologies, specifically photodynamic therapy. As a result, our resources are limited and we may experience technical challenges inherent in such novel technologies. Competitors have developed or are in the process of developing technologies that are, or in the future may be, the basis for competitive products. Some of these products may have an entirely different approach or means of accomplishing similar therapeutic, diagnostic and imaging effects compared to our products. We are aware that one of our competitors in the market for photodynamic therapy drugs has received marketing approval of a product for certain uses in the United States and other countries. Our competitors may develop products that are safer, more effective or less costly than our products and, therefore, present a serious competitive threat to our product offerings. The widespread acceptance of therapies that are alternatives to ours may limit market acceptance of our products even if commercialized. The diseases for which we are developing our therapeutic products can also be treated, in the case of cancer, by surgery, radiation and chemotherapy, and in the case of atherosclerosis, by surgery, angioplasty, drug therapy and the use of devices to maintain and open blood vessels. These treatments are widely accepted in the medical community and have a long history of use. The established use of these competitive products may limit the potential for our products to receive widespread acceptance if commercialized. Our understanding of the market opportunities for our PhotoPoint therapy is derived from a variety of sources, and represents our best estimate of the overall market sizes presented in certain disease areas. The actual market size and market share which we may be able to obtain may vary substantially from our estimates, and is dependent upon a number of factors, including: * Competitive treatments, either existing or those that may arise in the future; * Performance of our products and subsequent labeling claims; and * Actual patient population at and beyond product launch. OUR PRODUCTS ARE SUBJECT TO OTHER STATE AND FEDERAL LAWS, FUTURE LEGISLATION AND REGULATIONS. In addition to the regulations for drug or device approvals, we are subject to regulation under state, federal or other law, including regulations for worker occupational safety, laboratory practices, environmental protection and hazardous substance control. We continue to make capital and operational expenditures for protection of the environment in amounts which are not material. Some of the risks and uncertainties related to laws and future legislation or regulations include: * Our future capital and operational expenditures related to these matters may increase and become material; * We may also be subject to other present and possible future local, state, federal and foreign regulation; * Heightened public awareness and concerns regarding the growth in overall health care expenditures in the United States, combined with the continuing efforts of governmental authorities to contain or reduce costs of health care, may result in the enactment of national health care reform or other legislation or regulations that impose limits on the number and type of medical procedures which may be performed or which have the effect of restricting a physician's ability to select specific products for use in certain procedures; * Such new legislation or regulations may materially adversely affect the demand for our products. In the United States, there have been, and we expect that there will continue to be, a number of federal and state legislative proposals and regulations to implement greater governmental control in the health care industry; * The announcement of such proposals may materially adversely affect our ability to raise capital or to form collaborations; and * Legislation or regulations that impose restrictions on the price that may be charged for health care products or medical devices may adversely affect our results of operations. We are unable to predict the likelihood of adverse effects which might arise from future legislative or administrative action, either in the United States or abroad. OUR BUSINESS INVOLVES ENVIRONMENTAL RISKS. We are subject to federal, state, county and local laws and regulations relating to the protection of the environment. In the course of our business, we are involved in the handling, storage and disposal of materials that are classified as hazardous. Our safety procedures for the handling, storage and disposal of such materials are designed to comply with applicable laws and regulations. However, we may be involved in contamination or injury from these materials. If this occurs, we could be held liable for any damages that result, and any such liability could materially and adversely affect us. Further, the cost of complying with these laws and regulations may increase materially in the future. ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risk related to changes in interest rates. The risks related to foreign currency exchange rates are immaterial and we do not use derivative financial instruments. From time to time, we maintain a portfolio of highly liquid cash equivalents maturing in three months or less as of the date of purchase. Given the short-term nature of these investments and that our borrowings outstanding are under variable interest rates, we are not subject to significant interest rate risk. PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES In January 2001, we issued warrants to purchase 7,500 shares of our Common Stock at a price of $8.75 per share to the law firm of Nida & Maloney in connection with certain legal services received during 2000 and for Joe Nida serving as Secretary of our Board of Directors. The shares underlying the warrants have not yet been registered with the Securities and Exchange Commission. In issuing the warrants, we relied on representations from Nida & Maloney that they purchased the securities for investment for their own account and not with a view to, or for resale in connection with, any distribution of the securities and that they were aware of our business affairs and financial condition and had sufficient information to reach an informed and knowledgeable decision regarding their acquisition of the securities. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. 10.1 Amendment No. 9 dated as of January 1, 2001 to Employment Agreement between the Registrant and Gary S. Kledzik. 10.2 Amendment No. 14 dated as of January 1, 2001 to Employment Agreement between the Registrant and David E. Mai. 10.3 Amendment No. 6 dated as of January 1, 2001 to Employment Agreement between the Registrant and John M. Philpott. (b) Reports on Form 8-K. None
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed in its behalf by the undersigned thereunto duly authorized. Miravant Medical Technologies Date: May 14, 2001 By: /s/ John M. Philpott ----- ------------ ------- ---------------- John M. Philpott Chief Financial Officer (on behalf of the Company and as Principal Financial Officer and Principal Accounting Officer) INDEX TO EXHIBITS
Incorporating Exhibit Reference Number Description (if applicable) 10.1 Amendment No. 9 dated as of January 1, 2001 to Employment Agreement between the Registrant and Gary S. Kledzik. 10.2 Amendment No. 14 dated as of January 1, 2001 to Employment Agreement between the Registrant and David E. Mai. 10.3 Amendment No. 6 dated as of January 1, 2001 to Employment Agreement between the Registrant and John M. Philpott.